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Turning a page on coal-fired electricity

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By John MillerVP and ESG Senior Research Analyst, Calvert Research and Management

Washington - Coal-fired electricity generation remains a key producer of human-driven carbon dioxide (CO2) emissions and a large driver of the gap between actual emissions and Paris Agreement-aligned transition scenarios. Put into 2018 numbers, coal-fired power plants globally emitted 10,066 million tons (Mt) of CO2 emissions,1 equivalent to 72% of total power sector CO2 emissions, 30% of total energy-related CO2 emissions and just under 20% of all global greenhouse gas (GHG) emissions.2,3 Reducing - or even just slowing - the growth in human-driven CO2 emissions is, therefore, strongly predicated on cutting coal-fired electricity generation levels.

Coal's position in the global power sector has been widely debated and discussed, so it is worthwhile to reevaluate the fuel's future outlook.4 Calvert's assessment finds that there now appears to be line of sight toward a realistic reduction in coal-fired power sector CO2 emissions. This view is supported by declining coal-fired power plant capacity additions and ongoing reductions in generation capacity factors at existing facilities.

Capacity and its impact on future energy production

A power plant's "capacity" is a representation of the maximum level of electric power that can be supplied at a specific point in time.5 Measuring and evaluating trends in capacity levels allows for an understanding of potential future electricity production.

Globally, aggregate coal-fired electricity capacity values have increased from 1,718 gigawatts (GW) in 2012 to an estimated 2,030 GW in 2019 (+18%).6 This rate of growth, driven by new capacity additions in developing countries, however, has clearly shifted. In 2015, 85 GW of new coal-fired capacity was added, but by 2019, annual capacity additions had declined to under 50 GW (-40%).7 Meanwhile, retirements have held consist at nearly 30 GW per year. When near-term capacity announcements are considered (including both retirements and additions), it is probable that aggregate coal-fired capacity volumes show a decline as soon 2022.

Calvert Blog 12-12-19

This shift, from net annual additions, to net annual retirements is a clear response to policy and economic outcomes. In China, the levelized cost of electricity8 for new solar PV and onshore wind are now below new coal.9 Similarly, in India, new solar PV and onshore wind outcompete new coal on price.

Generation's impact on power plant utilization

While capacity looks at the potential maximum level of output, "generation" is a measure of actual electricity produced over a specific period of time. As electric power plants do not run at their full capacity at all times, measuring and evaluating trends in generation allows for an understanding of actual power plant utilization and underlying economics. The ratio of actual generation to total maximum potential capacity value is expressed as a capacity factor.

As in capacity additions, recent coal-fired generation growth has been driven by developing economies, which accounted for more than 70% of generation in 2018, up from 60% in 2012.10

As a percentage of total global electric generation, however, coal has already peaked, declining to under 38% in 2018, down from 41% in 2007. A review of coal-fired capacity factors shows an equally apparent decline.11 Globally, coal-fired capacity factors were 59% in 2012, but only 54% in 2018.

While a seemingly small rate of change, the translated output in reduced generation and associated emissions production can be enormous. Further, the reduction in capacity factors serves as another strong indication that cost structure at coal-fired power plants, including fuel, operational and maintenance, and environmental control expenses makes the resources increasingly uneconomic.

Bottom Line: While the economics of coal-fired electricity continue to deteriorate, the investment outlook for renewable and low-carbon generation continues to gain traction.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness.