Coal 2020

Analysis and forecast to 2025
Coal

Demand

Demand for coal to produce electricity dropped by 3.3% in 2019 reflecting weak electricity demand growth, stronger contributions from renewables and lower natural gas prices. This pushed total coal demand down 1.8% to 7 627 million tonnes (Mt). Coal demand in non-power sectors rose slightly.

The strongest declines in coal-fired power generation were in the European Union (-19%, -111 Mt) and the United States (‑14%, ‑87 Mt). By contrast, coal consumption increased 1.2% (+69 Mt) in the Asia Pacific region. This was despite an unusual decline in India due to exceptionally high hydropower output and an economic slowdown.

Clearly, 2020 is a very different year. The IMF estimates a global economic contraction of 4.4%, reflecting government measures to control the spread of the Covid-19 pandemic. We expect coal demand to decline 5% in 2020 as lower electricity consumption (‑1.5%) impacts demand for coal in a disproportionate way because nuclear and renewable sources have largely priority dispatch in the electricity system. In addition, cement and steel production were depressed due to the confinements and economic slowdown.

Considerable geographical divergence is evident as was the case in 2019. Large drops in coal demand (more than 15%) are estimated in the European Union and North America, while smaller but significant decreases (5‑10%) are expected in some Asian countries, including Korea, Japan and India. China, the world’s primary coal consumer, is expected to maintain its 2019 consumption level in 2020.

Global coal consumption will drop two years in a row (from 7 766 Mt in 2018 to 7 243 Mt in 2020), a record collapse in IEA records of almost 7% (more than 500 Mt) in two years.

Our 2021 forecast assumes global GDP growth of 5.2% based on the IMF World Economic Outlook, which will boost electricity demand and industrial production, the main drivers of coal demand. Coal consumption will rise 2.6% to 7 432 Mt (still less than in 2019) as a result of increased demand in China, India and Southeast Asia. The 2021 outlook includes strong GDP growth of 8.2% in China that will drive additional coal use, particularly in the electricity sector. Likewise, the rebound of electricity demand in Europe in 2021 will put a temporary brake on the structural decline of coal. Higher natural gas prices for power generation in the United States could make annual coal demand increase for the first time since 2013.

Global coal consumption by region, 2000-2021

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Worldwide electricity consumption rose 1.0% in 2019, less than one-third of 2018 growth. This weak growth rate was one of the main reasons for a record 3.0% (-305 TWh) fall in coal-fired power generation, with resultant drops in consumption of both thermal coal (-2.4% to 4 341 Mt) and lignite (-9% to 657 Mt).

Changing market conditions and environmental policies in areas such as the United States, Europe and Korea depressed coal-fired electricity generation. Lower global natural gas prices owing to expansion of LNG supply made gas-fired power plants more competitive than coal plants. This was the case particularly in the European Union coupled with rising costs of CO2. Coal-fired power generation fell 23% in the European Union in 2019 and 17% in the United States. In contrast, it rose 1.8% in China and 13% in Southeast Asia.

Global electricity demand is estimated to drop 1.5% in 2020 – the largest decline in IEA records – and global coal-fired power generation by 5.2%, the largest drop in decades and the first time to decline two years in a row. Estimates for 2020 are a decline of 5% for steam coal and 13% for lignite. Lignite use is concentrated in Europe, where the decline is bigger than elsewhere.

Mild winter weather in 2019-20 combined with low natural gas prices in the United States and the European Union prevailed when Covid‑19 containment measures slowed economies and electricity demand declined. In most power systems, coal and gas are marginal suppliers, so lower electricity demand impacts these fuels more than others. By altering not only electricity demand but gas use in industry, the pandemic has pushed gas prices even lower. This has impacted coal use, particularly in the European Union, where we expect a 23% decline in coal power generation and in the United States (-18 %) in 2020.

Drops in coal power generation of 3.2% in Japan and 10% in Korea are anticipated for 2020. In India, coal-based power generation will gain some ground in the fourth-quarter 2020 after two-digit declines in the first-half of the year, to end with an overall 4.5% drop for the year. In contrast, coal-fired power generation in China and Southeast Asia is expected to slightly decline in 2020.

