Coal may no longer be king for many of the world’s economies, but it will remain the fuel of choice in India and Southeast Asia for at least another quarter century, new studies suggest.
It is mostly about finding affordable power options, but there are some hidden costs to consider: emission reduction targets will likely be missed and most nations will be locked into a long-term import reliance, even as they fret about the potential blocking
of South China Sea trade routes and declining energy security.
Demand for coal will increase by 3.7% annually in Southeast Asia through to 2040, when it will comprise 26% of the fuel mix, the International Energy Agency forecast in its 2017 market update. Last year coal comprised only 18% of the combined fuel mix.
Oil is expected to have a 29% share in 2040, down from 34% in 2016; gas will contribute 21% of the mix (22% in 2016), bioenergy 13% (20%) and other renewables (including hydro) will comprise 11% of the mix, up from 6%. Provision has also been made for a 0.4% share from nuclear power, but this now appears unlikely.
India has been backing off from coal in the face of environmental protests but supply difficulties and a ban on the use of petroleum coke, so far applied only to Delhi, will leave it with little option. Ironically the coke embargo, which will hike demand for smoky coal, is also an environmental measure aimed at sulfur emissions.
The world’s third-biggest energy consumer behind China and the US, India gets almost 50% of its fuel mix from coal, with most used for power generation. Biomass fuels like wood, generally used by households, and oil (transport and industry) have 20% shares. Gas and renewables like solar power make fairly small contributions.
Renewables, hydro, gas and nuclear power are all expected to take a greater share of the fuel mix by 2040, with solar becoming a significant contributor due to pro-market policies. However, coal consumption is forecast to more than double, rising 2.8% a year.
By 2020 India will have overtaken the US as the second-biggest coal market behind China, which is itself shifting to other fuels.
About 75% of India’s power generation will continue to be fuelled by coal in 2040 and it will also gradually replace biomass in homes due to health and pollution concerns. This scenario assumes that public resistance to coal will be offset by the fuel’s affordability, the argument that also drives Southeast Asian energy policies.
Coal is indirectly subsidized in many countries through investment incentives and consumer rebates, a burden that is unsustainable. The IEA said subsidies for power bills alone in Southeast Asia would reach an accumulative US$350 billion in the period to 2040.
Weak global demand has also kept prices low: more than 100 nations will phase out coal and other fossil fuels by 2050, including China, Sweden, Germany and Denmark, while others (United Kingdom, Canada) have de facto bans on building of new plants.
Both India and Southeast Asia have abundant domestic supplies, which technically should help buyers. Southeast Asia had 31 billion tonnes of coal reserves at the end of 2015, the latest data, and produced 400 million metric tons of coal equivalent in 2016.
But 350 million tons of this output came from just one country, Indonesia, and most of it does not meet the quality standards of more efficient supercritical plants being installed in Indonesia, Thailand and the Philippines – three of the region’s leading economies – to comply with tougher emission requirements. Indonesia also limits exports to preserve supplies for local use.
Vietnam, the second-biggest producer, mostly supplies anthracite coal that is suitable for households but often cannot be used in
coal-fired plants unless they have a specific boiler configuration. Malaysia, Thailand and the Philippines have only small reserves.
Indonesia will remain a net exporter of coal, but other countries will rely on imports by 2040, probably from Russia, Australia and South Africa. There will be a net energy import bill of more than US$300 billion annually, equivalent to 4% of combined gross domestic product, though oil will be a far bigger cost burden than coal.
India has about 60 billion tons of recoverable coal, but has been an importer since 2009 due to local pricing issues and supply gaps caused by low production efficiency. Most coal is also of poor quality, making it unsuitable as more supercritical plants are built.
Production costs are so high that many rural power stations can’t afford the purchase prices, even though 240 million people have limited access to electricity. Little wonder that Indian Prime Minister Narendra Modi has called for a comprehensive energy policy.
There are mixed messages on how much coal India will need in the future, as 57% of electricity generation is supposed to come from non-fossil fuels by 2027. Investors have revealed plans for 370 new coal-fired power plants, yet electricity authorities said in December no new plants would be needed for at least a decade.
Even with existing capacity, India will be importing at least 25% of its coal by 2040, and this level of dependency will rise as more older output is replaced by super-efficient low-emission plants.
India is required under the Paris Agreement to reduce emissions by producing 40% of total electricity from non-fossil fuel sources by 2027, a target that could be out of reach if further coal plants are built. Renewables like solar and wind power are now cheaper than coal, but their growth is hampered by transmission gaps.
Locking into coal and other fossil fuels will boost energy-related carbon dioxide emissions in Southeast Asia by 75% and violate commitments made in Paris, the IEA predicted. They would be 50% lower if more sustainable economic policies were adopted.