The next decade will see it become cheaper to build new wind and solar farms then to continue to operate coal-fired plants, but governments “aren’t listening” to clear market signals and risk stranding much of the almost 500GW of new coal power currently under development around the world, at a cost of $638bn, cautions a new report from think-tank Carbon Tracker.
The report, which looked at the economics of 95% of coal plants in operation, under construction or planned worldwide, totaling some 2,045GW of plant and a further 499GW in the pipeline, found that over 60% of global coal power plants are generating electricity at higher cost than it could be produced by new-build wind or solar.
“Renewables are outcompeting coal around the world and proposed coal investments risk becoming stranded assets which could lock in high-cost coal power for decades,” said Matt Gray, Carbon Tracker co-head of power and utilities and co-author of the report.
“The market is driving the low-carbon energy transition but governments aren’t listening. It makes economic sense for governments to cancel new coal projects immediately and progressively phase out existing plants.”
The report, which uses a Climate Analytics study, released for the UN Secretary General’s Climate Action Summit in 2020, as a data baseline, calculates that limiting global heating to 1.5°C would require coal use in electricity generation to fall by 80% by the end of the decade, equal to retiring one plant a day until 2040.
Factoring for further reductions in the cost of wind and solar power, and “the investment needed to comply with existing carbon and air pollution regulations, mean that coal is no longer the cheapest form of power in any major market”, said the think-tank, which tracks 95% of the global coal fleet, operational and in planning, using a proprietary real-time economics modelling tool.
In China $158bn is at risk, said Carbon Tracker, with 206GW of coal power in construction or planning planned – this is on top of has 982GW of existing plant, 71% of which cost more to run than building new wind or solar plant, the report found, while in India $80bn is at risk, with 66GW of coal in development, set to join 222GW of existing capacity, 51% of which is undercut on cost by new renewables.
Some $16bn is at risk in the EU, the report found, primarily due to coal’s market exposure in Poland and the Czech Republic, and of the total 149GW of operating coal plant, 96% costs more than new renewables.
No new coal is planned in the US, where 47% of the existing 254GW of coal capacity is higher cost than new renewables, Carbon Tracker noted.
And in South East Asia, 78GW of coal power is being built at a cost of $124bn, but by 2030 new renewable plant will cheaper to bring online than keeping existing coal plants up and running.
While the report supports the view that “market forces will drive coal power out of existence in deregulated markets, where renewable energy developers will take advantage of the growing price gap”, it also flags up that governments around the world “continue to incentivise and underwrite new coal power because market regulations put coal at an unfair economic advantage”.
“In some regulated and semi-regulated markets they also allow the high cost of coal to be passed on to consumers through bills, or they use taxpayers’ money to subsidise coal operators so they can sell power for less than it costs to produce,” said Sriya Sundaresan, co-head of power and utilities and co-author of the report.
“Investors should be wary of relying on continued government support for coal when a phase-out will save their voters billions and make their economies more competitive.”
The report calls on governments to deregulate “so that renewables can compete with coal on a level playing field, cancel new projects and phase out existing coal fleets and introduce regulations which allow renewables to deliver maximum value to their energy systems”.
“Failure to take these steps will exacerbate stranded asset risk and could result in overcapacity. This in turn will suppress power prices, create a negative investment signal for renewable energy and ultimately stifle the transition to a low carbon economy.”