Global electricity consumption is forecast to rebound 2.9% in 2021, exceeding the 2019 level. While coal-fired power generation is set to increase 2.8% in 2021, this is below the 2019 level as its share of electricity production falls from 36.5% in 2019 to 35% in 2021 – the lowest share in IEA records.

In 2021, renewable energy sources will meet a larger share of the increase in electricity demand than coal. Although higher gas prices support coal-based power generation somewhat, especially in the European Union and the United States, where there has been a structural decline in coal use for years.

EU coal demand in 2021 is expected to increase only marginally, but it would be the first uptick since 2012, and the anticipated rebound in the United States would be the first since 2014. Conversely, coal is the cornerstone of electricity supply in India, China and some Southeast Asian countries, with estimated 2021 increases for power generation of: +1% in India, +3.1% in China and +7% in Southeast Asia.

Annual changes in coal-fired power generation by region, 2018-2021

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Annual changes in global power generation by source, 2018-2021

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Metallurgical (met) coal, which includes coking coal (hard, medium and semi-soft) and pulverised coal for injection (PCI) is a primary ingredient in steelmaking. Coke is also used to produce carbides, ferroalloys and other compounds. Correspondingly, the World Steel Association projections are a key base of our forecast for met coal.

In 2019, global met coal consumption rose 3.2% to 1 080 Mt. By far, China is the largest met coal consumer accounting for 64% (691 Mt) of the global total in 2019. Other significant met coal consumers were the Russian Federation (hereafter “Russia”) (7%), European Union (5%) and India (6%).

Global metallurgical coal consumption is expected to decline 3.2% to 1 045 Mt in 2020 as steel production (outside of China) decreases due to pandemic-related affects as well as emerging structural changes that were evident before the pandemic. Yet in China demand will increase 2.4% for 2020, reflecting its resilient steel industry which is underpinned by government stimulus measures. Production surpasses demand, delivering record levels of steel stock.

Other main met coal consuming countries are expected to register significant declines in demand in 2020; with the largest absolute drops in India (-13 Mt), Japan (-9 Mt) and Russia (-6 Mt). In India, decline rates for sponge iron (which uses thermal coal) were similar to pig iron throughout the year. Japan, the world’s third-largest coking coal consumer, is expected to produce about 83 Mt of crude steel – its lowest amount since the 1960s.

The forecast is for met coal consumption to recover in 2021, rising by 3.7% to 1 084 Mt. While consumption in China flattens, in other countries it climbs as economies recover and global steel demand expands 4.1%, relative to a drop of 2.4% in 2020.

Metallurgical coal consumption annual change by region, 2019-2021

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Metallurgical coal consumption, 2018-2021

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Looking ahead to 2025, coal demand is expected to flatten even though three factors exert downward pressure on demand.

First, coal-fired power plant retirements in developed countries accelerate. This reflects lower electricity demand related to the pandemic and economic slowdown and lower natural gas prices.

Second, low-carbon generation technologies, e.g. wind and solar, gain momentum as costs continue to fall and policy support is sustained. This dims the prospects for coal-fired generation.

Third, the perception that coal is the cheapest source of dispatchable electricity has been shaken by low gas prices. This mindset change is evident even in some Asian countries where coal’s primary position in power generation has been undisputed. For example, in 2020, Viet Nam, Bangladesh, the Philippines and Egypt downgraded their plans for coal reflecting lower cost renewables and cheaper natural gas, amid increasing concerns about CO2 emissions and building anti-coal pressure on many fronts. Korea and Japan continue to take steps to reduce reliance on coal.

Regional differences in the outlook to 2025 continue to widen. In the European Union, stagnating (if not declining) electricity demand, expanding renewables and robust CO2 prices will continue to reduce coal demand, with the phase-out of nuclear power by 2022 in Germany partially counteracting the effect. In the United States, the shale revolution and expanding renewable-based capacity continue to constrain coal consumption. Globally, construction of new coal-fired power plants is in decline; other than those currently under construction, few new plants are expected to be built other than in China.

