Pandemic Resilient — The Demand for Coal is Shrinking

In the 16th century, England’s forests were starting to look bare.

You see, England used wood for pretty much everything. It was a key material in building houses and ships, and also in making books. And this was a time of naval expansion after discovering the US and of more books aided by the invention of the movable type.

But wood was also widely used for heating.

All this coupled with population growth meant that England was running out of trees, and wood prices went through the roof.

With an energy crisis on their hands, England started looking for alternatives.

Coal had some advantages. There was lots of it, and it was cheap. There were also some disadvantages. It released fumes, and it was dirty.

But higher wood prices pushed England to make the switch and by the end of the 17th century the country had already turned to coal for energy.

Coal, coupled with the invention of the steam engine, would also later be instrumental in the industrial revolution. It’s something that would spread around the world.

We started using coal to fuel our steamboats and trains. But we also used it to generate electricity for our homes and factories.

Today, we still burn coal to make electricity. In fact, coal-fired power stations generate today over a third of the world’s electricity.

Australia is one of the world’s largest coal producers.

And that production has been rising in the last decades. In 2017/18 Australia produced 510 million tonnes of coal, that’s over double of what we produced in the early ‘90s.

We export much of the coal we produce, around 75% of it.

But we also use it to produce our own energy. Around 40% of our energy comes from coal.

But coal could have its days numbered.

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Finding the Next Alternative Energy Source

As I mentioned last week, some superannuation funds are already ditching fossil fuels. And the Big Four are also reducing their financing to coal and are looking to be out of these investments by 2030–35.

But it’s not just the private sector, governments are shifting too.

Some of our largest coal buyers — China, South Korea, and Japan — have already pledged to become carbon-neutral economies by 2050 and 2060, moving away from coal.

In the words of Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis:

Global capital is fleeing fossil fuels, starting with throwing thermal coal under the bus.

The demand for coal is shrinking…at a time when renewables are getting cheaper.

In fact, in a new report this week the International Energy Agency (IEA) sounded the alarm on coal, after not that long ago declaring ‘solar is the new king of electricity’.

You see, while fossil fuels have had quite a bit of trouble during the pandemic, renewables have adapted quite well, particularly in electricity.

According to IEA’s report, almost 200GW of new clean power capacity will be installed by the time we reach the end of the year. This is a new record in renewable capacity additions and makes up almost 90% of all the world’s total power capacity increase.

And while global energy demand is decreasing, affecting fossil fuels, demand for renewables hasn’t suffered.

As the IEA wrote:

In sharp contrast to all other fuels, renewables used for generating electricity will grow by almost 7% in 2020. Global energy demand is set to decline 5% — but long-term contracts, priority access to the grid and continuous installation of new plants are all underpinning strong growth in renewable electricity. This more than compensates for declines in bioenergy for industry and biofuels for transport — mostly the result of lower economic activity. The net result is an overall increase of 1% in renewable energy demand in 2020.

IEA’s executive director Fatih Birol forecasts green electricity could take over from coal as early as 2025. As he said:

Renewable power is defying the difficulties caused by the pandemic, showing robust growth while others fuels struggle. The resilience and positive prospects of the sector are clearly reflected by continued strong appetite from investors.

In 2025, renewables are set to become the largest source of electricity generation worldwide, ending coal’s five decades as the top power provider. By that time, renewables are expected to supply one-third of the world’s electricity.

Investors’ money is shifting, our export markets are changing, and renewables are getting cheaper.

It goes to show that a big shift in energy is already happening.


Selva Freigedo,
For Money Morning 

PS: Check out James Allen and Selva Freigedo’s clean energy investment service New Energy Investor‘  to learn more about investing in renewable energy and how you can capitalise on this growing trend. Click here to learn more. 

Selva Freigedo is an analyst at Money Morning. She has a background in financial economics, but what makes Selva´s experiences different to many are the places she has lived and worked. Born in Argentina, she has also lived in Brazil, the US, Spain, and now Australia. She has seen up close many of the economic phenomena that worry Fat Tail Investment Research readers, like hyperinflation, bank bail-ins and governments burdened with so much debt it cannot possibly be repaid.

Every week, she goes through each article, research note and recommendation produced by our experts around the world to give you information on how to build and protect your wealth. Selva packages the week’s best ideas into one easy to read report: Port Phillip Insider Extra.

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