Coal was a major driving force in the Industrial Revolution of the 18th century, during which Britain’s huge deposits of coal allowed it to generate cheap steam power. Today, many developing countries argue that their opportunity to participate in the fourth industrial revolution is dependent on their ability to utilise their own significant reserves of coal, which they argue is cheaper and more scalable than other energy sources.
Powering the 4th industrial revolution
This fourth revolution is characterised by a fusion of technologies, which is blurring the distinction between physical, digital and biological spheres and represents unlimited potential arising from the connection of billions of people through mobile devices containing unprecedented processing power, storage capacity and access to knowledge. But it requires access to electricity, to which many in developing economies have scant access. For example Africa has a population of 1.2 billion and the lowest household electrification rate in the world. This lack of reliable and affordable electricity represents one of Africa’s most significant challenges to rapid economic development.
The developed world, and in particular Europe, has declared coal persona non grata. Renewable energy technologies such as wind, solar, hydro, waste to energy and biomass are preferred. From a climate perspective this is both laudable and imperative, but not necessarily realistic in the short term. According to the World Energy Council demand for electricity is set to double by 2060 and the proportion of fossil fuels in the overall energy mix is expected to diminish over the coming 15 to 20 years, but still continue to constitute a significant portion of the total. Coal in particular is expected to peak by 2020 in China, and is expected to decline globally at a rate of 2.3% per annum between 2030 and 2060. Nevertheless it will continue to contribute between 35% to 40% of total power generation over the next 10 years.
Renewable energy technologies are developing at an impressive rate and costs are continuing to fall dramatically. It is now arguable that new solar and wind are cheaper than new coal, but intermittency remains the key challenge. By intermittency we refer to the generation availability of renewables, in particular wind and solar. Providers are not able to produce energy over a full 24 hour cycle, unlike coal. Additionally, most countries have existing fleets of coal-fired power stations that provide the baseload requirements. Concentrated solar is making inroads into solving intermittency problems but remains expensive and lacks sufficient scale to replace coal and other fossil sources.
The next leap will undoubtedly come from battery storage capacity, but realistically it will not challenge coal in the short term. Environmental imperative aside, curtailing developing nations’ access to coal-fired power does appear unreasonable. Much is spoken of clean coal although realistically this, to me, is the search for the proverbial Holy Grail. Coal, “clean” or otherwise, is dirty and utilises vast amounts of water. Clean coal would further increase the water impact, and for countries like South Africa that are water-challenged, this is not an ideal solution. It is difficult to ignore the vast coal reserves of countries like South Africa and Botswana, and it is quite understandable that they would seek to exploit these reserves in an effort to develop their economies.
These arguments ignore the socioeconomic impact that coal-producing regions face in the event that coal utilisation is forcibly curtailed. Vast communities are reliant on the coal industry and we cannot in good conscience ignore their needs. Entire towns and communities will be left destitute if they are no longer allowed to earn an income from coal. We need to have a clear action plan for retraining people and establishing alternative industries via tax incentives, economic development zones and education. Failure to do so may drive hardworking people toward more populist ideologies and civil unrest. We can all remember the closure of coal mines in the UK in the 70s, the impact of which is still being felt today by the communities that were affected.
I am an avid supporter of renewable energy and firmly believe that we need to act now to change the impact we are having on our environment. But I am also very mindful that large numbers of ordinary people are unable to suddenly change jobs or reinvent themselves.
Upcoming economic releases
On the economic front all eyes will be on President Trump’s delayed State of the Union address, at which he should provide insight into the progress being made on trade talks with China. Later in the week, the BoE will pronounce on interest rates and is widely expected to keep its policy rate unchanged at 0.75%. The market will be looking for its tone on forward guidance.
For more information, please contact Lionel Kruger, Director at JCRA, at email@example.com.