Yet, coal demand is expected to rise in some parts of the world, especially in South and Southeast Asia as electricity demand and infrastructure expand. This region, which includes India, Pakistan, Bangladesh and ASEAN countries, contains 2.4 billion people with per-capita electricity consumption at one-quarter the global average, has strong economic growth prospects, and relies on coal to supply part of the additional energy needs, especially for power generation.

In China, the president’s recent announcement of carbon neutrality before 2060 is a notable target that sets up a long-term trajectory. Though in this report to consider coal demand to 2025, China’s 14th Five-Year Plan due to be released in 2021 is most relevant. China’s use of coal is of paramount relevance at the global level. Coal consumption in China entered a decade-long plateau (with some economic and weather-driven fluctuations) in 2013 after more than a decade of astonishing growth.

Unless there are unforeseen developments that significantly boost coal demand in emerging Asian economies and China, it is likely that global coal demand peaked in 2013 at just over 8 Bt. 

Changes in global coal consumption by region, 2018-2025

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Coal consumption in China was 3 834 Mt in 2019, mostly thermal coal for electricity and heat production (2 276 Mt), followed by thermal coal for non-power applications (867 Mt). The rest was metallurgical (met) coal, used mostly in steel production.

Overall consumption in China increased 1.1% from 2018 to 2019 with differences in coal grade and applications. Consumption of thermal and met coal was up to serve increasing electricity and steel production. Thermal coal use for non-power applications (e.g. residential, commercial and small-scale industry) decreased as a result of ongoing efforts to reduce air pollution by replacing small, inefficient coal boilers with gas-fired and electric options.

As happens every year in China, coal consumption dropped during the 2020 New Year holidays, but it did not rebound as usual due to the Covid-19 outbreak and consequent lockdown. However, following the first-quarter with very weak demand, coal consumption picked up along with the economy, but consumption patterns differed by sector.

Overall, we expect coal consumption for power generation in China to decline by less than 1% in 2020 as increased electricity demand is met by other sources (i.e. nuclear and renewables). Consumption of thermal coal for non-power applications is lower as coal use in small boilers decreases owing to air quality policies and weaker economic activity. Conversely, met coal demand is expected to increase 2.4% in 2020 with steel production being the main driver.

Economic recovery in 2021 (8.2% according to the IMF forecast) and the related increase in electricity demand are expected to boost thermal coal demand for power generation (+3.2%). However, the trend of falling coal demand for non-power applications is expected to continue in 2021 as coal boiler replacements outweigh increased use in other sectors. 

Annual changes in coal consumption by type and use in China, 2019-2021

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Because the Covid-19 pandemic started in China, the first measures to contain the virus impacted coal consumption there. Regional lockdowns of cities and entire provinces to prevent the spread of the virus were implemented in January 2020, affecting various industrial value chains. Cement production, one of the key consumers of thermal coal in the industry sector, was 24% lower in the first-quarter 2020 than in the same period in 2019. Power generation was also affected, down 6.8% year-on-year (y-o-y) in the first-quarter. The overall decline in electricity demand led to a decrease in coal-fired power generation. Steel production, and hence met coal demand, showed more resilience owing to expectations of strong post-Covid stimulus.

After a first-quarter of negative growth (GDP declined 6.8% y-o-y) the economy recovered with 3.2% growth in the second-quarter and 4.9% in the third-quarter. The recovery was supported by government stimulus using fiscal and monetary instruments, including direct government spending, tax cuts, issuance of special government treasury bonds for the first time since the financial crisis of 2008, and a more relaxed monetary policy.

These measures spurred a rebound in industrial production as well as in infrastructure and real estate investment, with electricity, steel and cement production showing positive growth since April. In fact, steel production is reaching record high levels because domestic steel demand has proved very robust. As a result, overall coal demand in 2020 in China is expected to fall by only around 0.5%.

