“Electricity is critical to people’s existence and the cost of electricity can become a serious hurdle for those trying to climb out of poverty”

The economic response to Covid-19 has inflicted significant financial pain on millions of people struggling to climb out of poverty. As a result, governments are seeking ways to employ people and minimize the financial pain from rising everyday expenses. Electricity is critical to people’s existence and the cost of electricity can become a serious hurdle for those trying to climb out of poverty.

Why is this significant? The International Monetary Fund (IMF) recently issued revised economic projections for global growth in 2020 and 2021. The fund now expects the world economy to shrink by 4.9% in 2021, compared to its most recent forecast of a 3% decline. The IMF warned this economic contraction would “imperil” much of the world’s progress since the 1990s in reducing extreme poverty. Moreover, the IMF’s forecast for global growth next year shows that apart from China, economies of neither advanced nor emerging countries, as a group, will exceed their pre-Covid-19 peak size before the end of 2021. If this forecast occurs, it will alter the view that the economic recession American economists anticipate ending soon, may continue longer with greater suffering as a result.

Developing cheap power as a way to help struggling economies recover, while mitigating power bills for their populations, is the goal of many governments. Implementing plans to achieve these goals are leading to a resurgence in coal-fired power plant use and increased coal mining. We wrote about this briefly in our last Musings (“Rebuilding Economies After Covid-19 And Fuel Choices,” June 16, 2020), in which we touched on the increasing use of coal in certain countries. In particular, China, Indonesia and India. Very significant was the opening of the last coal-fired power plant in Germany, but also the huge cost of the government’s plan to end coal’s use in generating power in the country, shutting its mines, and cushioning the human suffering for German miners. In our article, we cited the International Energy Agency’s (IEA) December 2019 report on energy that pointed to coal’s use remaining stable through 2023, with increases in Southeast Asia being offset by lower use in America and Europe.

While the IEA’s view about coal’s role in power markets may have been correct then, we wonder how it might assess the outlook now, given the sharp upturn in mine construction in China and the surge in new coal-fired power plants, as well as the recent move by India’s Prime Minister Narendra Modi to stimulate his economy by auctioning permits to open 41 new mines?

How India’s Coal Helps Employment

India has auctioned 41 coal mines with 17 billion tons of geological coal reserves to enable private companies to commence commercial extraction. All of these mines are largely fully-explored, enabling them to come into production quickly. Four of the mines will be dedicating their coal for use by steel-making plants. The 41 mines represent both large and small mines with peak-rated capacities (PRC) of 0.5 to 40.0 million tons annually (mmt/y). These mines will provide a total PRC of 225 mmt/y when in operation. Given the sizes and locational challenges of some of the mines, we can expect to see more pictures of women hauling baskets of lump coal from the mine to shipment points. This is one way to help the nation’s employment situation.

How India’s Energy Mix Will Change

The increased use of coal is designed to help India deal with its economic challenges, of which employment is one aspect. However, lowering, or at least keeping stable, the cost of energy is also crucial for political peace. The impact on India’s climate goals remains an open question. The long-term outlook for India’s energy mix suggests that fossil fuels will remain the dominant supplier. Even if coal, which accounted for 56% of India’s energy in 2017, were to fall below 50%, and all of that decline went to renewables, it would only triple its contribution – rising from 3% to 9%. Making further gains in reducing carbon emissions will become a huge challenge for government policymakers.

China Is The Dominant User of Global Coal

How China’s Energy Mix ix Changing

The China story has become more interesting, given that it has become the largest emitter of carbon dioxide and other pollutants, while still paying lip-service to its environmental commitments to the 2015 Paris Climate Accord. China still consumes more than half the world’s coal, and that seems likely to remain the condition for a while, despite the large push for renewable power.

China recently approved two new coal mines with a combined output of 3.6 mmt/y, at a cost of $566 million (4 billion yuan). Those two new mines will have nearly as much output as China’s current coal production, which in 2019 was 3.75 mmt/y. Behind approving the new mines is the government’s plan for shutting down small and outdated mines in favor of larger ones located in coal-rich provinces.

How China’s Energy Mix Is Changing

China’s energy mix has been trending in favor of renewables, but it may be interrupted as the government deals with reinvigorating its economy after Covid-19 and dealing with the structural shift away from manufacturing in favor of a more consumer-oriented economy. The National Energy Administration is committed to building a clean, green and energy-efficient coal industry. It plans to cap the number of coal mines in the country at 5,000 in 2020. It is also working to shut down mines with annual capacity of less than 300,000 tons. The challenge will be supplying coal-generated electricity growth.

In March 2020, China permitted more coal-fired power plants than during all of 2019. Between March 1 and March 18, China permitted nearly 8 gigawatts (GW) of new coal-fired generating capacity, which exceeded the 6.3 GW of permitted capacity in 2019. That year, it brought on line 43 GW of new coal-fired generating capacity, which was up from 32 GW in 2018, according to Global Energy Monitor. To contrast China’s commitment to coal, since 2017, the United States has retired 32 GW of coal generating capacity, based on an analysis by E&E News. The last U.S. coal plant was built in 2015.

Can China do better? A recent paper in Nature Communications by researchers at Stony Brook University and Lawrence Berkeley National Laboratory suggests China could generate 62% of its electricity from non-fossil fuel sources by 2030. The researchers estimated that such a move could lower power bills by 11%. Gang He, a professor of technology and society at Stoney Brook and a co-author of the report, said: "Coal had been the default fuel that drives China's economic growth, and renewables are now the new reality. The fast decrease in the cost of solar, wind and storage, and technological innovation has fundamentally changed the economics of renewables." He went on to state: "Our analysis shows that such a fast decarbonization and clean power transition is both technically feasible and economically beneficial." Will China embrace this push? One seems to get mixed messages from the Chinese government about its energy policy and plans. Building more coal mines and coal-fired power plants at the same time it is stepping up renewable energy investment and infrastructure expansion for delivering this power to market appear at odds. For China, mysteries about its economy, government policies and capabilities are nothing new.

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