The Daily Reckoning UK

Why This Fuel Is Past Its Sell-by Date

David Stevenson

by

Posted 16th June 2017

Energy supply is a very boring subject. It’s unlikely to crop up in casual conversations, be a focus of social media chats, become a hot topic down the pub or light up dinner parties.

But as I wrote about last week, it’s one of the biggest issues facing the planet. And if the challenge of meeting the growth in global demand for electricity isn’t already big enough, there are even more problems facing power providers of the future.

Last time I explained how renewables will fall a long way short of supplying the world’s extra energy needs. Today I look at why another historically popular fuel source is past its sell by date.

We all hate power cuts

If you turn on the light switch/TV/PC/washing machine, etc. etc., and nothing happens, electricity – or rather the lack of it – suddenly becomes one of the most important things in your life. As we’ve all know, unexpected and prolonged power cuts are a real nightmare.

Power suppliers are, of course, very keen to ensure that consumers don’t suffer from a lack of electricity. But they’re also under pressure to provide ‘clean’ energy.
And there’s one fuel in particular that’s been very bad news on this score.

Coal.

Sure, it helped power the Industrial Revolution, the birthplace of modern manufacturing technology. So we’re very grateful for that. But the Industrial Revolution was 200 years ago. Yet the world is still using vast amounts of coal to generate electricity.

You don’t have to be a Greenpeace campaigner, climate change activist or fervent tree hugger to agree on this one. Burning coal fouls up the environment. Full stop.

Take the US. Coal plants are the nation’s top source of carbon dioxide (CO2) emissions, which are reckoned by many to be the main cause of global warming.

Coal power stations are America’s leading source of sulphur dioxide (SO2) pollution, which takes a major toll on public health. SO2 also causes acid rain which damages crops, forests, soils, lakes and streams. Nitrogen oxides (NOx) are another by-product – NOx pollution causes ground level ozone (smog) which can burn lung tissue as well as exacerbate asthma and chronic respiratory diseases.

Soot can cause chronic bronchitis, aggravated asthma and premature death, as well as haze-obstructing visibility. Coal plants are responsible for more than half of America’s human-caused emissions of mercury, a toxic heavy metal that causes brain damage and heart problems. Then there’s fallout of lead, cadmium and other toxic heavy metals, carbon monoxide and even arsenic.
Very gloomy. Yet in 2016, coal still accounted for 30% of US electricity generation.

Can’t CCS help?

Coal’s apologists suggest that CCS (carbon capture and storage) technology can be the fuel’s saviour on the grounds that it significantly cuts greenhouse gas emissions. The later bit is true, but CCS isn’t the complete answer. It’s expensive, energy intensive and literally buries the problem. A more convincing option is to reduce coal burning by a quantum. And progress towards this is being made.

BP has been looking at the bigger picture. The oil & gas giant has just published its latest Statistical Review of World Energy under the authorship of its chief economist Spencer Dale (you may well already have heard of him: before joining BP he was the Bank of England’s Executive Director for Financial Stability Strategy and Risk and sat on the Monetary Policy and Financial Policy Committees).

“Perhaps the most striking feature across the different fuels was the continuing rapid descent of coal, with consumption (-1.7%) falling sharply for the second consecutive year and the share of coal within primary energy declining to its lowest level since 2004”, says Dale.

“The speed of deterioration in the fortunes of coal over the past few years has been stark: it’s only four years ago that coal was the largest source of global demand growth,” he notes. “The scale of the declines does seem to signal a fairly decisive break from the past.”

Britain’s watershed moment

Britain is setting the standard here. With our last three underground coal mines closing, UK consumption of the fuel has fallen back to Industrial Revolution levels. Coal accounted for just 9% of electricity generation in 2016. That’s down from 23% the year before.

Indeed, the country recently went a full day in generating electricity without using coal for the first time since the 1880s, according to National Grid which described this as a ‘watershed’ moment. Granted, the day in question contained exactly the right mix of sun and wind. That’s not going to happen in mid-winter. But plans have been announced to close all our coal-fired power plants by 2025.

But the real key to slowing global use of coal is China, the world’s biggest energy consumer. It still uses coal to generate more than 60% of its electricity (the exact figure depending on the source). But China is moving toward the end of an era – in 2016 it burned the least coal in six years, according to BP data.

China still accounted for about half of the world’s coal burning last year, but use of the fuel fell by 1.6%, says BP. That compares with the country’s 3.7% average annual expansion rate over the 11 preceding years.

Looking forward, China has suspended 104 planned and under-construction coal power projects with a total capacity of 120GW. That’s a very clear message that the country is aiming to cut future coal consumption to meet carbon emissions targets.

Let’s not get carried away here – coal is still likely to be widely-used energy source for many years. The US Energy Information Administration reckons that the fuel will still be providing 29% of the world’s electricity by 2040. It’s a forecast that looks on the high side to me. But if coal is gradually retired and renewables can’t bridge the resulting gap in electricity supply, where will the world turn?

If you’re one of my readers at Strategic Intelligence, you’ll know what I believe is the answer. But if you’re not, to find out this out – along with more information about Strategic Intelligence including details of the latest book by my colleague Jim Rickards – just click this link.

From time to time we may tell you about regulated products issued by Agora Financial UK Ltd. With these products your capital is at risk. You can lose some or all of your investment, so never risk more than you can afford to lose. Seek independent advice if you are unsure of the suitability of any investment.


I respect your privacy and will never pass on your email address to anyone else.