China year-on-year percentage changes for various economic indicators, 2020

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Four pillars of Chinese government policy – economic growth, air pollution, energy security and climate change – have direct ramifications for coal. Those policies are being implemented at the same time as the government is addressing the social implications surrounding the coal supply chain (e.g. mines, rails, ports, ships, steel mills and coal-fired power plants) and dealing with the environmental impact of coal mining (e.g. landscape alteration, subsidence, water resource stress and pollution).

Economic growth continues to be an essential target, which in the year of Covid-19 has meant the need for powerful government stimulus to guarantee jobs and expand domestic demand. The government intends to avoid overheating the economy and focussing too much on heavy industry as it did during the economic crisis of 2008, and instead to concentrate on cutting-edge technologies such as the “internet of things”, 5G networks and big data. In addition, the traditional economy will also receive momentum from the “Two New and One Major” policy aimed at new infrastructure construction, new urban construction and major project construction, which will boost coal demand in the short term. Coal still supplies more than half of China’s primary energy supply and is therefore important for the competitiveness of its economy.

Whereas air pollution has been a major policy focus for almost a decade, in 2017 a comprehensive plan put the focus on heating in northern China’s 26+2 cities, targeting the phase-out of coal stoves and small boilers in 12 million households. Policy attention in this area is ongoing. In September 2020, a new regulation was enacted ordering boilers of less than 35 t/h to be shut down and 7 million households to convert to natural gas. On 30 October, a comprehensive management action plan on air pollution for Beijing-Tianjin-Hebei and the Fenwei Plain for autumn-winter 2020-21 was issued. As a result, coal use in small, inefficient, polluting boilers in both the residential and industrial sectors is declining and will continue in coming years. The action plan also proposes to reduce emissions by retrofitting coal-fired power plants, steel mills, sintering plants, cement kilns and other industries.

Energy security is a policy focus that has been gaining attention as natural gas and oil import reliance – already over 45% for gas and 70% for oil – continues to rise. Using domestic coal to replace imported gas and oil might be a solution, as it can be used as a raw material to produce a variety of products. Coal by-products obtained from coal pyrolysis in coke ovens can also be used to manufacture cosmetics and other chemicals, and coal tar pitch is used to produce anode material for aluminium smelting. Most importantly, coal conversion processes, generally involving coal gasification, produce synthetic liquid fuels (gasoline or diesel), synthetic natural gas (methane) and a variety of chemicals such as methanol, which can be processed to produce olefins (ethylene and propylene), the basis of most plastics. Other valuable coal conversion products are ethylene glycol, fertilisers (ammonia) and soda ash.

China’s announced coal conversion projects will involve over 500 Mt of additional annual coal consumption if they are eventually built, but it is difficult to track their status. These projects could reinforce energy security and reduce China’s import bills, as well as create local jobs as the entire supply chain is domestic. Moreover, these projects are a good way to boost short-term economic growth, and in coal-rich provinces to monetise stranded coal assets. For example, Inner Mongolia’s Plan for

High-Quality Development of Traditional Industries (January 2020) targets 5.4 Mt of coal-to-liquids, 7 bcm of coal-to-gas, 4.4 Mt of coal-to-olefins and 2.7 Mt of coal-to-ethylene glycol production per year by 2022, mostly from new plants. These operations would use around 75 Mt of coal per year.

Coal conversion is very capital intensive, which poses investment risks. It is also very CO2-intensive, which contradicts China’s policy to reduce CO2 emissions and become carbon neutral before 2060, as well as being water-intensive – and some of the projects are in water-stressed regions. Last, but not least, the economics of the projects depend on oil and gas prices, which are currently not encouraging.

Reported progress on announced projects is very slow so far, except for chemicals. It is difficult to envisage how the supporting drivers, constraining factors and potential risks will play out in the coming years, and this is why the development of coal conversion is more uncertain than any other sector. China’s 14th Five-Year Plan, however, should offer a good indication of the plans for its future.

Climate change policies, reinforced by the announcement of carbon neutrality before 2060, are reducing the share of coal in the energy mix by promoting energy efficiency as well as generation based on nuclear, wind, solar, hydro and gas sources. Although China’s sheer scale and growing demand make it difficult to rein in coal consumption, coal’s share in the energy mix has been falling every year for the past decade, and the country’s policies aim to sustain this decline.

Oil, gas and coal reserves and resources in China

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Oil, gas and coal import dependency in China, 2007-2019

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China has half of the world’s installed coal-fired power capacity. Despite robust construction of new hydro, wind, solar and nuclear plants in recent years and slower electricity demand growth, China continues to build coal-fired power plants. Consequently, the capacity factor of coal plants is being eroded (49% in 2019) and so, too, is their economic viability. Nevertheless, in 2018 China commissioned 31 GW of new coal-fired power capacity and another 30 GW came online in 2019. In the first eight months of 2020, 21 GW were commissioned, and over 100 GW are currently at various stages of development. Moreover, 27 GW of new capacity were approved in the first three-quarters of 2020, a considerable jump compared with the 8 GW approved in 2018 and only 4 GW in 2019.

At first glance, some of these numbers – particularly the approvals in 2020 – appear to profoundly contradict the broader direction of China’s energy policy, which targets lower air pollution, CO2 emissions reductions and diversification away from coal and towards carbon neutrality before 2060. Already in 2016, aware of its coal-fired overcapacity, the government issued a “traffic-light” policy for new coal plants to stem the rush caused by its 2014 decision to pass coal plant approvals to the regions. Then, in February 2020, China’s National Energy Administration (NEA) published an update of risks and warnings on coal plant construction by provinces and states, softening the criteria for approvals. This could be interpreted merely as a mechanism to stimulate the economy and boost recovery in light of the Covid-19 crisis, but this would be an oversimplification. This measure must be analysed within its proper context.

China had around 1 030 GW of coal capacity at the end of 2019, so annual capacity additions of 30 GW are equivalent to 3% of coal capacity. While electricity consumption has stagnated in most developed countries, in China it continues to rise, although at a slower pace than in the past. It will increase even in 2020 despite the Covid‑19-induced lockdowns and economic slowdown.

Moreover, China is increasingly electrifying transport and other sectors, which requires that it has secure power supplies, and peak demand continues to rise on its grids. Other aspects also contribute: the capex for ultra-supercritical (USC) plants in China is very low, on the order of USD 500-600/kWh and state-owned utilities have easy access to financing.

While this combination of circumstances is stimulating investment, analysing the new plants case-by-case reveals some interesting patterns. For example, among the 2020 approvals (we have identified 27.2 GW for the first three-quarters), 65% (18 GW) are located in just two regions: Shaanxi and Inner Mongolia, an indication that coal plants are being sited closer to the coal producers rather than to the electricity consumers.

Plus, mine-mouth plants (or plants close to a coal mining hub) account for 74% (20 GW) of the approved capacity. A complementary observation is that plants connected to ultra-high voltage (UHV) lines account for 46% (13 GW) of approved capacity. Furthermore, co‑generation plants (which produce both heat and power), plants using washing plant rejections and plants to replace outdated capacity account for the majority of new construction.

These new coal-fired power plants are more efficient and less polluting than previous units. Average efficiency has increased to 40%, up from 32% in 2002 (this means they use over 500 Mt less coal and CO2 emissions are more than 1 Gt lower annually), and efforts towards higher efficiency continue. Pingshan Phase II (1 350 MW) which is under construction has an efficiency target of 49.8% (net lower heating value), which would be a world record for a coal-fired power plant.

In short, even though China is reducing its reliance, coal will continue to be the cornerstone of its electricity supply in the coming decades. As existing capacity is more than sufficient to meet current electricity demand, new plant approvals are very selective:

  • Only a few provinces or autonomous states account for most of the new plants.
  • Mine-mouth plants are increasingly being selected.
  • Majority of the plant output will connect to UHV lines or be part of co‑generation.
  • USC is the default technology design.

