Equipment used to move coal sits parked at the American Electric Power Co. (AEP) coal-fired John E. Amos Power Plant in Winfield, West Virginia, U.S. (Photographer: Luke Sharrett/Bloomberg)

Almost Half Coal Power Plants Seen Unprofitable to Operate

(Bloomberg) -- The surge in coal prices in the past three years and muted power prices are cutting into the profitability of power stations that burn the fuel, a prominent forecaster said.

About 42 percent of the world’s coal generation capacity is losing money, according to Carbon Tracker, an energy researcher that advocates for climate protection. That proportion will rise to 56 percent by 2030, said Matthew Gray, a senior utilities and power analyst at the consultant.

While coal prices are forecast to fall 13 percent by the end of the next decade, the cost of emitting carbon dioxide is set to double in Europe and is forecast to jump in China, which is introducing an emissions trading market. Those factors mean the cost of running coal plants will exceed what they can earn, the researcher said.

“Depressed wholesale electricity prices are a problem for the entire conventional power industry -- nuclear, hydro, coal, gas, but not subsidized renewables, which are of course the reason for the low wholesale prices -- their income coming from outside the market,” said Brian Ricketts, secretary general of industry body Euracoal. That, he said, is why support measures for fossil-fuel plants are spreading to help ensure those generators don’t shut too quickly.

Other big causes of the losses at coal plants are rules designed to limit air pollution as well as competition from wind and solar generation. Carbon Tracker’s analysis assumes existing rules stay constant. It doesn’t assume a big increase in other climate measures.

Almost Half Coal Power Plants Seen Unprofitable to Operate

Demand for coal rose for the first time in two years in 2017, with China and India burning more than anyone else in a blow for environmental groups hoping to limit use of the dirtiest fossil fuel. The International Energy Agency’s annual World Energy Outlook published earlier this month indicates coal will remain a key fuel to provide heat and light through 2040.

China is the largest power producer in the world, representing one-third of global power generation. Its 993 gigawatts of operating capacity represents one half of the world’s total, with another 259 gigawatts -- a size similar to the U.S.’s operating fleet -- under construction. In the U.S., coal generation dropped 28 percent from 2012 to 2017.

Coal will help drive economic development in emerging nations and its future is secure for “decades to come” as energy demand increases by 25 percent by 2040, industry group the World Coal Association said on Nov. 13.

“The Chinese are actually ramping up plans to build more coal,” Gray said by phone. Nations with regulated markets -- where there’s little competition -- may be left with higher energy costs if they follow China’s lead, angering consumers, he said.

Almost Half Coal Power Plants Seen Unprofitable to Operate

In countries where there’s open competition in energy markets, including the EU and the U.S., investors in coal generation may end up holding low-value assets, Gray said. The new analysis will help “challenge the valuation assumptions for coal-fired power.”

Bloomberg Philanthropies, which along with Bloomberg LP is owned by Michael Bloomberg, helps fund Carbon Tracker.

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