The IEA has a terrible record for its forecasts.
In the case of demand for coal, each year for the past 7 they have basically extended the line for previous years, but because the underlying market has changed so dramatically as a result of the fall in the price of gas (in the US) and the collapse in costs of renewables (everywhere) they have been completely wrong about coal demand. And I strongly believe they'll be completely wrong again. This matters because most official (i.e., government) analysts use the IEA's forecasts to assess the likely future picture of energy demand and supply. They shouldn't.
Source: Carbon Brief |
I've updated the chart from that piece for 2023, assuming that wind and CSP (concentrated solar power) fall in cost by 5% per annum (prolly conservative in the case of CSP), that solar falls by 10% per annum (prolly conservative) and batteries by 15% per annum (also prolly conservative). I've plotted the chart on a log scale, to give a better idea of the spread of costs. Red represents fossil fuels, pink is the marginal/operating cost of coal, green represents renewables, and green/red stripes mixed renewables/fossil fuels. The chart shows costs excluding explicit subsidy such as tax credits, but the implicit subsidy of fossil fuels being allowed to pollute without paying for it is not counted in their costs. The 1/3rd each option is 1/3rd solar, 1/3rd wind, 1/3rd CSP.
So, point the first. By 2023, solar will be cheaper than the operating cost of every coal power station. Yes, it's true, that's without "firming". Adding 10 hours of storage, either via batteries of CSP increases the costs above the marginal cost of coal (but not the total cost of new coal). On the other hand, the operating cost of solar/wind is practically zero (no fuel costs), so grid operators will whenever they can use solar or wind. Not good for the profitability of coal power stations--bad enough that your competitors are on average cheaper than you. Even worse that half the time they're almost free! Note too that all green options will be cheaper than new coal, and even in the US, where gas is cheaper than in the rest of the world, almost all green options will be cheaper than new gas. In the rest of the world, green options will be cheaper than gas as well as coal.
Second, solar plus 10 hours storage will be almost as cheap as the marginal cost of coal. In other words, to dig up the coal, ship it, and burn it will cost the same or nearly the same as building a brand new solar farm with 10 hours of storage. Needless to say, a new solar farm with storage will be much cheaper than a new coal power station.
All these comparisons will get even worse with a rising cost of carbon. The EU's carbon price is rising, and really starting to bite. China is starting a national carbon pricing scheme in 2020. After unprecedented heat waves in Europe, China and N America in the northern hemisphere summer this year, the pressure to do something has increased, and that pressure is not going to go away. Which means a price on carbon, which in turn means coal will become more expensive, just as renewables get cheaper. A $10 carbon tax adds roughly $10/MWh to the cost of coal-sourced electricity. This would push the operating costs of coal above all the green alternatives except wind plus power to gas.
Moral of the story: there is no way coal demand will grow from now on. This year, coal demand in China has risen because the central government delegated the task of approving coal power stations to the regions, which promptly approved a whole lot of new coal power stations. (These power stations risk being stranded assets from the mid-20s onwards, as the cost of renewables falls below the marginal cost of coal.) From 2019 onwards, the decline in the demand for coal will accelerate. The red line in the top chart will turn sharply down. The IEA will be wrong again.
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