Coal plant approvals in China by location, Jan - Sep 2020

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Coal plant approvals in China by output, Jan - Sep 2020

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Coal consumption in India amounted to 979 Mt in 2019, with the largest share being thermal coal (including lignite) for electricity generation (687 Mt), followed by thermal coal for non-power applications (226 Mt). The remainder was metallurgical coal used mainly for steel production.

Compared with 2018, coal consumption fell 1.8%, or 18 Mt in 2019, almost exclusively due to lower thermal coal use for power generation. Declining coal demand reflects India’s slower economic growth and significant hydropower output with heavy monsoon rains in 2019. While India’s economy grew 6.1% in 2018, GDP growth in 2019 was just 4.2%.

Coal consumption in India is expected to fall sharply in 2020. This applies to thermal coal (including lignite) for power generation (‑4.5%, ‑31 Mt;), thermal coal for other applications (-10%, -23 Mt) and met coal (-20%,-13 Mt).

This drastic drop results mainly from the Covid‑19 pandemic effects. Measures to contain the virus in India were taken at the end of the first-quarter 2020. A complete lockdown that began 25 March had a drastic effect on key coal consumers. In April, crude steel production fell by more than 90% y-o-y after the collapse of steel demand from construction and automobile production.

In the second-quarter, y-o-y production drops were 33% for pig iron, 43% for sponge iron and 38% for cement. The effects of the restrictions remained evident in the third-quarter. In addition, coal-fired power generation will decline in 2020 (-4.5%) due to lower demand for electricity and preferential dispatch for nuclear and renewables. Gas-fired generation was boosted by low LNG prices.

In April 2020, coal-fired power generation was more than 30% lower than in the previous year. Recovering power demand boosted coal-fired generation in September, accounting for the first y-o-y growth since the start of the pandemic. Assuming that the recovery continues until the end of the year, coal-based power generation will shrink by 4.5%.

For 2021 the IMF expects a recovery of India’s economy, with annual GDP growth of 8.8%. With electricity demand as well as industrial production rebounding, coal use is anticipated to increase 3.8%, or by 35 Mt. In the medium term (to 2025), India has one of the highest potentials to increase coal consumption as electricity demand rises and more steel and cement are required for infrastructure projects. Additionally, the government aims to expand coal gasification considerably, targeting 100 Mt of coal gasification by 2030. Methanol production (with four coal-to-methanol projects already lined up) is a major focus of its policy.

Coal-fired power generation in India, 2018-2020

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Year-on-year percentage change for various economic indicators in India, 2020

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Based on their variable cost, coal-fired power plants were generally dispatched before gas-fired plants in many countries. However, gas price drops in 2019 and 2020 changed the competitiveness of coal and gas in some countries, with obvious implications for coal demand.

In the United States, the shale revolution has led to gas replacing coal as the preferred fuel for power generation. Between 2011 and 2019, 49 GW of coal-fired generation capacity were retired, 14 GW converted to burn natural gas and 15 GW replaced with natural gas combined-cycle technology. By 2016, gas had overtaken coal as the primary fuel in the US power mix. In 2019, coal-fired power generation decreased more than 16% to 1 059 TWh, the largest percentage decline in history and the lowest level since 1978. The trend continued in 2020, with a rebound expected in 2021 as a result of higher gas prices and electricity use.

In the European Union, the competitiveness of gas is being reinforced by rising CO2 emissions certificate prices under the EU Emissions Trading System. In 2019, gas combined-cycle generation (CCGT) became less costly than coal-fired power plants, leading to record lows in coal-based generation. This trend gained strength in 2020 as gas prices dropped further. For some weeks during 2020, the variable costs of gas-fired power plants were even lower than for lignite-fired power plants in Germany1. For 2021, a partial gas price recovery will put lignite plants ahead of CCGTs, but it will be difficult for less-efficient coal-fired power plants to compete with gas.

