The week in energy: King Coal faces a revolution RSS Feed

The week in energy: King Coal faces a revolution

Britain, the Labour politician Aneurin Bevan said in 1945, is an island “made mainly of coal”. Its coal reserves fuelled the first Industrial Revolution, and the world’s first commercially viable steam engine was used in the British mining industry. So it has a particular symbolic significance that the UK is moving decisively away from burning coal to generate electricity. The British government has set a target date of October 1 2025 for ending all coal-fired power generation, but coal’s position in the energy mix is already dwindling. Last week, Britain went for three consecutive days without burning any coal to generate electricity, the longest run since the power industry was born in the 1880s. Warm weather meant that electricity consumption was relatively low, and demand could be met from gas (33 per cent), nuclear (24 per cent) and wind (20 per cent). The decline in coal use means that the UK’s carbon dioxide emissions from fossil fuel use dropped last year to their lowest level since 1890, while the UK’s retail electricity price is below average for the EU.

That does not mean that the UK’s abandonment of coal has been entirely worry-free. In the cold snap in February, the country’s remaining coal-fired plants were running flat-out, generating about a fifth of its power. Britain’s increased reliance on gas is also raising concerns, particularly because of the decision to allow the Rough storage facility to close last year. Rough provided about 70 per cent of Britain’s gas storage, giving it a critical role in underpinning security of supply, and several energy companies have warned that giving it up will result in greater price volatility and a heavier reliance on imports, by pipeline and as LNG. In a paper for the Oxford Institute for Energy Studies back in March, Jack Sharples argued that “increasing exposure to price volatility” would be the greatest challenge to the UK’s security of supply for gas.

In the US coal is also waning, despite President Donald Trump’s pledge to “put our miners back to work”. Coal-fired plants are still expected to supply about 29 per cent of US power generation this year, but the Energy Information Administration expects coal consumption to continue to fall into the early 2020s, under pressure from cheap gas and renewables. Some US coal companies have been prospering recently, but that is mostly thanks to export demand, particularly for metallurgical coal used in steelmaking. Reuters reported on how Consol Energy, a Pennsylvania-based mining group, has found a way to prosper at a tough time for the industry: it has contracts to supply large low-cost coal-fired plants that are likely to be kept open as their smaller and less efficient rivals are shut down. The latest data from the Bureau of Labor Statistics on Friday confirmed that the number of people employed in coal mining in the US has picked up slightly since Mr Trump was elected, but it is still well below its levels of 2014-15.

The decline of the coal industry continues to loom large over US politics. Don Blankenship, the former chief executive of coal producer Massey Energy, is running to be a US senator for West Virginia, despite having spent a year in gaol over the Upper Big Branch mine disaster, which killed 29 people. Chris Cillizza of CNN called him “the worst candidate in America”. Mr Blankenship and his two rivals for the Republican nomination for the seat are all positioning themselves as champions of coal, as is Joe Manchin, the Democratic incumbent. Mr Manchin has suggested that the president should use the 1950 Defense Production Act, passed at the start of the Korean war, to keep coal-fired power plants open. Coal mining employs about 14,000 people in West Virginia, less than 2 per cent of the labour force.

Meanwhile Germany, for only the second time ever, covered 100 per cent of its electricity demand from renewables for a time this week, with wind power providing 52 per cent and solar 37 per cent of supply. The feat, achieved for about two and a half hours on Monday, was helped by the fact that the day was a public holiday. The use of coal for power generation in Germany dropped sharply last year, but it still provided 37 per cent of the country’s electricity, and the industry’s future is the subject of intense debate. Allianz, Europe’s largest insurer, on Friday added to the pressure with an announcement that it would immediately pull its coverage from single coal-fired power plants and coal mines, and phase out all coverage of coal-related risks and investments in coal by 2040.

There is further pressure on coal in Europe coming from the rising price of EU carbon dioxide emissions allowances. Reform of the system to introduce a “market stability reserve”, in effect a central bank for the EU carbon credits, has helped push prices higher. The Carbon Tracker Initiative argued that by 2019-21 prices could rise to €20-€30 a tonne, up from about €13 today.

Read full article at The Financial Times