As solar stocks enjoy a what’s being described as a “massive” boost from the Paris climate deal and an extension to the US tax credit, coal has been doing it tough.
As we wrote here earlier this week, those coal market players and lobbyists who aren’t lashing out or retreating into complete denial have been seeking solace in the idea that clean coal technologies will keep the black stuff in business, even as the world cuts carbon.
But a new report from Citi Research isn’t quite as optimistic about the potential for technologies like “ultra super critical” generators and carbon capture and storage to keep the coal fires burning.
In fact, it’s pretty dismissive of the whole idea – and of the “parties” pushing it.
“Parties involved in and associated with the coal industry, including the Minerals Council of Australia
(MCA), are publicly opining that demand for Australian thermal coal will remain strong due to its high quality and low ash content, with India often mentioned as the key growth market,” the report notes.
“The MCA recently introduced us to the Head of the IEA’s Clean Coal Centre, who gave presentati
ons to Citi clients in Sydney and Melbourne in November. The central concept appears to be that modern “ultra super critical” (USC) generating technology, when supplied with high quality low ash
coal, results in improved local air quality and lower GHG emissions.
But, and here comes Citi’s assessment: “We suspect that thermal coal is in structural decline, despite the coal industry’s current focus on HELE (high efficiency low emissions) and USC (ultra super critical) technologies.
“We are dubious about the prospects for CCS, and have yet to be convinced that Australian thermal coal will be the solution to India’s energy challenges, rather than some combination of domestic coal and renewables,” the report adds.
As the report notes – and the table below illustrates – the industry claim is that clean coal technology can reduce GHG emissions from ~1 tonne/MWh (depending on chosen baseline), to <0.7t/MWh; possibly as low as 0.6t/MWh.
Citi’s response to this, however, is that “while efficiency improvements in any technology are generally welcomed, emissions of 0.6-0.7t/MWh do not look sustainable in a world heading for zero net emissions.
“As illustrated in Figure 6 (above), very deep emissions cuts would require carbon capture and storage (CCS) – or some alternative sequestration technology.
“Though the IEA and MCA expressed the view that CCS technology is progressing well, we have our doubts that the pace and scale of development will allow CCS to play a major role,” it continues.
“In our observation, the scale of CCS currently is small compared with what would be required. If CCS is to be a significant part of the solution, this would require substantial deployment by 2030. If implementation is to accelerate from 2025, project development, including assessment of geological storage sites, needs to accelerate quickly.
“We currently fail to see where the substantial investment in developing a large scale CCS industry will come from,” the report concludes.
“We also have some reservations about the physical ability to inject such large volumes of CO2
successfully in globally widespread storage sites, though we are open to evidence on this point.”
The report is also keen to hose down claims from the Australian coal industry – and a startling number of Australian federal MPs – that demand from India will drive continued Australian production and export.
“The industry contends that high ash Indian coal is unsuitable for use in USC plants, and that imports of higher quality low ash Australian coal will therefore find strong demand,” it says.
“In the end, we suspect the key question will be what provides India most effectively with low cost clean electricity – in terms of both local air quality and GHG emissions.
“We suspect we are more optimistic than the MCA on the pace of renewables developments,” it says.
Finally, the report warns against the tendency for companies in the fossil fuel industry to use the IEA’s World Energy Outlook “central scenario” – its New Policies Scenario or NPS – rather than its 450 scenario as a basis for their own strategic planning, “given that IEA is clear that it is a scenario, not a
forecast, and that it demonstrates the need for additional policies.”
“We suggest that investors encourage fossil fuel producers that use the NPS as a forecast or basis for strategic planning, to also evaluate the implications of the 450 Scenario or similar,” a scenario, it says, is consistent with a 2°C warming goal.
A warning is also issued to the Australian electricity sector, which Citi predicts is “likely to face considerable upheaval.”
“How this progresses will depend on the nature of government policy and the pace of technology development,” the report continues.
“One challenge appears to be how to accelerate closure of older high emitting coal plant. We note that AGL is Australia’s largest GHG emitter, and the company’s CEO, Andy Vesey, was in Paris for the climate talks.
“AGL has publicly committed to a “decarbonisation strategy”, to close all its coal-fired plants by 2050 (Loy Yang the last to close in 2048), but we suspect the closure schedule might be accelerated.
While AGL has an apparently active “New Energy Business” and new energy strategy, we envisage lower barriers to entry and new competitors as the energy transition progresses,” it says.
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