In Japan, coal-fired power generation has proven resilient despite low spot prices for gas, as most gas contracts are indexed to oil prices. Nevertheless, lower electricity demand combined with expanding solar PV use is reducing coal-fired generation (-7% in 2019 and another -3.2% expected in 2020). The Ministry of Economy, Trade and Industry (METI) announced a ruling to close inefficient sub-critical and supercritical coal-fired plants by 2030. This may not have a significant short-term impact but will set the tone for the medium and long term, despite new coal capacity having been commissioned in 2020 (600 MW Noshiro 3 and 600 MW Takehara 1) and under construction (7.4 GW).

In Korea, the recent decline in coal power generation is the result of several developments. Coal-fired power plant output had to be curtailed as the government aims to reduce particulate matter emissions. Some coal generation units were suspended in the spring and winter, and in December 2019 generation was restricted to 80% of power plant capacity. This coincides with higher nuclear output and expansion of renewable generation capacity.

In 2020, air pollution concerns in Korea have continued to prompt the suspension of some plants and have reduced power generation from coal. Furthermore, tax reforms have made gas-fired generation more competitive, as the LNG tax was reduced while coal taxes were raised. LNG prices have also fallen, so the competitiveness of gas-fired power plants in Korea has increased significantly in 2019 and 2020. The third phase of Korea’s emissions trading scheme (KETS), which runs from 2021 to 2025, could also benefit gas-fired power plants. Under rules adopted in September 2020, the annual emissions certificates issued for the electricity sector will not cover its quantity of emissions in recent years. It is also being debated whether GHG emissions should become a factor in determining the merit order of power plants, which would further weaken the competitiveness of coal-fired power plants provided that LNG prices remain low. However, as in the case of Japan, utilities cannot benefit fully from low spot prices, as most of the gas is procured on long-term contracts.

Low gas prices also challenge coal-based generation in other regions.

Korea marginal coal- and gas-fired power generation costs, 2018-2021

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European Union marginal coal- and gas-fired power generation costs, 2018-2021

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Coal consumption in Southeast Asia has more than doubled in the last decade, with the largest growth in Indonesia and Viet Nam, followed by Malaysia and the Philippines. In 2019, demand in Southeast Asia was 332 Mt, of which 42% was accounted for by Indonesia and 27% by Viet Nam, as in both new coal power plants began commercial operations.

In 2020, coal demand in Viet Nam is proving to be resistant due to strong economic growth, which will push coal demand up around 12%. In contrast, coal demand in Indonesia and the Philippines will fall for the first time in several years as a result of Covid-19 outbreak. Overall demand in Southeast Asia is expected to increase only slightly in 2020. In 2021, however, a 7% rebound in coal demand is expected as economies recover.

A large portion of demand for coal in Southeast Asia originates in the power sector. Indonesia and Viet Nam in particular, as well as the Philippines, are expanding coal-fired power plant capacity. Viet Nam, however, is rethinking its plans for sizeable coal developments and the Philippines announced a moratorium on the approval of new greenfield coal power projects.

Coal technology and funding traditionally come from Japan, Korea and China, but Japanese and Korean investors are increasingly reluctant to commit to coal investments. Additionally, some projects have been delayed due to the pandemic. Coal’s role in the future is therefore becoming more uncertain, and efforts to increase renewable generation and reduced LNG prices are gaining force.

Industrial consumption, especially in the steel, cement and smelting sub-sectors, will maintain coal demand growth once the economies recover. In Indonesia, the government has ruled that coal producers investing in downstream activities will receive a waiver on royalties, which will certainly boost coal demand.

Southeast Asia coal-fired power plant capacity by country, under construction and pre-construction, 2011 and 2019

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Southeast Asia coal consumption by country, 2010 and 2019

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Pakistan had 150 MW of installed coal power capacity in 2015. Since 2017, in addition to a few small plants for industry, Pakistan has commissioned four coal-fired power plants as part of the China-Pakistan Economic Corridor project: the 1 320 MW Sahiwal plant in Punjab; 1 320 MW Port Qasim plant in Sindh; 1 320 MW Hubco plant in Balochistan. All three use imported coal. The 660 MW Engro Powergen plant in Thar (Sindh province) operates on lignite from Thar Block II.

