Key issues for COP26: Global coal power plant phase-out

Author Eleanor Green, Senior Editor

Ahead of the UN climate meeting later this year, we provide an explanation for some of the major issues under discussion between participating nations, starting with the global phase-out of coal-fired power generation.

The UK is seeking a global agreement to halt the construction of any new unabated coal-fired power plants at the COP26 summit being held in Scotland in November.

The UK holds the presidency of COP26 and has identified coal-fired power plants as a key area to seek consensus on. It already jointly chairs and funds the Powering Past Coal Alliance, which has 36 member countries including Germany, Italy and the Netherlands — all of which have drawn up plans to phase out coal.

With Europe and the US already seeing coal plants closing and little interest in the construction of new plants, Asian and African countries would be most affected by the policy.

Japan relies on coal for around 30pc of its power generation but has made steps towards phasing out older coal plants and supporting LNG, biomass and renewable generation instead. But it may be more flexible than many Asian countries because it is an importer of coal and does not have any mining jobs to protect.

China and India have the largest pipeline of planned projects for new coal-fired capacity, although both countries have already cancelled large volumes of planned capacity, in part due to concerns over the economics of projects but also over local air quality concerns. Chinese president Xi Jinping said in April that China will “strictly control coal power” and made the first reference to an eventual “coal phase down”.

India and China have already sought to restrain coal-fired generation near large cities. Both countries mine coal domestically but also import thermal coal for some plants. And both have mixed feelings about importing coal and are likely to be more concerned with defending generation from plants using domestically mined coal. But they also recognise that renewable generation is the area where most growth should come from. India has ambitious goals to add 100GW of solar capacity by 2022 and China is the world’s fastest-growing market for wind capacity, adding 100GW in 2020.

South Africa, Indonesia and Colombia could be resistant to a phase-out because large numbers of people are employed in the mining sector. South Africa, which suffers regular blackouts, wants to develop more coal plants using domestic coal. A study by the University of Cape Town estimated it would need climate finance of around $11bn to transition from coal to renewables while supporting the communities that are dependent on mining. But with wind and solar costs falling rapidly, while coal production costs have risen, sticking with coal-fired generation and failing to develop renewable generation could end up costing South Africa more in the long run.

Indonesia is in a similar situation, with rising power demand encouraging the building of new coal-fired capacity. In 2015, the government launched the 35,000MW Program, to encourage the development of new capacity. In 2017, a study by the International Institute of Sustainable Development suggested the government spends around $644mn across seven different subsidies or tariff exemptions to coal production, compared to spending of just $133mn supporting renewable generation.

Levelised cost of energy calculations from the International Energy Agency show that low-carbon generation costs are falling and are increasingly lower than gas and coal generation. If emissions costs of $30/t of CO2 equivalent are taken into account, then solar and wind are competitive in almost all circumstances.

Carbon capture, utilisation and storage at coal plants is not cost competitive, according to the IEA. The technology has yet to be proven at a commercial scale and would require much higher emissions costs to be competitive. But if the technology develops further, it could provide a longer lifespan for coal plants and mining.

But the integration of large volumes of intermittent renewable generation could pose challenges for less economically developed countries that have limited or ageing grids. Dispatchable generation will still be required and countries may see coal plants as providing necessary security of supply when wind and solar levels are low, although few coal plants are currently designed and funded on the basis that they will only run at peak times.

Countries with large mining sectors are likely to want significant financial support commitments from wealthier nations if they are to consider agreeing to a halt to new coal-fired power plants. This could be enough to persuade them, particularly as getting funding for new coal projects is becoming harder. More than 200 banks, insurers and financial institutions have agreed to stop funding any new coal power plants, and with renewable generation costs falling and the relatively long payback period for coal plants, project developers are increasingly wary of being stuck with stranded assets.

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