Tag Archives: coal industry

Beautiful Coal and Other Maladies

President Trump hasn’t been able to bring back “beautiful, clean coal” as he promised four years ago. As mines and power plants continue to close, the question many are asking in the diminishing American coal industry is—what now?

The use of coal to generate electricity in the U.S. is expected to fall more than a third during Mr. Trump’s first term, data from the U.S. Energy Information Administration show, as a glut of cheap natural gas unlocked due to fracking and increasingly competitive wind and solar sources gained market share. More than half of that drop happened before the new coronavirus outbreak. That compares with a decline of about 35% in coal consumed for power generation during Mr. Obama’s eight years in office.

In 2019, the U.S. consumed more renewable energy than coal for the first time since the 1880s, federal data show…“Coal isn’t coming back. You can’t legislate it,” said Karla Kimrey , previously a vice president at Wyoming-based coal producer Cloud Peak Energy Inc., which filed for bankruptcy protection last year. Domestic demand has continued to drop as utilities retire coal power plants and turn to cheap natural gas and renewables to make electricity, trends that have only accelerated as economies have slowed due to the pandemic. With less demand for power, many utilities have cut back on coal generation first, as it is generally more expensive

Meanwhile the rise of “ESG” or environmental, social and governance investing is constricting the industry’s ability to obtain capital, current and former executives say.  As major investors such as JPMorgan Chase & Co. and BlackRock Inc., the world’s largest asset manager, turn away from coal over concerns about climate change, coal companies are struggling to secure the insurance they need to operate. That hurts not only companies that mine the thermal coal used to generate electricity, but also those that mine metallurgical coal to make steel.

Excerpts from Rebecca Elliott and Jonathan Randles, Trump’s Promise to Revive Coal Thwarted by Falling Demand, Cheaper Alternatives, WSJ, Sept. 17, 2020

Praying for Renewable Energy

In the wake of the Fukushima nuclear disaster in 2011, Fukushima prefecture itself pledged to get all its power from renewable sources by 2040.  The hoped-for transformation, however, has been “slow and almost invisible.”…Renewable generation has grown from 10% of the power supply in 2010 to 17% in 2018, almost half of which comes from old hydropower schemes. Most nuclear plants, which provided more than a quarter of the country’s power before the 2011 disaster, have been shut down… But for the most part they have been replaced not by wind turbines and solar panels but by power stations that burn coal and natural gas. The current government wants nuclear plants to provide at least 20% of electricity by 2030. It also wants coal’s share of generation to grow, and has approved plans to build 22 new coal-fired plants over the next five years. The target for renewables, by contrast, is 22-24%, below the current global average, and far lower than in many European countries.

Geography and geology provide part of the answer. Japan is densely populated and mountainous. That makes solar and onshore wind farms costlier to build than in places with lots of flat, empty land. The sea floor drops away more steeply off Japan’s coasts than it does in places where offshore wind has boomed, such as the North Sea. And although geothermal power holds promise, the most suitable sites tend to be in national parks or near privately owned hot springs.

Government policies also help stifle the growth of renewable energy. Since the end of the second world war, privately owned, vertically integrated regional utilities have dominated the electricity market. These ten behemoths provide stable power within their regions, but do little to co-ordinate supply and demand across their borders…The limited transmission between regions makes it even harder than usual to cope with intermittent generation from wind turbines and solar panels. It also reduces competition, which suits the incumbent utilities just fine…Recent reforms have attempted to promote renewables both directly and indirectly…The “feed-in tariff”, obliging utilities to pay a generous fixed price for certain forms of renewable energy—a policy that has prompted investors to pile into solar and wind in other countries. In 2016, the government fully liberalised the retail electricity market. It has also set up new regulatory bodies to promote transmission between regions and to police energy markets. In April 2020 a law came into force that requires utilities to run their generation, transmission and distribution units as separate businesses. These reforms constitute a policy of “radical incrementalism”.

Critics say the steps have been too incremental and not radical enough. Utilities continue to make it time-consuming and costly for new entrants to get access to the grid, imposing rules that are “not fair for newcomers”, according to Takahashi Hiroshi of Tsuru University. Existing power plants are favoured over new facilities, and the share of renewables is limited, on the ground that their intermittency threatens the grid’s stability.

But even if the government is timid, investors can still make a difference…. Several of Japan’s big multinationals have pledged to switch to clean power on a scale and schedule that put the government’s targets to shame. Environmental activism has made banks and businesses wary of investments in coal. Even big utilities have come to see business opportunities in renewables, especially in the government’s imminent auction of sites for offshore wind plants. Two of them, Tohoku Electric Power and Tokyo Electric Power (TEPCO), have announced plans this year to issue “green bonds” to finance renewables projects. In March 2020, TEPCO established a joint venture with Orsted, a Danish oil firm that has become a pioneer in offshore wind. 

Exceprts from Renewable Energy in Japan: No Mill Will, Economist, June 13, 2020

The Fight for the Remnant Trees of Europe

For 120 years RWE has been one of Europe’s biggest emitters of carbon dioxide. The German utility cleared almost all of Hambacher forest, a once-vast wood in western Germany, to mine lignite, an especially filthy fossil fuel, which it burned to generate electricity. What is left of “Hambi” has become a symbol of the anti-coal movement, occupied by activists camping in 80-odd tree houses.  RWE is under fire even where it does not operate. A Peruvian farmer has sued it in a German court for its contribution to climate change that led to the melting of an Andean glacier, which threatens to flood his home. He lost but is appealing.

