Global coal-fired power generation is on track to peak in 2023 as new sources of renewable and low-carbon energy expand rapidly. Coal has dominated the global power sector for the past 30 years, but Rystad Energy modeling shows that 2024 will mark the start of the fuel’s decline as solar and wind generation grow in popularity.
New electricity supply from renewables is expected to outstrip power demand growth, leading to coal’s displacement starting next year and compounding in the coming years. As a result, coal-fired generation will fall marginally to 10,332 terawatt hours (TWh) in 2024, down 41 TWh from 2023. This is a relative drop in the ocean, but it’s a sign of things to come as renewables continue their growth trajectory.
As coal’s share falls, so will the associated carbon dioxide (CO2) emissions. Thanks to coal’s dominant role in powering the world, the power sector is the biggest contributor to global pollution – accounting for about 40% of all emissions.
Investments in coal capacity and overall usage have fallen in Europe and North America in recent years due to a combination of strict emissions policies and abundant availability of affordable natural gas supplies. Yet, enduring growth in Asia, primarily China, has kept global coal consumption buoyant. Even so, coal will be gradually displaced by the rapid development of low-carbon power sources, ushering in a cleaner, leaner system even as investments in new capacity in Asia continue over the next few years.
“Coal usage in the power sector is peaking. The drop in total coal generation in 2024 may be small on paper, but it signals the beginning of the renewable energy era in the power market. However, there are still challenges to overcome in a renewables-heavy electricity sector, including intermittency issues. For that reason, coal and natural gas power plants will continue to play a key role by providing baseload supply and flexibility,” says Carlos Torres Diaz, senior vice president of renewables and power research at Rystad Energy.
Global coal power generation increased from 4.4 TWh in 1990 to 10.2 TWh in 2022, registering a 133% rise. China overwhelmingly drove that growth, but India and other Asian countries have also contributed. Global installed capacity grew from 856 gigawatts (GW) in 1990 to about 2.1 TW in 2022, with Asian countries adding about 1.4 TW.
Thanks to abundant coal reserves and the need to add energy supply quickly to support economic growth, Asia is responsible for more than three-quarters of the world's coal power generation. Coal generation capacity continues to grow in the region, but the pace of new projects is slowing amid environmental concerns. Countries around the world that are highly dependent on coal, like China, Germany and the US, are developing renewable capacity fast enough and at favorable economics to displace coal easily.
Europe and North America are systematically replacing coal generation with cleaner sources like natural gas and renewables, reducing coal power capacity by more than 200 GW since 1990. Europe’s decline is mainly driven by strict emissions policies, while North America has primarily replaced coal generation with gas power as abundant regional production has slashed prices. For instance, in November 2023, gas generation costs on the Pennsylvania-New Jersey-Maryland Interconnection (PJM) market in the US were half of coal generation costs.
Despite coal losing ground in Europe and North America, Asia’s growth has overshadowed their efforts. And, as gas and LNG prices rocketed in the second half of 2022, many countries turned to coal to meet their energy needs, leading to increased power sector emissions. To put it into perspective, an average coal power plant emits about 1 tonne of CO2 per megawatt-hour (MWh), while gas plants emit close to 0.5 tonnes per MWh. This means emissions per megawatt-hour are already halved just by switching back to natural gas now that prices are more stable.
Growth to continue in Asia, for now
Asia has added more than 40 GW of new coal capacity in each of the last five years and is expected to add 52 GW next year. In other words, Asia will add more coal capacity in 2024 than the total installed capacity in Argentina. Most of this new capacity is in China, followed by India and Indonesia. Rystad Energy forecasts capacity additions will continue until 2027, albeit slower, after which coal power plants will begin to decline.
The utilization rates of these new Asian coal power plants will be dictated by electricity demand growth, renewables capacity growth and the age and health of existing coal infrastructure in each country. More than 16% of the region’s existing coal plants are 20 years old or older, meaning a drop in efficiency or an increase in maintenance and operating costs is on the horizon. New plants could replace this aging infrastructure, especially in countries where alternative generation sources could help meet demand.
Renewables starting to outpace coal
Even with the coal generation fleet continuing to expand, the yearly additions are overshadowed by the new renewable energy capacity. Renewable power has grown exponentially since 2010 due to declining manufacturing costs and ambitious national and regional targets. The global average levelized cost of energy (LCOE) for solar PV and onshore wind is around $50 per MWh. This compares to $84 per MWh for coal and $144 per MWh for gas power in Asia (considering a coal price of $122 per tonne and a gas price of $17 per MMBtu). Therefore, investments in renewable energy are a more economical choice for most countries, leading to installations setting new records every year.
Close to 300 GW of solar PV and 140 GW of wind capacity will be installed globally in 2024, more than half of which will be added in Asia, where there is a more urgent need to begin a displacement of coal power generation. This will take global capital expenditure in solar PV and wind capacity to more than $600 billion next year. Capacity gains are only as valuable as their output, though. Renewable energy power plant efficiency remains well below fossil fuel power generation, but solar PV and wind capacity growth is moving fast enough to make up the difference.
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The lingering question is whether clean energy supply can grow quickly enough to meet demand. Global electricity demand is forecast to reach about 25,400 TWh next year, 3% higher than 2023. Again, most of this growth will come from Asia, where economic activity continues to expand. The rate of demand growth is forecast to remain stable this decade and then accelerate due to the rapid electrification of the transport and industrial sectors during the 2030s.
Generation from carbon-free sources, including solar PV, wind and others (such as nuclear, hydro and bioenergy), is expected to add 845 TWh of new supplies in 2024. Assuming 5% losses, the new supply from clean sources is still significantly larger than the increase in demand, meaning there is potential to displace fossil-fueled power generation. Given that renewable power generation, on average, has much lower operational costs than fossil-fuel plants, these sources will have priority in the merit order and should result in a lower utilization of coal and gas plants.
The long-term displacement of fossil-fueled power generation looks set to begin next year, indicating that we could be experiencing peak coal generation and carbon emissions from the power sector this year.
By Rystad Energy
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