More than half of Europe’s coal plants are already bleeding cash, but by 2030, the percentage of coal plants in Europe that report negative cash flow could explode to an estimated 97 percent.
Those findings come from a new report by the Carbon Tracker Initiative, which paints a dire picture for the economics of coal after surveying 600 power plants in Europe.
To be sure, coal has been hit hard over the past half-decade or so due to a variety of forces – falling costs for renewables, air quality and climate regulations, as well as the policy shift in Germany away from nuclear following the 2011 Fukushima meltdown.
However, coal has held onto its grip in the power sector, even if its position has weakened. Germany still generates about 40 percent of its electricity from coal.
But Carbon Tracker argues that some European utilities are making imprudent decisions by keeping some coal plants operating, and the number of planned coal plant retirements vastly understates the problems within the industry.
For instance, 54 percent of European coal plants are cash flow negative today. By 2030, there will be almost nothing left that brings in positive cash flow – 97 percent of coal-fired power plants in Europe will be cashflow negative by then, Carbon Tracker says.
“The changing economics. . . has put EU coal power in a death spiral,” said Matt Gray, Carbon Tracker analyst and co-author of the report, according to the FT.
“Utilities can’t do much to stop this other than drop coal or lobby governments to hope they will bail them out.”
The odd thing is only 27 percent of Europe’s coal capacity is slated for retirement by 2030. If so many are hemorrhaging cash, why do they stay open? There are several reasons.
Some utilities hope that power prices will rise, putting coal back in the money. Also, there are costs associated with clean up and dismantling old plants. Meanwhile, lobbying holds out hope of a lifeline from either the state or from broader European energy and climate policy.
But utilities are making some poor investment decisions, Carbon Tracker argues. By 2024 the operating cost of coal is expected to be higher than the levelized cost of electricity (LCOE) for wind, while the same is true for solar by 2027. That bears repeating – within the next decade, it will be cheaper to build new solar and wind projects, including all of the upfront construction costs, than it would be to simply keep an existing coal plant online.
And time is not on their side. More stringent air pollution standards come into force in 2021, and the cost of carbon in Europe’s emissions trading system is expected to continue to rise. Meanwhile, the cost of renewables and energy storage continues to fall.
“Those utilities that expect to run their coal units longer than evidence suggests are putting their assets on a collision course with these mega trends,” Carbon Tracker wrote in its report. Ultimately, the EU could save an estimated 22 billion euros if it phased out coal in line with the Paris Climate Agreement.
Carbon Tracker warns investors that they risk getting burned badly if they remain in coal.
A separate report from a global NGO called BankTrack finds that even though coal appears to be on its death bed, financing for coal-fired power plants is still alive and well. According to the report, “between January 2014 and September 2017, the global banking sector provided and mobilised financing in excess of $600 billion for the top 120 coal plant developers.”
More staggering is that nearly half of that has been provided after the Paris Climate Agreement was signed, despite the fact that such a massive volume of financed dedicated to the construction of coal plants is “fundamentally incompatible with the objectives of this agreement.”
But much of the coal funding is destined for projects in the rapidly-growing developing world. The conclusions of the two reports, taken together, suggest that coal may indeed be on its way out in Europe and the United States, but it is not entirely dead yet.