Stability has always been an important selling point for coal. However, in recent decades, this stability has begun looking more like its related but inferior counterpart, stagnation. This is especially true in the US, where the dialogue around coal has been back in style ever since Trump’s reversal of the Clean Power Plan. This trend is important to understand, as reversing it is an imperative for those in the coal industry. The US serves as a good case study, but it is a trend that is either already occurring or likely to occur in many other coal consuming nations as well.
The story begins with electricity. 90% of coal is used for electricity generation and electricity demand changes dramatically based on location, time, and weather. Generally, demand cycles between low and high consumption periods over the course of day, as shown in Figure 1.
At the very basic level, coal plants behave like charcoal grills: load them up with coal, light the coal on fire, and then wait. Coal takes time to warm up before it can generate heat efficiently. Compare this to gas and liquid fuels, like gasoline or jet fuel, where the engine turns on and is at full speed within seconds. This description is highly simplified, but the basic principle holds true. Compared to gas plants, coal plants take much longer to ramp electricity production up and down. Furthermore, they are much more susceptible to wear when changing output levels because they are not built for some types of performance.
Therefore, generation output on any given day looks something like Figure 2 below. Coal generators keep output relatively flat while gas is willing and able to move with demand. The two fuels compete for different territory. Coal competes for the base demand that exists around the clock – everything under about 400 GW in Figure 1 – but can’t compete as well for the fluctuating demand. This is where gas, more-expensive but more-responsive, finds its niche.
But then fracking happened, and this narrative began shifting as natural gas prices began dropping. When the price to generate electricity with natural gas became equivalent to that of coal, natural gas could compete with coal for the around-the-clock demand but coal still couldn’t compete in natural gas’ fast-response arena. Despite the onslaught, coal prices barely budged.
Coal had always pointed to stable and low prices as its advantage. Not only was natural gas generally more costly, but it also faced a logistical constraint. Natural gas flows through pipelines, which by their nature can have localised capacity constraints. While coal generators could easily sit on piles of coal, natural gas generators would have to put up with rapid price fluctuations and sometimes uncertain supply beyond the few expensive tanks they would have on site.
Suddenly, though, that very feature of price immobility became coal’s liability. As seen in Figure 3, in a full decade of being under attack, there were no price drops for coal — no supply changes, operational efficiency improvements, or any other events that could push prices down. Coal prices stayed flat while gas prices sunk. Meanwhile, financial instruments around gas became more liquid and more diverse, allowing power producers to hedge against price swings more easily than they could before.
This is all before one gets to coal’s biggest problem: its by-products. Coal rightfully began receiving negative attention around the level of pollution it emits. Surely a technical problem like this might have a technical solution, especially considering the world’s wealthiest nations all have a stake in it?
But despite all the criticism, coal got dirtier. Figure 4 below shows heat rates – a unit representing the amount of electricity that can be produced per unit of heat. Natural gas made huge strides on efficiency, allowing it to produce more electricity per unit of heat, and thus per unit of pollution and per unit of fuel cost.
The explanation for this is straightforward. In 2013, three-quarters of all coal plants in the US were thirty years into their forty-year lifespans. Plants lose efficiency with age, especially when not maintained. Natural gas on the other hand was a relatively new phenomenon, and a large majority of these plants were less than ten years old in 2013 and contained the newest technology. One result of all this is shown in Figure 5 below. Per unit of electricity output, natural gas plants cut their CO2 emissions by 20% while coal plants increased emissions by about 3%.
Coal is being attacked on at least three fronts in its core domain of electricity production. If it wants to stay relevant in this arena, it will need to compete in a way it hasn’t needed to before. Dialogue around coal tends to be driven by extremes. Those who say coal is absolutely on its way out ignore its strengths as a stable, low-cost, easily retrieved and easily moved fuel source. Those who say alternative fuels are nothing more than a temporary fad completely miss that stagnation is far more dangerous to the industry than any individual alternative.
There are already some signs that this innovation is not only possible but also already happening. For example, consider Figure 6 below, a more recent version of Figure 2. Both graphs are representative of the season in which they are taken from, and notice how much rounder coal generation has become.
Increased or more efficient coal production could possibly bring coal prices down, and modernised technology in electricity production from coal could possibly reduce emissions to competitive levels. Furthermore, other modern technology such as dual-fuel generators, which are seeing an increase in popularity in certain parts of the world, as well as other technology to make coal more flexible or at least more efficient, might boost the fuel.
Why this trend has happened is a different part of the story. Whether this stagnation is a cultural artifact within the coal industry from its days of untested dominance or a symptom of regulatory uncertainty scaring investment away from the industry is almost irrelevant. What must be known is that, much to the world’s benefit, there is now a variety of good ways to make electricity, and coal must innovate like the rest of us if it hopes to survive. Otherwise, if natural gas doesn’t kill it, something else will.