Goodbye coal!

If you live in Pakistan, chances are you are bound to miss out on the critical global undercurrents. This is because our minds are constantly preoccupied by the barrage of local news that seems important at one particular time, but becomes grossly irrelevant only a few days later. We become numb to our surrounding chaos and lose our ability to see the big picture.

One big picture became ominously clear in 2017: the world has decided to say goodbye to coal. This does not mean that coal consumption will suddenly decline to zero next year, it only means that cheap natural gas along with improved efficiencies in wind and solar are drying up new investments in coal and mining. The results are pouring in and it’s time to reflect on them.

Let’s first look at the prices. The year 2017 marked the first year when renewable energy prices fell so much that it is now cheaper to build new commercial renewable energy sources than to keep existing coal and nuclear power plants running. According to Lazard consulting, the Levelised Cost of Energy — which averages out both capital and operating costs over a plant’s lifetime — shows that prices for the traditional sources of power generation such as coal have risen in the past year, while renewable sources such as solar and wind continue to see costs dipping dramatically. The price plunge has been so sharp that solar prices for new installations fell by 26% in the last year alone, and 79% since 2009, according to the Bloomberg New Energy Finance (BNEF). Prices have fallen by even wider margins in some of the most important emerging markets such as India and China.

The price competitiveness of renewables is owed to two factors: improved technology and the increased use of auctions to drive competitive pricing. The improved technology has been miraculous for renewable energy which is now able to generate more electricity with the same amount of light or wind. In the case of wind power, for instance, today’s wind turbines can now generate the same amount of power from 11mph winds that wind turbines built 10 years ago would generate from winds blowing at 22mph. This is not the case with coal — with efficiencies stagnating at similar levels as of previous years. The ultra-critical coal power plants boast of high efficiencies but then also come with a tall price tag, making it uncompetitive against the next generation solar and wind technologies.

The second reason is the use of competitive auctions that allow contractors to bid for a project — with the one providing the lowest bid winning the auction. Such auctions have yielded some striking results. For instance, Mexico initiated the first of its auctions in 2016 for solar energy when the bidding went for as low as $4.5 cents/Kwh. For the second auction, in the same year, prices further dropped by 30%. This was followed by auctions in the UAE which baffled everyone. The first auction for Dubai’s 800MW utility solar went for as low as $2.99 cents/Kwh — much lower than the price of oil as a variable fuel. Abu Dhabi soon joined the party with its own 1,170MW solar energy auction with the lowest bid decreasing to $2.42 cents/Kwh. For comparison purposes, these prices reflect almost a three times discount to Pakistan’s procurement of coal power plants around the same time.

The biggest commitment to forego coal has been strikingly shown by developing countries which want to leapfrog from the dirty energy to the one that is creating more jobs and less import reliance. India is a prime example. It made headlines when it announced that it would install 150,000MW of solar and wind energy by 2022. In February 2018, it will go to auction for 4,500MW of new wind capacity. The previous two solar energy auctions in 2017 have resulted in record low prices already. The first auction saw allocation of 1,050MW capacity at the lowest tariff of INR3.46/kWh while the second 1,000MW bid was won at the lowest tariff of INR 2.64/kWh. The last auction has been cheaper not only from all existing thermal power plants but also almost all solar power plants in India. With the auctions, India has effectively announced that its coal chapter has come to an end.

Another method to assess coal’s demise is to look at the production and consumption numbers. In 2016, global coal production saw a decline by 6.2% from the previous year. This is by no means a small decline and is equivalent to almost six times the total final energy consumption of Pakistan. On the consumption side, the global coal consumption fell by 1.7%, in 2016 with the largest decrease witnessed in the US (an 8.8% fall), China (-1.6%) and the UK (-52.5%).

Coal’s biggest consumption comes in the electricity sector where its displacement is most evident. According to the US Energy Information Administration, for the first time in March 2017 wind and solar made up 10% of the total US electricity generation. Large wind farms in the US, especially in Texas, Oklahoma and Iowa provided 8%, while commercial and residential solar installations represented about 2% of the total electricity production. In November 2017, the BNEF reported that solar costs now already compete with coal in Germany and the US, and soon will do so in China — the world’s largest investor in renewable energy.

Coal’s departure is also evident by new investment numbers. In 2015, a record investment of $348 billion was recorded for clean energy technology which fell to $288 billion in 2016 — roughly half of the investments in fossil fuel generation. China is leading the investment numbers. In its efforts to fight smog, it is mothballing coal plants and replacing them with some of the world’s largest solar and wind farms. China has been responsible for more than one-third of global renewables investment. India is also rapidly increasing its investment to almost $10 billion per annum. With little investments going in coal, the existing coal consumption will keep getting replaced by newer, cleaner and efficient technologies.

Coal has been entrenched in the global fuel system and therefore its complete demise will take time. Nonetheless, the message has gone out loud and clear. Renewables, which are indigenous, carry no fuel costs, no foreign exchange burdens, no balance-of-payment issues and no lopsided benefits to elite few and are here to stay. Coal with all its dirty characteristics, onerous foreign exchange requirements and health and safety considerations will eventually be phased out. It is time to act, embrace the new energy revolution and be part of the movement to create energy from indigenous resources and celebrate the renewables revolution.

Otherwise, we have a plethora of local petty information to keep our minds numb.

Published in The Express Tribune, January 9^th, 2018.

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