Coal supplied 162 EJ of energy and accounted for 27 percent of the global primary energy supply in 2019. After rebounding from the Covid related economic downturn, 10,200 TWh of electricity was generated from coal in 2022 and its share in global electricity production was 35 percent. Powered by gas-to-coal switching in Asia, global GHG emissions from coal increased to about 15.5 Gt CO2-eq , while the total energy-related GHG emissions reached an all-time high of 41.3 Gt CO2-eq.
In several developing countries such as South Africa, India, China, Indonesia and Vietnam, half to three-quarters of electricity is generated from coal. Despite the high reliance on coal in the country’s power supply, these countries have committed to net zero GHG emissions by 2050 or later, showing climate ambition. However, studies estimate that in order to comply with the IEA’s net zero by 2050 scenario, emissions from the production of electricity must reduce to net zero globally by 2040 and by 2035 in advanced economies.
Evolution of the Just Energy Transition Partnership
The Just Energy Transition Partnership (JETP) is a financial agreement between governments of developed countries and certain emerging economies. The JETP seeks to address the challenges of transitioning to low-carbon energy systems in countries of the Global South, while ensuring a just and fair transition for affected communities. It aims to achieve a cleaner energy future by transitioning away from fossil fuels, notably coal, and providing support for RE deployment, energy efficiency, and clean energy innovation.
The first long-term Just Energy Transition Partnership was formed on the sidelines of COP 26 in November 2021 by France, Germany, the United Kingdom, United States of America, and the European Union, with an aim to support South Africa’s Nationally Determined Contributions (NDCs). In the first phase of financing, US$8.5 billion was committed for a five-year period, through grants, concessional loans, investments and risk sharing instruments. The funds were aimed at decarbonizing energy systems, accelerating coal plant retirement, increasing energy efficiency and renewable energy, electric vehicles, grid integration, energy storage, climate finance mapping and for developing tracking tools. The partnership acknowledged the impact of the clean energy transition on mining communities and recognised the importance of supporting affected workers, especially coal miners, women, and youth.
The second JETP was announced on November 15, 2022, between the Government of Indonesia and leaders of the International Partners Group (IPG) on the side-lines of the G20 Summit at Bali. The IPG, co-led by the United States and Japan, include Canada, Denmark, the European Union, France, Germany, Italy, Norway, and the United Kingdom, signed a deal worth US$20 billion to transition away from coal-based power to clean energy sources. The fund will be mobilised over three to five years from public sources and private finance will be facilitated with the Glasgow Financial Alliance for Net Zero (GFANZ) through a combination of financial instruments such as market rate loans, concessional loans, guarantees, and grants.
The third JETP was signed on December 14, 2022 with the Government of Vietnam, to mobilise an initial amount of US$15.5 billion over the next three to five years. An equal contribution of US$7.75 billion was committed by IPG members through public and private finance led by the GFANZ.
As announced in the G7 Leaders’ Communiqué (2022), discussions are underway for implementing JETPs with India and Senegal. However, the Indian government does not want to negotiate on ‘coal phase-out’ – instead it is keen to design its own “transition plan.” Further, it was reported that the international funding rests on India committing to a timeline to phase out coal, which is an unviable proposition for the country.
The fair life of a coal plant is about 40-50 years, while India’s net zero target year is 2070. Other emerging economies which rank in the top ten by power production from coal are South Africa, Viet Nam and Australia – with a 2050 net zero target year, while Russia, China and Indonesia have chosen 2060 for carbon neutrality. As there are other hard to abate sectors, decarbonisation of the countries power sector should be completed 10-15 years earlier, than the net zero year which for India would be around 2055-60. Even without considering the economics of cost of power generation, all countries should stop building any new coal fired power plants, so as not to retire them early. This is valid irrespective of the increase in electricity demand in the forthcoming decades. Several other factors, which make the argument even stronger, are presented below.
