COAL IN THE UK AND EUROPE - Minerals EngineeringSource – IEA Medium Term Coal Market Report 2016 …but coal still provides almost a quarter of world energy in 2040… IEA World

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www.nigelyaxley.comNige l Yax leyIndependent Consultant

COAL IN THE UKAND EUROPE

MES Symposium

18th May 2017

MES Symposium - 18th May 2017

Coal in the UK and Europe

Coal in the world A spent force or the bedrock of power generation?

Coal in Europe The continuing challenge of uncompetitive mines

Climate politics and key EU policies

Coal in the UK Nose-dive in coal supply and markets

The energy policy cocktail – life support after near-fataldraught

UK’s coal phase-out – global leadership or a blind alley?

‘Clean coal’ – the way forward or an oxymoron?

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A spent force or the bedrock of powergeneration?

Coal in the world3



In world energy consumptioncoal is second only to oil…

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Mill

ion

Ton

ne

sO

ilEq

uiv

ale

nt

Oil Coal Gas Nuclear Hydro Other Renewables

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Source – BP Statistical Review 2016

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…but consumption has stalledin recent years IEA Coal Information – 2015 data...

World coal consumption down 2.6% to 5.4 Btce

Global coal production down 2.8% to 7.7 Bt Hard coal 6,901 Mt (–3.0%)

Lignite 807 Mt (–1.0%)

China produced 3,527 Mt, down 3.1% USA 812 Mt India 691 Mt

Australia 509 Mt Indonesia 469 MtRussia 334 Mt South Africa 253 Mt

Global hard coal trade down 4.1% to 1,311 Mt India became world’s largest importer 222 Mt

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China’s impact is hugelydominant…

2787.6

522.8 553.4

367.7

169.4 164.4 131.2

743.1

0

500

1,000

1,500

2,000

2,500

3,000

3,500

China United States India EU28 Japan Russia South Africa Others

Mill

ion

Ton

ne

sC

oal

Equ

ival

en

t

2013 2014 2015

6

Source – IEA

World CoalConsumption

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…in production as well asconsumption…

3,527

813691

509 469349

252 185 136 107 90

580

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Mill

ion

Ton

nes

2013 2014 2015

7

Source – IEA

World CoalProduction


…and has a major effect onworld trade volumes

789910

9851,063 1,048 1,003

282

286

283

295 311299

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

2010 2011 2012 2013 2014 2015

Mill

ion

Ton

ne

s

Coking Coal

Steam Coal

8

Source – IEA

World Coal Trade

5


IEA predicts plateau in worlddemand will continue…

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Source – IEA Medium Term Coal Market Report 2016

…but coal still provides almost aquarter of world energy in 2040… IEA World Energy Outlook 2016…

Global energy demand set to grow by 30% to 2040in central ‘new policies’ scenario

Coal’s share of primary energy demand drops from 29%(2014) to 23% (2040)

Overtaken by gas in late 2030s

Share of electricity generation drops from 41% to 28%losing ground mainly to wind and solar

Global coal demand grows by just 0.2% each yearto 2040 (c.f. 2.5% in last 25 years)

China has already peaked

Indian demand continues to grow - by 150% to 2040


10

6

EU

India

China

Others

0

500

1,000

1,500

2,000

2,500

3,000

20142025

2040

383

277

143

540820

1,337

2,8962,807

2,5211,790

1,746 1,913

Mill

ion

Ton

nes

Co

alEq

uiv

ale

nt


…with demand growth in India amajor factor

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New Policies Scenario

Source: IEA World Energy Outlook 2016


1.2 billion people still livewithout access to electricity

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Source – World Coal Association

1.2 billion people

worldwide live

without access to

electricity

2.7 billion rely on

traditional fuels for

cooking

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1981 2008

World 1937.8 1289

China 835.1 173

Worldexcluding

China1102.8 1116

Poverty measures for $1.25 a day in 2005PPP(number of people, in millions, below $1.25 a day)

Source: World Bank 2012

Over the past three decades:

China achieved universal access to electricity

China’s steel production multiplied by 18

China’s cement production multiplied by

almost 14

China’s connected 99% of its population to

the grid

Source: World Steel Association, IEA

China’s coal consumption grew by 400%


China’s transformative growthhas been fuelled by coal…

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Electricity demand in Indiais expected to average4.4% pa over the next 25years

Coal generation capacitymore than doubles, whilerenewables also increasesignificantly to meetdemand

IEA indicates thatmaintaining an adequateelectricity supplyrepresents a significantinvestment challengerequiring $2 trillion (in 2013dollars)


…and coal will be a criticalenabler of growth in India

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The continuing challenge ofuncompetitive mines

Climate politics and key EU policies

Coal in Europe15



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In Poland critical coal industryrestructuring is underway …

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…but for climate activists coal isnot welcome in Europe…


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…and they have friends in highplaces

“We know that technology basedon the use of highly pollutingfossil fuels – especially coal, butalso oil and, to a lesser degree,gas – needs to be progressivelyreplaced without delay. Untilgreater progress is made indeveloping widely accessiblesources of renewable energy, it islegitimate to choose the lesser oftwo evils or to find short-termsolutions.”

