Will COVID-19 kill off coal?

Last month the BBC breathlessly posed the question “could the coronavirus really finish off coal?” The British national broadcaster wondered whether  a global pandemic could do what more than two decades of environmental campaigning, carbon pricing and renewables building could not:  finish off coal as a high greenhouse emissions energy source.

It’s been a constant refrain across selected media outlets for months, but is it true? The International Energy Agency predicts global coal consumption will fall by 8 per cent in 2020, as coal generators back off in the face of softer global demand. This would be the largest annual drop in coal consumption since world war 2.

Electricity demand fell variously around the world with social distancing and lockdowns, adding to already softer demand from a mild northern winter. Plummeting oil and gas prices driven by COVID-19 have made cheap gas even cheaper, and this has further undercut coal fired generation.

In Australia electricity demand has only fallen modestly by around 3 per cent as rising domestic demand from home workers almost cancelled out cuts in commercial energy consumption.

Yet coal fired electricity Australia fell by 9 per cent in May 2020 compared to a year earlier, the result of a slightly softer demand from COVID-19 and a mild autumn, but more driven by increased renewable capacity being installed as the Renewable Energy Target is filled out.

Renewables dispatch ahead of other generators because they have zero marginal cost, so are less affected by soft demand than fossil fuels, which incur fuel and operating costs to run.

The factors reducing coal consumption in 2020 are short run demand-side effects and seasonal variation, rather than structural shifts in investment. The resurgence of a credible carbon price in Europe since 2018 is accelerating gas and renewables displacing coal. National governments are actively scheduling closure of coal fired power stations.

In the US coal is now slipping below renewables as a generation source, more driven by expanded gas generation. It is a trend that is likely to accelerate with sustained weakness in gas and oil prices.

All this marginal activity needs to be put into context. Global demand for coal has increased by 60 per cent this century and has plateaued since reaching a historical peak in 2014.

China is currently building more than 100 gigawatts of new coal fired generation capacity – that’s twice the size of the National Electricity Market. Japan is building 16 new coal fired power stations to replace the oldest in its fleet and to fill the supply void left by closing most of its nuclear generation post-Fukushima.

The death of coal is a long way away yet. It will require the development of a complete, affordable and reliable solution built around low and zero emissions technologies.