Peruvian farmer who sued RWE

But  in September 2019, the EU agreed to a €43bn ($47.5bn) asset swap between RWE and its rival E.ON. It turns E.ON into Europe’s largest power-grid operator by assets and RWE into the world’s second-biggest producer of offshore wind power and Europe’s third-biggest producer of renewable energy. [RWE] has vowed to become carbon neutral by 2040

Of the eu’s 28 members, 18 have pledged to emit no net carbon by 2050. Germany says it will stop using coal by 2038 and stump up €40bn to ease the transition.   RWE is demanding a chunk of the transition pot. It still runs three lignite mines, which directly employ 9,900 people and indirectly support another 20,000 jobs in the Rhine region….  [To complicate matters further], in October 2019 a court ordered a halt to the clearing of its remaining 200 hectares of the forest…RWE says the forest could be left as it is—but at a price. It may cost the company €1.5bn or so to find an alternative to a planned expansion of an open-pit mine at Hambach.

Excerpts from  RWE: After Hambi, Economist, Nov. 23, at 59

Debt and Coal: China-Mongolia friendship

Mongolia recently reached a new deal to sell coal to China, helping it boost its faltering economy and start repaying billions of dollars it owes Wall Street lenders.  Under the landmark agreement completed late 2016, Mongolia’s state-owned mining company will sell coal to China at roughly double the previously agreed-upon rate.  The deal follows a devastating four-year period when Mongolian miners exported coal to China at deeply-discounted prices, sometimes for as little as 11% of the global benchmark price, undercutting Mongolia’s economic growth. Mongolia agreed to those punitive terms to get the loan from China and has been struggling to repay it.

The new export agreement will help Mongolia pay its mounting debt, including bonds held by BlackRock Inc., Fidelity Investments, UBS Global Asset Management and other global investors that bought the debt for its double-digit yields, according to bond investors.

But the export deal has a downside for Mongolia: It effectively transfers much coal production from China, which is bent on cleaning up its environment, to its poorer neighbor…  Trucks carrying coal are backed up for nearly 40 miles at Mongolia’s southern border with China, in what some analysts call the world’s largest traffic jam…Yet Mongolia seems willing to make that trade-off, with coal prices soaring since China has begun cutting production, analysts say. Market prices for the type of coal produced in Mongolia, which is used in steel- and iron-making operations, skyrocketed 200% in 2016 to $225 a ton.

Mongolia is also in talks with some Asian firms to develop its Tavan Tolgoi coal reserves, analysts say. The Gobi desert site is one of the world’s largest untapped coal mines, with more than six billion tons of coal deposits.

Excerpts from the New China-Mongolia Mining Deal: Economic Windfall or Environmental Threat?, Wall Street Journal, Jan. 21, 2017

Boycotting Coal

Chinese coal  consumption dipped by 1.6% in 2014, despite economic growth of 7.3%. The country’s voracious appetite for steel is peaking, damping demand for coking coal. Worries about pollution mean that demand for thermal coal, as used in power stations, is slackening too. Water conservation is another concern for policymakers—on current trends coal could account for a quarter of China’s water use by 2020 and coal reserves are mainly in the most parched regions. Its coal-fired plants are running at only 54% of capacity, a 35-year low. In Beijing two big coal-fired plants closed this week; the capital’s last one will shut down next year.

Another prop to demand has been power generation in rich countries. But in America coal now struggles to compete with natural gas, which has fallen by 80% in price since 2008. Domestic coal use there peaked in 2007. European consumption soared after Germany’s hasty decision to close its nuclear-power plants. But gas and renewables are eating into that.

Coalswarm, an environmental think-tank, says in a new report that two-thirds of coal-fired power plants proposed worldwide since 2010 have been stalled or cancelled…. Overall, Europe and America have already cut coal-fired generation capacity by over a fifth in a decade. The output of American coal mines dropped to 1993 levels in 2013.

Political pressure is growing against the most carbon-intensive fossil fuel. Coal provides 40% of the world’s electricity. But of 1,617GW of global capacity, 75% is of the dirtiest kind…. The chimneys of all but the most modern coal plants also emit plenty of other nasties. Mercury emissions stunt young brains. Sulphur and nitrous oxides scald lungs. Overall, coal kills around 800,000 people a year, most of them poor. In China it is responsible for up to a sixth of the particulates most dangerous for human health.

In America the coal and electric-utility industries are fighting the Environmental Protection Agency’s attempts to curb emissions of CO2, mercury and other toxins contained in coal. On March 25th, 2015 the Supreme Court heard arguments by some state governments, backed by the miners and utilities, that the agency has failed duly to consider the cost of its measures against mercury (see article).

Campaigners reckon 80% of the world’s coal reserves must stay in the ground if the planet is to stand a chance of keeping global warming under 2ºC by 2050. A divestment movement akin to the apartheid-era campaign to boycott South Africa is under way in many universities. Stanford may dump its coal investments and Oxford University is under pressure to do likewise. The World Bank no longer invests in coal-fired plants. Last year Norway’s sovereign-wealth fund dumped its holdings in more than 50 coal companies worldwide. South Korea recently introduced a carbon cap-and-trade scheme which punishes coal….

Furthermore, in some emerging markets, India especially, demand for coal is set to continue rising—so overall global demand may not peak until at least the 2030s. This week India’s government predicted a 19% rise in the country’s coal imports in this fiscal year. But thereafter the plan is to bring in private contractors to develop India’s untapped coalfields, and then to phase out all thermal-coal imports. If so, that will be grim news for the Indonesian, Australian and South African mining firms that are supplying India at the moment.

Even though some other developing nations’ coal imports will grow in future, coal companies are having to face up to a crisis now. Some are cutting costs and getting ready for a wave of consolidation. Others are litigating and lobbying against change.

Excerpts from Coal Mining: In the Depths, Economist, Mar. 28, 2015, at 65