These power plants, together with more than 10 Mt used by the industry sector (mostly for cement), raised coal consumption in Pakistan to 20 Mt in 2019. Coal consumption is estimated at around 25 Mt in 2020 and projected at 30 Mt in 2021. Beyond 2021, another 5 GW of coal-fired power plants are planned, mostly operating on domestic lignite. Moreover, the government has plans to turn Thar lignite into liquid and gas fuels and fertilisers, although some challenges would need to be overcome.

In Bangladesh, the mine-mouth 525 MW Bakapuria power plant was the only coal power plant until, in May 2020, the first unit of two 660 MW USC blocks at Payra power station started operations. This is the first power plant in Bangladesh to depend on imported coal which will increase demand by 3-4 Mt per year. So far, demand has been dominated by brick kilns, which account for 80% of Bangladesh’s coal consumption.

Plans for expansion of coal-fired generation in Bangladesh have been shelved: most of the more than 30 GW of proposed coal capacity will not be built reflecting lower gas prices, increasing anti-coal pressure and lower expectations for power demand growth. Nevertheless, the 1 320 MW SC Maitree plant (Rampal), expected to be operational by 2021, the 1 200 MW USC Matarbari, the 307 MW Barishal power plant and the 1320 MW Patuakhali power plant, all under construction, would increase coal consumption to over 30 Mt per year before 2025. The future of Bangladesh’s other coal plants is very uncertain.

Pakistan commissioned and planned coal capacity by initial operating year, 2017-2024

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Overall countries on the African continent consumed 197 Mt of coal in 2019, 12 Mt less (-6%) than 2018.

South Africa, the continent’s primary coal consumer, accounted for most of this decline. While coal consumption for power generation in South Africa decreased 2.7%, non-power thermal coal consumption dropped by 11%. Sasol Limited used 2.5 Mt less coal to produce synfuel and a variety of chemicals. The distressed state of the construction sector and reduced spending on infrastructure also resulted in lower coal consumption by cement and brick producers in South Africa.

The decline in South Africa’s coal consumption is expected to continue throughout 2020 as a result of the Covid-19 pandemic and load-shedding due to poor coal plant performance. Demand will not recover by 2025 and is expected to remain below 200 Mt, in spite of the second unit (800 MW) of the 4 800 MW Kusile power plant having started commercial operations in October 2020 (other units will come online later). South Africa’s GDP is expected to contract severely (by 8%) in 2020 and to recover only mildly (by around 3%) in 2021. Consequently, South Africa’s power generation (especially coal-fired) and non-power coal consumption are expected to remain subdued through 2021.

In addition, Eskom, South Africa’s largest utility, remains in a difficult financial and operational situation while South Africa has recently suffered frequent power cuts, as its two massive coal-fired power plants – Medupi power station at Limpopo (4.8 GW) and the Kusile power plant at Mpumalanga (4.8 GW) – are still having technical complications.

After a surge of around 35% in 2019 with introduction of the new 1.4 GW Safi power station, Morocco’s coal consumption is expected to remain at 9 Mt per year in 2020 and 2021. In 2020, Morocco’s National Office for Electricity and Drinking Water extended its power purchase agreement for the 2 GW Jorf Lasfar power plant, which provides 40% of Morocco’s electricity generation. No other projects are currently under development, as Nador coal power project has not reported further progress.

In Egypt, the Ministry of Electricity and Renewables cancelled plans for construction of the Hamrawein plant, thereby prospects for increased imports have vanished. Cement kilns and steel production will get back to 2019 consumption levels once recovered from the big drop in 2020.

Some other coal-fired generation projects, such as the 300 MW KP1 plant in Botswana and the 300 MW Mbeya plant in Tanzania are proceeding after minor reorganisations and licence updates. In Zimbabwe, 8 GW of coal power generation capacity in different projects have been announced, but there is no clarity about how they can progress.


References
  1. In some cases, such as for co generation plants, additional revenue streams have to be considered when assessing the profitability of generation units.

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