(paragraph 165)


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Papal Encyclical June 2015

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World Bank “will provide financial support for greenfield coal power

generation projects only in rare circumstances”

European Bank for Reconstruction and Development “will provide its financial support for greenfield coal power

generation only on limited occasions”

European Investment Bank “has introduced an Emission Performance Standard of

550g CO2/kWh to screen the Bank’s investments in fossilfuel generation projects”

Stanford University, Sydney University.....Rockefellers.....

Divestment policies are gainingground…


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Paris agreement is a curate’s eggfor coal (and what about Trump?)


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Coal-related EU legislation is a complex mix…

Climate & EnergyPackage2030

20-20-20targets

ETS Directive& reform

Energy Union

National EmissionCeilings Directive

HabitatsDirective

EnvironmentalLiability DirectiveStrategic Environmental

Assessment Directive

Industrial EmissionsDirective (LCP BREF)

Clean Air Programme for Europe

Environmental ImpactAssessment Directive

Integrated PollutionPrevention & Control

Directive

Ambient Air QualityDirective

Water FrameworkDirective

Mining WasteDirective

GroundwaterDirective

LAND, WATER & WASTE LEGISLATION

AIR QUALITY LEGISLATION


…but some current policies arekey for coal in Europe Large Combustion Plants BREF

Major concerns over process and dominance byNGOs

Mercury limits unachievable and incorrectly derived

Coal plants will rely significantly on derogations

EU Emissions Trading Scheme Reform EU parliamentary process now complete with plenary

vote (15th February)

Annual reduction factor remains at 2.2%

Environment Council agreed common position

Trilogue negotiations ongoing to agree final text

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Nose-dive in coal supply and markets

The energy policy cocktail – life supportafter near-fatal draught

UK’s coal phase-out – global leadershipor a blind alley?

Coal in the UK25



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UK coal consumption andsupply have collapsed…

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Source – BEIS

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Mill

ion

Ton

ne

s

Net Imports

Production

Consumption

UK Consumption andSupply Trends


…with gas the main beneficiary –resulting from the carbon tax

Coal9.8%

Gas43.2%

Nuclear22.0%

Others, includingRenewables

24.9%

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Source: BEIS

Down 59.5%

Up 47.0%

Up 1.4%

Up 2.0%

2016 UK Generation by Fuel

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Fuel switching to gas relegatescoal to peak running in the winter

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Source – BEIS

0

2

4

6

8

10

12

14

16

(TW

h)

Coal

Gas

Nuclear

Biomass

Other

UK MonthlyGeneration by Fuel


UK production has increased itsshare a little…

UK4.1836%

Colombia2.3920%

Russia2.2619%

USA1.2911%

Australia0.746%

South Africa0.091%

Poland0.081%

Others0.726%

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Source – BEIS/HMRC

Million Tonnes

2016 UK Coal Supply

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…with Russia seeing thebiggest drop in demand

0

2

4

6

8

10

12

14

16

18

UK Colombia Russia USA Australia SouthAfrica

Poland Canada Others

Mill

ion

Ton

ne

s

2014 2015 2016

31

Source: BEIS/HMRC

Annual UK CoalSupply Trends


UK Coal Stocks are falling butremain high relative to demand

32

Source – BEIS

0

5

10

15

20

25

Mill

ion

Ton

ne

s

Power Stations Others

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Government policy for coal isworking as intended

“The role of coal for electricity generation hasdeclined rapidly in the last couple of years due tothe success of the Government’s policies”

Parliamentary written answer 12th September 2016

Carbon tax of £18/tonne CO2 is around fivetimes EU levels – driving fuel switching to gas

Already meant investment to meet requirementsof EU Industrial Emissions Directive for NOxwould be uneconomic

2025 coal closure proposals are ‘belt and braces’

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Valentine’s Day Pledge in 2015 wasthe death knell for ‘unabated coal’


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…but the capacity market helpsto keep coal generation alive…

2020/21 Capacity Awarded

5.6 GW coal Aberthaw

Drax (2)

Ratcliffe

West Burton (3)


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January auction for 2017/18 delivery

