Features

Policy progress around pollution is forcing countries to reassess the role of coal

Policy progress around pollution is forcing countries to reassess the role of coal



Coal share will remain limited

The fuel’s share in the Mena power mix will remain very limited as governments will continue to prioritise natural gas and renewables in power generation, says a report

October 2017

Regional governments in the Middle East and North Africa (Mena) region are looking at coal to diversify the energy mix and enhance energy security, but despite the several reasons, coal is likely to only play a marginal role in the future of the region’s power sector, a report said.

Coal continues to be the dominant fuel in the global power mix, added the new report titled “The future of coal in the Mena power mix” from Arab Petroleum Investments Corporation (Apicorp).

As of 2014, its share represented 41 per cent, whereas gas and renewables amounted to 22 per cent and 6 per cent. This is an increase compared to the year 2000, when coal stood at 39 per cent, and gas and renewables at 18 per cent and 2 per cent. As the global community substitutes coal with gas and renewable energy to meet its climate change commitments, a downward trend of the share of coal in electricity generation is almost inevitable.

Mena countries – with the exception of Morocco – do not consume coal in their power sectors. Coal was never really part of governments’ strategies to tackle demand growth, due to the very low coal reserves in the region. These countries have been relying on oil and gas-fired power plants to meet most of their demand needs. The oil and gas rich GCC region depends on its vast cheap-to-extract resources, while energy poor countries in the region have relied on fuel imports to feed their plants.

However, the substantial growth in demand for electricity and the resulting strain on existing capacity has forced governments in the region to diversify their energy mix, and in some cases coal has started to feature in their planning. For example, the UAE has included coal in its 2050 Energy Strategy and is currently building its first clean coal power plant, while Egypt is studying plans to add significant coal capacity next decade.

Coal’s relatively low operational costs, technological advances in power plant design, concerns over reliability of gas supply and China’s role in the development of plants are all contributory factors; but climate change considerations will mean that overall, the share of coal in the power mix will remain very small.

Coal projects – and particularly clean coal – require substantial upfront capital but exhibit lower operational and fuel costs over their lifetime, typically over 40 years. Upfront capital costs range from $1.2 billion-3 billion/GW of installed capacity, significantly less than nuclear and comparable with gas-fired plants. Investment decisions are therefore heavily dependent on the availability of finance, government support, and coal supplies.

Coal can be competitive against other sources of baseload power. The levelised cost of electricity (LCOE) for coal increases at higher discount rates, given that it is capital intensive. At a discount rate of 3 per cent, coal is less competitive than nuclear but more competitive than gas. At 7 per cent and 10 per cent, coal remains competitive with gas and nuclear.

There are several reasons which justify the decision to include coal in the power mix. First, despite Mena countries’ conviction that gas should play the dominant role in adding generation capacity, supply uncertainty in some countries and expensive-to-extract gas in others are forcing governments to diversify their sources of electricity. For example, the Hassyan coal project in Dubai was first designed to be gas-fired, but the government changed the project to coal due to uncertainties of gas supplies.

Reducing dependency on oil and gas in the power sector is strategically important for exporters who are wary of rising domestic oil and gas consumption potentially reducing exports. At the same time, gas importers want to improve their energy security by reducing reliance on imports.

Second, although the regional momentum is with renewable energy, it will take many years to add significant capacity. Coal plants are a reliable source of baseload capacity, making them a good complement to renewable sources.Also, coal prices have declined over the past decade, and whilst there has been a recovery more recently, demand is still weak.

Third, the technology is improving. According to estimates, 80 per cent of coal plants globally are sub-critical and have efficiencies between 25-37 per cent. Environmental and efficiency concerns and rising global commitments to tackle climate change have driven coal efficiency standards to improve.

Recent policy progress concerning emissions and pollution has forced countries to reassess the role of coal in their energy development strategies. This is paving the way for more renewable-energy generation, coming at the expense of fossil fuels, especially coal.




More Stories



Tags