Coal remains central in the power mix of the developing world, with coal plants still being built across Asia in order to meet rising baseload electricity needs. However, a more challenging macroeconomic environment and slowing power demand growth are raising some questions around the growth of coal even in developing economies.
Last year may have marked a turning point in India – a country where coal accounts for over 70% of the power mix – as S&P Global Platts Analytics data shows the amount generated from coal dropped for the first time in history by an unexpected 2% year on year.
This was a stark contrast to the 7% annual average growth over the previous five years. The drop signals how far India’s energy transition has come, with renewables making clear inroads into the power mix.
However, lower Indian coal-fired output during 2019 has also been more clearly driven by a marked slowdown in demand growth for electricity. India’s electricity demand had been growing to the tune of 6% a year in 2014-18, but 2019’s growth was a mere 0.9%, equivalent to about 1.3 GW on average, accounting for the largest driver of the changes in coal use.
A weaker economy and a prolonged monsoon season in 2019 are partly to blame. More recent official data for January shows year-on-year demand growth recovering to 2.2%, while February is up 5.9% year on year.
In other words, power demand growth appears to be facing some structural challenges, but with GDP growth averaging 6% or so in the upcoming five years and power consumption per capita among the lowest in the world, there is clearly an upside for power demand, which will underpin coal. In particular, increased population would clearly lead to higher air-conditioning use, especially at peak hours.
Also, there was roughly a 20%, or 2.5 GW, surge in hydro generation in 2019, while nuclear availability was above average, up 18%, or equivalent to almost 700 MW, on average. As for renewables, output growth has been actually slower, with generation up only 1 GW over the last year.
The latest data shows utilization of existing coal units has dropped to just 56%, against 63% five years ago. The declining role of gas in power is also noteworthy, with plant load factors at a rock-bottom 22% in 2019 compared to their peak of 67% in 2010.