Europe

Renewables

Coal's use as a source of power supply is rapidly diminishing in the European Union (EU), with the carbon intensive fuel being squeezed out by growing deployment of renewables, higher carbon prices under the EU's Emissions Trading Scheme (ETS), and several countries adopting coal-phase out plans. Furthermore, the level of competition that coal faces, from renewables and gas, is only intensified by stagnant regional electricity consumption, reflected in the fact that coal has been losing market share every year for the last six years.

According to a report jointly released by two energy and climate think tanks, UK-based Sandbag and Germany-based Agora Energiewende, The European Power Sector 2019, total coal use – including lignite and hard coal combined – fell to just 15% of EU power generation in 2019, a historic low. Furthermore, for the first time, coal was exceeded by combined generation from wind and solar. Coal in most parts of Europe is on the way out, with coal's share of EU power supply much lower compared to the US (24%), Japan (30%), Australia (60%), and China (66%).

Coal's accelerated decline

Coal use for power generation in most of Europe has, in fact, been in decline for some decades – as The Economist Intelligence Unit pointed out in 2014—in terms of both market share and volume. But in 2019 this decline accelerated. In 2010 combined hard coal and lignite generation in the EU was 818 terawatt hours (TWh), or 25% of the total, but this had fallen to 619 TWh by 2018, a drop of 24%. In that year coal accounted for 19% of total EU generation. Therefore coal use has already been steadily falling over the last decade, apart from a brief period in 2011-12, until 2018. However, last year coal use fell off a cliff, down by 24% from the year before. Until 2018 it was mainly the fall in hard coal use that caused total coal generation to drop, while lignite use was only edging down. But in 2019 the fall in both was dramatic: hard coal collapsed by 31% and lignite by 16%, resulting in a total reduction in coal use of around one-quarter.

Big falls in the UK and Germany

Sharp drops in coal use have been occurring in several EU markets, mainly in Western Europe, although coal-fired power in some Central and Eastern European markets has proven hard to budge. The UK, in particular, has shifted dramatically away from coal since 2012, when coal accounted for 39% of its power generation. The introduction of a carbon price floor in 2013 prompted utilities to shift away from coal, and in 2015 a phase out of unabated coal use, to be completed by 2024, was announced. By 2019 coal accounted for only 2% of the UK's power mix, with the fall in UK coal generation alone accounting for 40% of the total reduction in EU hard coal generation since 2012.

In Germany, too, coal use has been falling, albeit in a less dramatic way until last year. The nuclear phase-out announced in 2011–to be completed by 2023–did contribute to a temporary and modest increase in coal use until 2013. However, since then, Germany's use of coal has since been falling, in both volume and market share, driven by lower hard coal use. In 2013 coal accounted for 45% of Germany's power generation, but this had fallen gradually to 36% by 2018. However, 2019 saw a sharp drop in both hard coal and lignite use combined, by 25%, resulting in the total share for coal falling to 28% of Germany's generation. Contrary to the perception that the nuclear phase out has enhanced Germany's coal use, it has in fact fallen by 35% in volume, from 262 TWh to 171 TWh, since the year the nuclear phase-out was announced.

Several other European countries have also reduced their coal use for power over most of the last decade. These include Denmark, Finland, France, Greece, Italy, Netherlands, Spain, and Portugal, many of whom experienced significant falls in coal use last year. In fact in 2015 there were six states that relied on coal for more than 30% of their power needs, but by 2019 the number was down to three (Bulgaria, Czech Republic and Poland).

Reasons for coal's fall

What have been the main reasons for coal's demise in Europe so far? A combination of factors have made the power market a difficult one for coal, causing its generation to fall by over 40% since 2010. These include stagnant electricity demand, aggressive capacity build of solar and wind power by several EU member states, and EU-wide policies (such as the emissions trading scheme, or ETS, which has had a more recent impact, the setting of broader climate and energy targets, and air quality directives to curb industrial pollution). Furthermore, the recent spate of announced national-level coal phase-out plans means that coal-fired power in Europe will continue to struggle over the next decade. By 2030 coal will, apart from a few exceptions in Eastern Europe, be virtually out of the region's power supply system altogether.

