Around 79% of the European Union’s coal power fleet runs at a loss, and will burn through €6.57 billion this year.
Economics thinktank Carbon Tracker used asset-level financial models to analyze the operating economics of every coal plant in the EU. The resulting analyst note – “Apocoalypse Now” – not only had a title to make pv magazine’s editors jealous, but exposed the idea of coal being the cheapest energy source.
Carbon Tracker analysts estimated 84% of lignite and 76% of hard coal generation capacity is operating at a loss in the political bloc, and the two forms of fossil fuel generation could lose €3.54 billion and €3.03 billion, respectively, this year. Against ‘relentless’ competition from solar and wind power, the financial case for coal is becoming incrementally worse, according to data provided by Carbon Tracker. In 2017, the report stated, ‘only’ around 46% of EU coal generators ran at a loss.
The authors sourced data from the European Network of Transmission System Operators for Electricity, and from energy transition thinktank Agora Energiewende to generate assumptions about the costs associated with coal power plants.
German utilities at risk
The coal industries most exposed to financial risk this year are in Germany (which could lose €1.97 billion), Spain (€922 million) and Czechia (€899 million), according to the study. The utilities facing the stiffest coal-related losses are Germany’s RWE (€975 million), Czech energy company EPH (€613 million) and Greece’s PPV (€596 million).
“EU coal generators are hemorrhaging cash because they cannot compete with ever-cheaper renewables and gas, and this will only get worse,” said Matt Gray, head of power and utilities at Carbon Tracker and co-author of the report. “Policymakers and investors should prepare to phase out coal by 2030 at the latest.”
Thanks to generous subsidies, there are coal plants in Poland turning in profits. In Germany, the Netherlands, Italy, Czechia and Slovenia, some plants benefit from high wholesale power prices. However, even in those markets, the prospect of carbon taxes and fiercer competition from renewables will have spooked investors.
Carbon Tracker added, governments which fail to shutter their coal plants will end up with a decision: Shift the bill onto utilities “and destroy shareholder value”, or let the public pay through higher electricity bills and/or taxation.
A recent legal case in Poland outlines the risk to coal investors. Construction of the €1.2 billion Ostroleka C power plant was blocked by court action brought by a minor shareholder in the utility concerned, on the basis such a facility posed unjustifiable financial risks to shareholders of the power company.
The Carbon Tracker study noted the chilling effects of worsening economics on the European coal industry, with hard coal electricity generation across the EU down 39% on last year and lignite use down 20%. That retreat added up to “eye-wateringly low” generation capacity utilization rates.
There is a way out, according to the authors of the report. They suggest national governments – which have cheaper access to capital than utilities – form special purpose vehicles to purchase coal plants from power companies on the understanding the proceeds will be spent developing renewable energy facilities.
Such an outcome would realize Gray’s assertion that: “Getting off coal is cheap and can be a win-win for consumers and shareholders, providing governments and investors work with local communities.”