Clearing price £6.95 kW/year


…in the short as well asmedium term

Aberthaw (3 units),Cottam (4), Drax(2 coal),Eggborough (4),Fiddlers Ferry (3),Ratcliffe (2) andWest Burton (3)

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2025 coal closure consultationwas launched in November 2016 Proposals for Closure of Unabated Coal

Demonstrate CCS on a proportion of the station’scapacity and meet existing EPS for CO2 of 450g/kWh(annual basis)

Or modify existing EPS to a concentration basis

Constraints in Years Ahead of 2025 Closure Consultation queries if these are needed to avoid a

2025 ‘cliff edge’ – no firm proposals

NB Proposals are only relevant in a hypothetical‘high coal scenario’ Assumptions “do not reflect established Government

policy or expectation”

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Central case is too ‘optimistic’ Overestimates rate of build for new gas Capacity margin remains too tight in event of e.g.

nuclear type fault (NB recent French nuclear/interconnector issues)

Low coal case is not considered Risks early disorderly loss of supply infrastructure

(production and transport) Capacity Market may keep stations open but not

infrastructure if coal is not burnt

Other markets are not considered Coal supply needs time to adapt to protect markets

and optimise new opportunities

Outcome may be inevitable butargumentation is flawed


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CoalImP has submitted adetailed response Coal plants remain essential to meet winter demand

Government should review scenarios – optimum liesbetween ‘central’ and ‘high coal’

Challenges in building new gas plants areunderestimated – Brexit/other projects (HS2 etc.)

No earlier constraint is needed pre-2025

Powers should be retained to suspend closure date

Policies needed to mitigate impacts as part ofIndustrial Strategy

Other markets disregarded – supply chains need timeto adapt


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Other responses are a mixed bag– Government response awaited CBI

Many points complement CoalImP’s response Reflects input from CoalImP and Banks Group

Sandbag Bring forward date to 2023 and prevent coal bidding in

capacity auctions

APGTF/CCSA Regrets lack of CCS funding and highlights issue for

new gas and risks for new CCS

Prospect Comprehensive response – similar points to CoalImP

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Is this a good platform for globalleadership on coal policy?

UK0.6%

Rest of EU6.1%

China51.2%

United States9.6%

India10.2%

Rest of World22.2%

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Source – IEA

Shares of World CoalConsumption 2015

Government cancelled £1bnCCS programme end-2015…


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…so will CCS ever happen inthe UK? NAO report on sustainability in the Spending

Review “Cancelling the CCS competition may affect the

costs of meeting long-term carbon targets”

Oxburgh report on CCS (published 12/09) Carbon capture and storage could be cheaper

than nuclear

Central recommendation to establish a state-owned “CCS Delivery Company”

But all the focus now on gas – CCS on coalin the UK seems a distant pipe dream


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The way forward or an oxymoron?

‘Clean coal’44


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45MES Symposium - 18th May 2017

The most important

near-term action to

reduce CO2 emissions is

to increase the efficiency

of coal-fired power plants

1% increase LHV

efficiency = 2–3% points

decrease

in CO2 emissions

Efficiency improvements can significantly contribute toCO2 emission reductions

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The potential impact of HELE is significant in a globalcontext

CCS is expected to deliver 12% of cumulative GHG emissions cuts through

to 2050. It is therefore a key low-carbon technology

CCS is critical to global climate objectives

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Boundary Dam, Saskatchewan, Canada

Coal-fired 110MW CCS 1Mtpa plant

operational October 2014

$1.4Bn Government and Saskatchewan

Power Co partnership

The world’s first application of CCS at large scale in thepower sector became operational in October 2014, atthe Boundary Dam power station in Canada (1 Mtpa CO2capture)

An upgrade of a 1960’s coal unit chosen by Saskpowerover gas and renewables

Petra Nova Carbon Capture Project (1.4 Mtpa, Texas)came online in January 2017

Kemper County Energy Facility (3 Mtpa, Mississippi) isexpected to come online in early 2017.

The Abu Dhabi CCS Project which came online in 2016, isthe world’s first commercial CCUS facility for the steelindustry, capturing 800,000 tonnes of CO2 and, injectingit in maturing fields to enhance oil recovery (EOR).

The unsubsidised, fully commercial CCUS project fromCarbon Clean Solutions in the port of Tuticorin, India hasbeen able to significantly reduce the costs associatedwith capturing the CO2.

A further 14 projects are in advanced planning (FEED)

CCS is real, and happening now

Coal & CCS will be competitive with other low emissiontechnologies

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Why low emission coal technology has been slow toprogress

Documents

COAL IN THE UK AND EUROPE - Minerals EngineeringSource – IEA Medium Term Coal Market Report 2016 …but coal still provides almost a quarter of world energy in 2040… IEA World