Stagnant electricity consumption

According to the Sandbag-Agora Energiewende report, EU's electricity consumption is 4% lower in 2019 compared to 2010. Despite the fact that both GDP, and to a lesser extent, population, have grown over the last ten years, electricity consumption has stagnated due to better efficiency in economic activity and a shift from industrial production. EU power needs have therefore not been increasing. Concurrent with this stagnant demand has been a substantial capacity build of other sources of power, such as renewables, especially of wind and solar.

More renewables

A result of this is that renewables have been squeezing out coal, and in 2019 EU generation from wind and solar reached 18% of the total, exceeding generation from coal for the first time. In fact generation from all renewables (also including biomass and hydro) reached 35% of the total last year, compared to just 21% in 2010, mainly driven by higher usage of solar and wind, and coal has been pushed out as a result. The Sandbag-Agora Energiewende report highlights that since 2012, in terms of percentage point changes, the countries that have increased renewables generation the most, such as the UK, Germany, and Denmark, have also seen the largest falls in coal generation. With solar and wind capacity build continuing – Poland for example has recently prioritized offshore wind – this dynamic will continue, especially if the EU's announced Green Deal becomes a policy reality.

Higher carbon prices

More recently higher carbon prices under the EU's ETS has also contributed to the acceleration of falling coal use, mainly by enhancing the use of natural gas use for power which, until 2015, had been in the doldrums. The ETS, launched in 2005, had not been as effective as it could have been in cutting emissions from the sectors it covers, including power, with prices of below 10 Euros per metric ton between 2012 and 2017, largely due to poor regional economic performance reducing the demand for carbon allowances.

However, recent reforms aimed at soaking up surplus allowances contributed to ETS prices lifting, which have consistently been over 20 Euros per metric ton since early 2019. This, combined with lower natural gas prices, has made gas more competitive with coal for utilities. Natural gas generation had lost considerable ground between 2010 and 2014, but this has since turned around, and increased further by 12% last year. Gas has now recovered almost to its level in 2011, and in 2019 reached 22% of total generation, in so doing crimping coal-fired power further. The ETS reforms have thus made the scheme a more effective tool in cutting emissions in the power sector, by discouraging use of the most carbon intensive fuel, coal, while enabling gas to further rebound.

Lower carbon intensity

EU power sector emissions have fallen by 32% since 2012, including a substantial fall of 12% in 2019 alone, according to the Sandbag-Agora Energiewende report. This is due to the CO2 intensity – the amount of CO2 emitted per kilowatt hour of electricity generated – of Europe's power system continuing to tumble. Latest available data from Eurostat shows that the CO2 intensity of EU power generation fell by 26% between 2007 and 2016, and this has fallen further in the last three years, given that the trend of increased use of renewables and natural gas at the expense of coal has continued. Overall, non-fossil fuel sources now account for 60% of EU power supply, up from 48% in 2010, driven by higher renewables penetration. Simultaneously, as the fossil fuel share of EU power supply shrinks, it has also more recently been shifting from coal to less carbon intensive natural gas.

Coal free future

Over the next decade the outlook for coal points to further reduction in its use for power, especially as 14 EU member states have announced plans to phase-out coal, almost all by 2030 and many by 2025. This now includes Germany, most importantly, which will see its last coal plant close down by 2038, or possibly as early as 2035. The EU has also published a road map for its Green Deal, in which its 2030 climate targets would be raised as the EU adopts a more ambitious pathway to achieve carbon neutrality by 2050 (such as increasing the 2030 emissions reduction target from 1990 levels from 40% to 55%). Poland, and a handful of countries in South-East Europe, will still prioritise coal, and this is unlikely to change in the absence of assistance from other EU member states, and EU agencies, to undertake a low carbon transition of their energy systems. However it appears that for most European economies the 2020s will be their last decade for coal use, at least as far as power generation is concerned.