Coal unprofitability: Sustainable alternatives take the hammering coal profits

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  Quantumrun Foresight
• December 3, 2021

Insight summary

The once-dominant coal industry is facing a rapid decline due to the rise of more cost-effective and environmentally friendly alternatives like renewable energy. This shift, accelerated by global climate agreements and the growth of industries like natural gas and green hydrogen, is creating new job opportunities and investment prospects in energy planning, construction, and financing. However, the transition also presents challenges such as the decommissioning of coal-fired plants, potential energy shortages, and the need for worker retraining.

Coal unprofitability context

Coal has long been considered the most cost-effective option for power generation throughout the world. However, this narrative is quickly changing as multiple factors disrupt the profitability of coal energy. Most notably, the development of renewable forms of energy that may soon be cheaper than coal plants.

Renewable energy generation quadrupled between 2008 and 2018, according to the US Department of Energy. Since 2000, wind and solar have accounted for over 90 percent of the growth in renewable power generation in the US. Meanwhile, coal-fired power facilities in the US are closing as utilities avoid constructing new coal-fired power for profitability and environmental concerns. An analysis classified that 94 GW of existing US coal capacity is in danger of being shuttered in regions where fresh wind and solar power installation decrease energy prices by at least 25 percent relative to current coal generation rates. 

At a macro level, the world has begun to identify the disastrous impacts of climate change as a significant threat and has started combatting harmful practices that contribute to it. Among the most notable agreements have included the 2015 Paris Agreement and the COP 21 agreement where most nations presented new or amended plans to reduce their carbon emissions and limit the increase in average global temperatures to less than two degrees Celsius. Such agreements further demotivate countries from building new coal-fired power plants, emphasizing instead on using clean green energy such as solar and wind to fulfill energy requirements.

Disruptive impact

The shift from traditional coal-fired power plants to renewable energy plants has accelerated dramatically since the 2010s. The creation of renewable energy power plants will likely ensure a safer environment, safeguard against severe climate change, and provide nations with more sustainable sources of energy. Of note, the aggressive expansion of natural gas networks across the developed world during the 2010s, as well as the emerging green hydrogen industry, has further eaten into the coal industry’s market share.

The collective growth of these coal energy alternatives will represent significant new employment opportunities in fields associated with energy planning, construction, maintenance, and financing. In addition, this energy transition also represents new opportunities for investors looking to expand their portfolios in the energy sector. 

However, a significant challenge during this energy transition is the decommissioning of coal-fired plants. The regulatory system required to assess and retire these facilities may take several years. Not to mention the tremendous amount of capital it will take to decommission these plants safely. Moreover, nations may experience near-term energy price inflation and even energy shortages as coal plants retire faster than renewable installations can replace them. For all these reasons, countries will likely set aside significant budgets to manage this transition process. 

Implications of coal unprofitability

Wider implications of coal unprofitability may include:

• The acceleration of a downward spiral in the falling competitiveness of coal compared to alternatives that will further reduce funding for new research into coal tech and new coal plants.
• Coal increasingly being seen as an unattractive asset to hold, fueling accelerated coal plant sell-offs and retirements.
• Near-term energy price inflation in several developed nations as renewables and natural gas companies struggle to build enough new energy assets fast enough to match the decline of the coal industry they are replacing.
• Some progressive governments seizing the opportunity to modernize their energy grids alongside the retirement of aging, carbon-intensive energy infrastructure.
• A significant reduction in the number of jobs in the coal industry, leading to a need for retraining and reskilling of workers for other industries.
• Demographic shifts as people move in search of better economic opportunities, mirroring the greater push towards developing and implementing circular economy principles.
• Political debates and policy changes regarding energy sources and environmental protection, leading to a reshaping of the political landscape.
• A societal shift towards more environmentally friendly energy sources.

Questions to consider

• How will countries with significant coal reserves/mines manage the global transition away from coal? 
• How can government mitigate the negative employment outcomes in areas where coals mines are shutting down?