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Coal use set to increase in the global energy mix

May 1, 2008 - Datamonitor

A combination of strong demand, record oil and gas prices, concerns over energy security and a reluctance to recommit to nuclear energy, has seen a renaissance of coal in the European energy mix. This is a trend closely mirrored in the US and Asia. However, while coal might help to fill growing energy security gaps, it raises some profound environmental questions.

No less than 50 coal-fired plants have been slated for construction over the next five years in the EU alone, while India and China are currently constructing a new coal-fired plant every week. Coal is also continuing to gather momentum in the US; 150 proposals for coal-fired plants were put forward in 2007, most of which are likely to gain permits.

The fact that coal is becoming more prominent in the generation mix should, however, come as little surprise. The International Energy Agency has long projected a rise in coal usage based on energy security grounds. Indeed, there are 200 years worth of coal reserves in geographically dispersed areas, with deposits evenly distributed between the US (27%), Russia (17%), China (13%) and India (10%). Latest estimates suggest that coal will account for 27% of the global generation mix by 2030, up from the 24% that it holds today. Coal also accounts for 60% of global energy resources.

Given the abundance of resources and coal's geographical spread across politically accessible states, a number of countries are starting to see the fuel as the only viable option to alleviate energy security concerns. In effect, coal allows countries to place a reasonably stable and predictable egg into supply side baskets. Within the EU, Poland still relies on coal for around 90% of its generation mix, followed by the Czech Republic (65%), Greece (62%) and Germany, (around 50%). That said, like its liquid relation (in the form of oil), coal prices are beginning to increase. Coal has seen a threefold price increase over the past few years, driven by supply disruptions in producer states such as South Africa. However, rather than pushing investors away from carbon-based fuels and towards other forms of energy production such as renewables; as yet, the core result has been to bring previously uneconomic sites across Europe and the US back into consideration.

Environmental concerns

However, despite coal's advantages when it comes to energy security, the fuel has numerous disadvantages in relation to climate change. Coal remains the dirtiest carbon-based fuel, already accounting for 40% of global emissions. With coal forming a core part of the next European, US and Asian investment cycle, this places a major premium on developing carbon mitigation strategies, such as clean coal technology and carbon capture and storage (CCS). So far, the signs do not bode well; CCS is not yet technically or commercially viable.

Although there are a number of small demonstration CCS projects in Europe and the US at early stages, most have either failed to make progress or face crippling cost overruns. In January 2008, Washington cancelled the US's largest CCS demonstration project in Illinois on a cost basis. A number of European projects are hitting similar problems.

Nevertheless, the greatest environmental concern is that new coal-fired plants are being built every week in India and China, most of which are not constructed in a way that is amenable to CCS. The same problem is also cropping up closer to home. Adaptable plants cost around 10-20% more to build than conventional plants, with only a handful of such plants in existence today in Europe. For most coal-fired plants, the costs of converting would be extremely high, perhaps too high even once an implied price for carbon is factored in.

An additional problem is where the carbon would actually be stored. Geologists have warned that the number of sites that could be considered safe for storage are limited, and have even gone as far as to warn that carbon storage could, potentially, be just as dangerous as trying to store nuclear waste.

This is not to say that greater investment in clean technologies will not be forthcoming as coal usage increases. However, at this stage, there remains a blunt trade-off between security of supply and greenhouse gas emissions. Indeed, what plays well for one, does not always play well for the other. Given the perilous warnings voiced by the Intergovernmental Panel on Climate Change (IPCC) regarding the need to tackle climate change by 2020, the need for new technology to be both developed and dispersed is crucial if the black stuff is to be turned green.