Coal Power Plants Lose Their Advantage Over Renewables

By Traver Kennedy, Chairman and CEO on January 22, 2019
Traver Kennedy
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There is no way to put a positive spin on it: coal is an energy source whose time has passed, and with it, a way of life. Responsible for almost 70% of the CO2 that power grids generate around the world, coal has become a technology orphan. Trying to extend coal’s life in the 21st century is akin to the futile attempts to keep whale oil as a major source for lighting at the beginning of the 20th century. Over the past year, the last reason to keep coal going―the economic argument for it―completely eroded. From this point on, the economic disadvantage of coal versus renewables will only widen, as evidenced by current energy production prices and capacity building cost trends. Now is the time to face this reality and to provide a future for those employed in the coal industry.

There is no question that for a century, coal benefited society and spurred economic growth. This very energetic resource was relatively easy to mine, was abundant, and provided plentiful energy. Today, coal still produces around 37% of the world’s electricity. In the future, however, coal’s global standing will be perceived exactly opposite of what it had once been during the last century. Today, we explore how coal has lost its historical economic advantage over renewables, for good.

Coal: A century-long energy source whose time is up.

The Economic Disadvantage of Coal

Toward the end of last year, a series of studies and articles were published providing evidence that the cost of producing coal had surpassed that of renewables―without accounting for any subsidies. This is a gap that will only deepen with time. After a century of dominance in powering the world’s electricity, coal has come to the end of its line, which eventually happens to all technologies and resources.

In December, Forbes wrote an article that analyzed how coal had lost its cost advantage over clean energy. Coal is widely seen as the last obstacle to widespread adoption of renewables, based purely on economics. Renewables must compete with incumbent coal plants that have already been built and paid for; therefore, the prospects of actually beating the cost of coal production seemed to be a formidable obstacle. Before 2018, oil had lost its competitive advantage, but coal remained cheaper to produce than solar or wind.

According to Forbes, this is no longer a reality, “In 2018, more than four out of 10 (42%) of the world’s coal-fired power stations are running at a loss and by 2030, in virtually every case (96%), it will be cheaper to build new renewable energy capacity than to keep coal plants running, according to the latest study from research group Carbon Tracker, a London-based think tank.” Another article by Ars Technica shares the latest data from Lazard’s Levelized Cost of Energy (LCOE) study for 2018, “The cost of coal-fired electricity per megawatt-hour hasn’t budged a bit from 2017, while wind and solar costs per MWh are still falling.” The study found that in countries like India, “Up to 62% of [India’s] existing coal capacity is now running at a cost higher than that of building new solar and wind capacity,” as reported by Quartz.

Similarly, in Australia, Renew Economy reports that the country’s “leading scientific research group and the country’s energy market operator have released a benchmark study that shows the cost of new wind and solar―even with hours of storage―is ‘unequivocally’ lower than the cost of new coal generation.”

All of these studies point to a significant milestone: the cost of producing renewables became lower than that of coal last year, and the cost of operating existing coal plants will be higher than building new renewable capacity within ten years. For instance, the same research by Carbon Tracker highlighted above indicates that in the next two decades, 72% of global coal capacity will not be profitable due to several factors in play today, ranging from production costs to regulation.

Sustainable Energy is the New Normal

The Forbes article points out, “The UN’s Intergovernmental Panel on Climate Change says at least 59% of coal power worldwide must be retired by 2030 to limit global warming to 1.5°C.” To the contrary, based on just costs alone, not retiring coal plants within a decade makes no economic sense. The environmental case for phasing out coal now runs hand-in-hand with the economic case for doing so.

Renewables are filling the void left by unprofitable coal as the costs of building new capacity for solar, wind, storage, and even hydrogen continue to fall. Forbes illustrates real-life examples of this phenomenon: “Colorado’s Xcel will retire 660 megawatts (MW) of coal capacity ahead of schedule in favor of renewable sources and battery storage, and reduce costs in the process.  Midwestern utility MidAmerican will be the first utility to reach 100% renewable energy by 2020 without increasing customer rates, and Indiana’s NIPSCO will replace 1.8 gigawatts (GW) of coal with wind and solar.” The article concludes, “Even without accounting for current subsidies, renewable energy costs can be considerably lower than the marginal cost of conventional energy technologies.”

The End of an Era

The lower costs of clean energy production by utilities trickle all the way down to consumers who experience savings when their providers switch from coal to cheaper renewables. Lower costs of clean energy also affect the externalities posed by carbon-emitting sources like coal. From slowing global warming to making air breathable and safe for human health again, the indirect cost advantages of renewables over coal, if added to the actual production cost advantages, leave no doubt: the era of coal has come to a close.

 

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