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Coal, primary energy source of the future

Representing about 28% of primary energy, coal is now the second largest source of energy in the world and the first used to produce electricity. Far from being an energy of the past, it is likely to become the first source of global energy by the 5-10 years to come according to the IEA report published in late 2012 (Medium Term Coal Market Report).

The beginning of the 21st century has been characterized by a spectacular increase of the world-wide consumption of coal.

Since the beginning of the century coal is the fastest growing fossil energy source. The worldwide consumption increased by 64% while gas and petroleum only increased by respectively 40% and 11%.

According to the IEA the demand for coal will catch up with the demand for petroleum in 2017 if the three technologies keep on growing with the current trend.

Evolution and forecast of the worldwide consumption of the three main sources of fossil energy. Source: graph conceptualized by Sia Partners based on data from the IEA

(Click to enlarge)

This tendency is mainly due to Asia, and more particularly China, whose development has generated three quarters of the demand's increase of the last year. Yet, the popularity of coal is not limited to this area. On the contrary, the IEA expects that the demand of coal will increase in all regions over the world, except for the United States that started with the massive exploitation of shale gas. Consequently coal has become particularly favorable after the year 2012 and will therefore expand again in Europe.

2012, the glory year of coal in Europe

In the most important European countries, coal has known a spectacular increase in the year 2012. Germany that already produced 48% of its electricity with coal or lignite has seen the demand grow with more than 5% in one year. In Spain, the network operator REE stated an increase of the electricity production with coal of 25% between 2011 and 2012. In France, this increase is even higher than 35%. In the United Kingdom, coal has become the primary electricity production source in the past year with an increase of 43%.

This new European interest in coal can be partly explained by the development of shale gas on the other side of the Atlantic Ocean. In fact the massive exploitation has caused the collapsing of the gas price in the United States pushing to export coal in large quantities. As a consequence, the European price for a ton coal fell from 135 dollars in May 2012 to 87 dollars in July 2013.

In Europe coal enjoys an extremely favorable economic conjuncture. Nevertheless, the environmental conjuncture risks to slow down the development of the energy source.

A European Directive draws the close-down of the oldest coal power plants

In the beginning of 2013, the production park using coal was particularly impacted in Europe by the European regulation for the environment. The directive considering big combustion installations imposed limit values for the emission of sulfur dioxide (SO2), nitrous oxides (NO and NO2) and particular fine dust. In practice the directive offers two possibilities to coal-fired power plants:

  • Functioning up until 2015 without respecting the emission limits
  • Functioning longer than 2015, but respecting the emission limits

In France, the coal-fired power plant revert to 1975 and do not respect the emission limit values and are thus obliged to close down before 2015. EDF and E.ON, the two operators of the power plants in France have thus programmed the progressive retirement of their oldest plants. In the beginning of 2013 about four units were put out of service for a total capacity of 1330 MW.

In the United Kingdom is also affected by this directive. In March, the Scottish power plant Cockenzie, with a capacity of 1200 MW was stopped generating electricity.

Investments in study projects

The directive does not seem to put an end to the coal-fired power plants in France and Europe. On the contrary, a bright future, confirmed by a promising 2012, seems to await the sector.

In France, the favorable conjuncture predicts an expansion of the coal-fired production park with investments to make the technology more durable. The investment of EDF in the power plants of Havre and Cordemais just confirms this. They invest namely respectively 160 and 300 million Euros in both power plant in order to prolong them up until 2035. In the meanwhile E.ON brought the installations Provence 5 and Emile Huchet 6 in line with the norms to prolong them up until 2025.

In addition to the investment in the modernization of the existing power plants, EDF started with the collaboration of Alstom CO2 capturing tests in their demonstrator situated in unit 4 of gas-fired power plant of EDF in Havre. The first ton of CO2 has been captured Thursday July 11th 2013. The global project needed an investment of 22 million Euro and pas for 25% financed by ADEME.

Finally, the French energy company considers a project to construct a supercritical power plant with a high effectiveness. June 25th, the direction of the power plant in Havre confirmed the existence of a project. They admitted that Havre has been clearly identified to welcome a supercritical gas-fired power plant.

In that manner, the European Directive seems to be an opportunity for energy companies to invest in the modernization of their actual coal-fired production park and the development of a new generation of supercritical coal-fired power plants. Anyhow, coal permits an extensive flexibility and a better electricity adequacy of the French production park, of major strategic importance for in the eyes of the energy companies. France tends naturally to enter into the global growth tendency of coal as a resource for electricity production.

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