Declining planned capacity additions
In 2022, the installed capacity of coal fired power plants in India was 234 GW, which was more than 50 percent of the installed power generation capacity, but its share in electricity production was higher than 70 percent. Despite the forecasted requirement of doubling of India’s power demand by 2030, there was a net addition of only 2.7 GW worth of new coal plants, which is the lowest in the last 15 years. 21 GW of projects were shelved in 2022 and since the last decade, several coal projects have been cancelled as the planned capacity is gradually being cut down. However, 32 GW of coal plants are currently under construction and 28 GW are in early stages such as permitted, pre-permit and announced. This declining capacity additions indicate a low propensity of new coal fired plants in the Indian power mix. Similar trends are observed globally with an increase in the number of plants which have been shelved and cancelled.
Lower cost of renewable energy with storage
Lazard’s levelized cost of energy (LCOE) report released in April 2023 finds that the LCOE for utility scale solar and storage is in the range of 46-102 US$/MW, which is already lower than the LCOE of new built coal plants at 68-166 US$/MW. A further decline in the cost of grid scale storage in the near future also presents a financially strong case to stop investing in coal fired power plants as the cost of renewable energy with storage is already lower in many parts of the world.
Risk of stranded assets
Investment in coal plants worth $220 billion could be stranded globally ($110 billion in Asia) as a result of aggressive action to restrict the global temperature rise well below 2 degrees C, as committed in the Paris Agreement. The analysis concludes that new coal plants are unlikely to generate a financial return over their lifetime, as country’s net zero commitments may drive early closures. Six of the top ten companies exposed to the risk of stranded assets were Indian, with NTPC topping the list. Other studies corroborate the high risk of stranded assets to existing coal fired plants and find that the lifetimes of existing plants are reduced to approximately 35 years in a well-below 2 °C scenario and to 20 years in a 1.5 °C scenario, posing a clear risk.
Explicit accounting of carbon costs
Global trends indicate the gradual adoption of carbon pricing in several countries, including India, which is likely to implement a domestic carbon market in 2023. Many companies are already using internal carbon pricing to address the transition risk from legislation changes and are factoring it in decision making. The cost of carbon abatement technologies is still very high with no proven low-cost, large-scale deployment of Carbon Capture and Storage (CCS). The market price of carbon has grown rapidly with the price breaching the Euro 100 per tonne of CO2 emissions mark in the European market. This hints that the price of electricity generated from coal is likely to increase if the cost of carbon is explicitly included.
High cost of capital
Major international banks, G7 and G20 groupings and nearly all development financers are now committed to ending international public financing of new unabated coal fired power plants. Lack of low-cost debt will significantly increase the financing cost of new coal fired power plants. Alternately, the investment capital will have to be provided through nationalised banks or self-funded by public companies with guarantees provided by the government. These financing mechanisms will be suboptimal due to higher cost of capital, loan repayment will be accompanied with several risks, and public finances may come under strain.
Rethinking new coal plants
The above arguments must be seriously considered by the Indian energy planners. However, the recently notified National Electricity Plan by the Central Electricity Authority of India (CEA) envisages an addition of over 50 GW of new installed coal plants over the next decade. While some of this planned capacity is already under construction, plants which are under early stages of planning including permitting, pre-permitting and announcement stages must be carefully re-evaluated.
Instead of building new coal fired power plants, countries must focus its effort on the improvement of plant load factor of existing coal plants, improving demand side energy efficiency and lowering electricity transmission and distribution losses. Systemic improvements through enabling policies to allow integration of renewable energy behind the meter, peak load shaving through improving demand side management and demand flexibility, and building utility scale storage will eliminate the need for further coal plant capacity addition.
Conclusion
Although coal will continue to play a central role in developing countries power mix over the next few decades, further addition of new coal power plants must not take place. Coal phase out and early retirement of coal plants is not the preferred option for India and some other emerging economies as on date. However, the energy transition path must be one which chooses a ‘no regret’ option and which is aligned with the Paris Climate Agreement.
Joining the JETP is a political decision and all countries have the right to exercise the choice which best suits their development needs and specific capabilities. Nevertheless, a global decision to stop building new coal power plants is one which avoids lock-in and path dependency, is progressive and demonstrates country’s commitment to decarbonisation. Decades later, India’s climate leadership may eventually be judged by this momentous decision.
Kapil Narula, PhD is a Consultant to the United Nations and former Advisor (Energy) to the Government of India.
The views expressed in this article belong to the authors alone and do not necessarily reflect those of Geopoliticalmonitor.com.
