The world’s energy watchdog, IEA (International Energy Agency) in its recent report has revealed that the world’s appetite for coal declined in 2019 after a two-year resurgence following the steepest ever drop in the use of coal-fired power plants.
Plunge in coal demand from two major economies
The weakness in thermal coal demand this year results mainly from coal-fired electricity generation, which is set to experience its largest ever decline of more than 2.5% y-o-y basis. This drop is led by double-digit fall in the United States and Europe. In both the regions, coal power generation is sinking to levels not seen in decades. Growth in solar PV and wind, low natural gas prices and stagnating electricity demand have created a perfect environment for coal-fired plants to retire in U.S. and Europe. These trends will continue through 2024, although the speed of the declines is expected to slow unless coal comes under additional pressure from stronger climate policies or lower-than-expected natural gas prices.
Asian demand to remain strong
According to IEA, electricity generation from coal will rise only marginally over that period, at less than 1% per year – and its share will decline from 38% in 2018 to 35% in 2024. However, this is not the end for coal demand as IEA has forecasted that the coal demand will continue to expand in Asia.
The region’s share of global coal power generation has climbed from just over 20% in 1990 to almost 80% in 2019, meaning coal’s fate is increasingly tied to decisions made in Asian capitals. Countries in South and Southeast Asia – such as India, Indonesia and Vietnam – are relying on coal to fuel their economic growth.
Natural gas and oil have traditionally been the main sources of power generation in Pakistan, but the country has commissioned 5 gigawatts (GW) of coal power capacity since 2017, and another 5 GW is set to come online in the next few years. In Bangladesh, where natural gas has long generated the bulk of electricity supply, coal will gain share in the coming years, with 10 GW of capacity in the pipeline. In case of India, the fast-growing economy is expected to record its first drop in coal-fired power in the last 45 years. However, the decline this year was due to unusually low growth in electricity demand and exceptionally high hydropower output, according to IEA and its not clear if this will be repeated.
The possible exception
The world’s energy watchdog has further added that it is too soon to say whether the global appetite for coal would continue to decline because the fate of the industry rests largely in the hands of China’s policymakers. Coal is the world’s largest source of electricity generation, half of which is produced in China and is used to fire Chinese power plants and if the country’s energy policy decision changes in next five years, the IEA’s global coal demand forecast could deviate widely.
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