Coal dumped as IEA turns to wind and solar to solve climate challenge

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IEA abandons thermal coal industry, saying world must turn to wind and solar if it has any hope of getting anywhere near required climate targets.

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One of the world’s most conservative energy institutions, the International Energy Agency, has effectively abandoned the thermal coal industry, saying coal generation would have to be drastically scaled down if the world has any hope of getting anywhere near the targets needed to address climate change.

Instead, the IEA – in its annual World Energy Outlook – turns to wind and solar, which it says will need to produce more than seven times the amount of coal power by 2040 if the “well below 2°C” limit to average global warming agreed to in Paris is to be met.

In its latest report, known as WE0 2018, the IEA says that in its “Sustainable Development” scenario – the one that keeps the world on track for its climate goals, and removes global energy poverty (i.e. providing power to those that don’t currently have it) – then by 2040 two-thirds of the world’s electricity generation will need to come from renewables.

Nearly 40 per cent will need to come from wind and solar alone, sourcing what is clearly the lowest cost of generation but also putting pressure on national grids to develop significant amounts of “flexibility”.

By 2040, wind and solar will produce more than coal, oil, gas and nuclear combined, with more than 14,100 terawatt hours (TWh). That’s up from 1,500TWh in 2017.

Coal is reduced from nearly 10,000TWh to less than 2,000TWh, oil almost disappears as a fuel for the gird, gas generation falls by nearly 20 per cent, and only nuclear among the fossil fuels grows, but produces only one-third of the output of wind and solar. Hydro jumps 50 per cent and “other renewables” increase five-fold.

Even in the IEA’s “New Policies” scenario, which assumes that governments commit to the current Paris pledges and do no more, the share of coal and renewables switch. Coal, currently supplying 40 per cent of the world’s electricity generation, falls to 25 per cent, while renewables jump from 25 per cent to 40 per cent.

But the IEA says the New Policies scenario is not good enough, because emissions reductions fall well short of the Paris target, the number of people without access to electricity remains at 650 million in 2030 (from just under one billion now), more than 2 billion globally will still cook with solid fuels, and millions of premature deaths from poor air quality.

The IEA has often been criticised because it has been slow to seize on the opportunities of wind and solar, continuously downplaying their potential and likely deployment in the favour of the fossil fuel supply it was created to protect nearly half a century ago.

And this report may still not satisfy its critics, as it falls well short of many other scenario planners – and particularly for Australians who may be dismayed by its forecasts of less than 50 per cent variable renewables in Australia by 2040.

But in a world where conservatives and vested interests are thumping the table about the supposed advantage of “cheap coal”, and its essential role in providing “reliability” and access to power, this report is something of ground-breaker.

 

Last year, the IEA went so far as saying the coal boom was over. Now it is writing the industry’s obituary. It notes that solar PV is becoming among the least expensive option to produce electricity and pairing it with storage raises the levelised costs, but also increases its value by easing its integration into power systems.

“These developments have undercut the case for new investment in thermal generation in some countries, especially in coal …. and the fall in China has been particularly abrupt,” it notes. Indeed, it predicts that China will be the biggest source of coal closures, and the reduction of coal capacity, of any country over the next 20 years. (See graph below).

It produces this graph below which illustrates the changing cost structure as solar becomes cheaper than both gas and coal in two key markets – the US and India.

But even this is selling solar short, as Lazard has solar beating coal and gas already in the US, and by a significant margin, and challenging existing plants.

The IEA’s data is never world leading. Tim Buckley, from the Institute of Energy Economics and Financial Analysis, points out that the IEA’s mid point of solar costs for the US is around $US140/MWh, compared to Lazard’s $US36/MWh, and recent tenders which have shown costs in the low $US20s/MWh.

But even if the IEA is lagging in its data collection, the underlying message is clear. (Though one does wonder what the headline message would be if its data ever did catch up to the real world).

Importantly, the IEA says that fossil fuels are not the best way to ensure that everyone gets access to electricity.

“The least expensive way to achieve universal electricity access in many areas is with renewable energy sources, thanks to the declining costs of small-scale solar photovoltaic (PV) for off-grid and mini-grid electricity and the increasing use of renewables for grid-connected electricity.”

The IEA’s Sustainable Development Scenarios delivers access to all by 2030.

Meeting those climate goals requires a more efficient energy system as well as increased electrification and the increased direct use of renewables. The IEA talks of the need for “flexibility” in the grid, “baseload” hardly rates a mention in the 650 page report, and nowhere does the IEA call for more of it.

This graph above illustrates the levels of wind and solar penetration and what they mean for grid operators and the tools that they require.

“With higher variability in supplies, power systems will need to make flexibility the cornerstone of future electricity markets in order to keep the lights on,” IEA secretary Fatih Birol says.

“The issue is of growing urgency as countries around the world are quickly ramping up their share of solar PV and wind, and will require market reforms, grid investments, as well as improving demand-response technologies, such as smart meters and battery storage technologies.”

The bottom line is that the world has to shift.

“If the world is serious about meeting its climate targets then, as of today, there needs to be a systematic preference for investment in sustainable energy technologies,” Birol says. “But we also need to be much smarter about the way that we use our existing energy system.”

IEEFA’s Buckley says despite the out-dated assumptions included in this report, it is clear that even the IEA believes thermal coal’s “long goodbye” has well and truly begun, and it’s time to plan for a transition.

“The IEA underestimates installation rates, the cost and speed of price deflation, and the overall impact of newer technologies driving ever cheaper renewable energy, which in turn is having a massive effect on the thermal coal industry,” Buckley says.

“They do, however, acknowledge that thermal coal is on the way out. The debate now is how long it will take.”

Giles Parkinson is founder and editor of RenewEconomy.com.au, and is also the founder of OneStepOffTheGrid.com.au and founder/editor of www.TheDriven.io. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.

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