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Coal Power Generation Falls Despite Energy Crisis

Despite record high natural gas prices and a worldwide energy crisis, global coal-powered generation fell in the year's first half, defying forecasts of high coal consumption in the electricity sector.

As a result, emissions also dropped in the first half of 2022, despite a rise in overall power demand and Europe resorting to coal-fired power capacity amid surging natural gas prices and reduced imports of pipeline gas from Russia.  

These trends, analyzed in a report by S&P Global Commodity Insights cited by The Wall Street Journal, showed how important China is to the global energy markets and how the market works - demand falls when prices triple.

Coal prices hit a record high earlier this year after the Russian invasion of Ukraine and the announcement from the EU that it would stop importing Russian coal from August.

However, the biggest factor in lower coal-fired power generation so far this year was the marked slowdown in economic growth in the world's top consumer of coal, China, which accounts for more than half of global coal consumption. Due to renewed COVID-related lockdowns in the spring of 2022 and the crisis in the real estate sector, Chinese coal-fired power generation dropped in the first half of 2022 by 1.2 percent compared to the same period of 2021, per S&P Global Commodity Insights.

This wasn't the forecast that the International Energy Agency (IEA) made in December 2021, which estimated that China's coal-fired power generation would increase by 4.1% from 2021 to 2024.

But the IEA said in a July report that due to the considerable slowdown in China's economy in the second quarter of 2022, coal demand in the power sector declined by 3% in the first half amid weak economic growth and a strong increase in hydropower generation. The IEA revised down its December 2021 forecast for growth in 2022 Chinese coal demand to flat consumption, assuming "the Chinese economy recovers in the third and fourth quarters from the substantial slowdown in the second quarter."

Lower coal-fired power generation in the first half of 2022 means that global emissions dropped by 1% despite rising power demand globally and despite Europe turning to more coal to secure power supply in light of dwindling gas supply from Russia.

"The drop in emissions may seem surprising given the popular narrative that focuses on fossil energy security, but in reality it is quite straightforward—high fuel prices lead to less demand," Xizhou Zhou, vice president at S&P Global Commodity Insights, commented, as carried by the Journal.

Per a Carbon Brief analysis, based on official figures and commercial data, Chinese carbon dioxide (CO2) emissions fell by a record 8% in the second quarter of 2022 - the largest reduction in at least a decade. Coal-fired power generation fell by 4% year-on-year in the first half of 2022 but saw an increase in July and August due to record-breaking heatwaves and droughts. But the latest rebound in coal-fired electricity output has not changed the more prominent drivers of falling emissions: the real-estate slump, the COVID lockdowns, weak growth in electricity demand, and strong growth in renewable output, Carbon Brief said earlier this month.

According to data compiled by another emissions tracker, Carbon Monitor, China's emissions fell by 3.4% in all sectors between January and July, with emissions in the power generation sector down by 1.3% and emissions from industry down by 6.5%.

Overall power generation in China increased by 4.2% in the first seven months, but coal-fired generation fell by 1.2%. On the other hand, power generation from solar, wind, oil, and hydropower all grew by double digits compared to the same period of 2021, as the renewables rollout continued. Meanwhile, record-setting coal and gas prices resulted in declines in those two electricity-generating fuels.

In the EU and the UK, coal power generation jumped by 13.6% in January-July, according to Carbon Monitor, while nuclear and hydropower generation faltered and gas prices hit records. Yet, Europe's coal demand increase isn't making any difference globally since Europe accounts for just 5% of global coal consumption.

China is the key factor in global coal-fired power generation and emissions, and the health of the Chinese economy will shape the trend in global coal demand this year and in subsequent years.    

By Tsvetana Paraskova for Oilprice.com

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