Speaker – Hugh Lee, independent consultant
Held by the British Institute of Energy Economics in association with NERA Economic Consulting, 3 Feb 2016
“Coal’s share of world electricity generation has been around 40% for thirty years…” is a statement that seems to start many talks and written reports, but the lecture by Hugh Lee was far from conventional. Hugh’s enthusiastic approach to presenting information was both informative and balanced, a welcome change in today’s energy policy arena.
The audience, surprisingly, consisted of industry and policy professionals who knew little or nothing about coal, despite having decades of experience in the oil and gas industry.
In two hours, we were given a tour of world coal, its uses, its supply, and the state of the industry today. Here are just some of the main points that Hugh presented:
Coal has remained a stalwart of the global energy scene, providing 30% of global primary energy supply since 1970. Unlike the oil and gas industry, cartels and monopoly control are less common in the coal sector despite the merger and acquisition of some mining majors. It’s a fully competitive market, although countries like India are an exception and state ownership of coal industries is also common.
In the export market, many of the mining majors are western companies, and so anti-trust laws prevent collusion, although gaming in the market is a natural feature of any market.
Coal reserves are without doubt the most abundant of all fossil energy types, and geographically widespread. It isn’t the largest energy market however, that title goes to oil at 4221 Mt (coal is 2943 Mt on an oil equivalent basis).
Less than 20% of world coal production is traded internationally, while it’s two thirds for oil. Price dynamics between coal and oil/gas appear connected at first glance, but in reality, coal market prices have their own set of rules and forces. Either way, coal has a massive price advantage over all other fuels making it affordable in many industrialised and industrialising nations.
The future for coal demand remains robust, and the need for CCS deployment is essential to track a course on a low carbon future. Hugh quoted IEA estimates that revenue streams from CCS could reach US$ 2.6 trillion before 2040 for coal and gas power.
Good news from the CCS project in Canada (Boundary Dam) suggests that the cost of building CCS will decrease by a staggering 30% for a subsequent project. Cost reduction is an important step on the road to near-zero emissions fossil fuelled plants.
However financial support for CCS is just 1% of the subsidies awarded to renewables. Yet decarbonising heavy industry such as steel and cement manufacture is almost impossible without CCS.
An untapped potential for decarbonising the power sector is the use of biomass for cofiring into coal plants, but the sourcing of biomass must be done with care. Biomass combustion can be twinned with other technologies such as combined heat and power. In this way, massive system efficiencies can be achieved, as high as 96%.
Now is as good a time as any to propel coal into a low carbon future. Commodity costs are low, and coal prices are lower now than they were in 1980. Mining costs have fallen and exchange rates work in favour of coal exporting nations at the moment.
The speaker raised a question of whether the coal market has peaked?
Some regions have peaked, particularly parts of the US; China could have plateaued. India and other parts of Asia are on an ascendancy. China has seen coal demand contract in 2014 due to added hydro output, and small amounts of other renewables and nuclear additions.
Coal’s fortunes have taken a dent, like much of the rest of the world’s commodity markets. Financial indicators have seen listed companies see their share price plummet. Even Chinese mining companies have become casualties. Hugh argued that mining companies need to take a greater role in financing CCS to protect long term interests in the business. Diversifying into CCS, biomass and renewables are three such areas where more investment is needed to prevent runaway CO2 emissions, as Hugh described it.
One of the most important technologies to bridge the current market to a low carbon future is HELE, high efficiency and low emissions technology such as the latest ultra-supercritical power units. Some financial institutions have divested from coal including the World Bank, European Investment Bank, some universities and churches to name a few. This approach will make HELE difficult and could lead to increasing emissions, as the leverage of western banks with stricter emission criteria could be replaced by financial institutions with no such rules.
A very interesting conclusion suggested that while solar power and batteries will provide softer solutions for rural electrification, solar cannot deliver industrial scale power. Carbon policies must include CCS and point emission sources such as power and industry to accommodate the CO2 that will continue to be emitted from mobile sources such as the automotive sector, where low CO2 solutions are much more difficult to address on a large scale.
In the Q&A session, Hugh mentioned that the UK Climate Change Committee expect all new sales of fossil fuelled cars could disappear, and that the UK public will be buying 100% electric and fuel cell cars, with a CO2 price of 60 euros/tonne. If this is a price for a low carbon transition, than it’s a starting point.
The final slide was a 100 year scenario, which showed a steady rise in the share of nuclear and biomass and solar in the power sector, but surprisingly coal also sees steady growth at the expense of oil and gas power. The chart would definitely create a debate, but the Q&A session provided an interesting insight into the consciousness of energy professionals, who asked how much it would cost to build a CCS plant, and what price of CO2 is needed to make CCS a realistic prospect. Opinions vary, and pinpointing a cost level was inconclusive. However, the desire to know more about lowering carbon emissions from coal seem to be getting stronger with every BIEE meeting.