Coal phase-out by 2030 could cut utility losses by €22 billion

More than half of all coal plants in the EU are loss-making, rising to 97% by 2030, finds a Carbon Tracker report launched today. It warns investors that utilities currently only plan to close 27% of capacity by then and that a complete phase-out of coal by 2030 could stem utility losses by €22 billion ($26bn).

Forthcoming air quality standards and carbon prices are pushing up coal operating costs while clean technology costs continue to fall. The report finds that building new onshore wind and solar PV projects will be cheaper than operating existing coal plants by 2024 and 2027 respectively.

“The changing economics of renewables, as well as air pollution policy and rising carbon prices, has put EU coal power in a death spiral. Utilities can’t do much to stop this other than drop coal or lobby governments and hope they will bail them out.”

Matt Gray, Carbon Tracker analyst and co-author of the report

Carbon Tracker analysed the profitability of every coal unit in the EU to look at the financial implications of a coal phase-out in Europe consistent with the goal of the Paris Agreement.

German utilities RWE and Uniper could avoid losses of €5.3bn and €1.7bn respectively by closing plants by 2030. This strategy would cut losses for all of Europe’s 15 largest coal plant operators, except Italy’s Enel and Romania’s CE Oltenia.

Germany is home to the largest number of unprofitable coal plants, with potential losses avoided by early closure totalling €12 billion. In Poland savings could amount to €2.7 billion, while the Czech Republic, Spain and the UK could save €2.2 billion, €1.8 billion, and €1.7 billion respectively.

“Our asset-level model outlines a phase-out of coal-fired power consistent with the Paris Agreement. 54% of Europe’s coal plants are already running at a loss, and by 2030 virtually all of them will be.”

Laurence Watson, Carbon Tracker data scientist and co-author of the report

Seven countries have already set a date for ending coal power by 2030 or earlier – Denmark, Finland, France, Italy, Netherlands, Portugal and the UK – reflecting its growing unprofitability and incompatibility with emissions targets. “Coincidentally, by phasing out coal the UK is not only acting in the best interests of their citizens through improved air quality, but also the financial interests of utility shareholders,” the report states.

Lignite of the Living Dead notes that utilities may keep coal plants running at a loss for many reasons, including: hopes that governments will make capacity payments for guaranteed power supply or payments to retire plants; expectations that competitors will close plants, pushing power prices up; the clean-up costs associated with retiring plants; and opposition to closures from governments for political reasons.

However, stricter EU air quality standards will focus utilities to decide between investing in already unprofitable plants or cutting their losses. Coal plants will have to meet these standards by 2021, which will require 70% of existing capacity to install expensive new technologies. Rising carbon prices could also increase costs. The European Commission has proposed banning coal from receiving capacity market payments by 2025, undermining the chances of new support from member states.

Carbon Tracker analysed the gross profitability of 619 coal units in the 28 EU countries. It compared coal owners’ business as usual plans and member state phase-out policies with the International Energy Agency’s Beyond 2°C Scenario (IEA B2DS), which phases out all coal power in the EU by 2030 and gives a 50% chance of limiting global warming to 1.75°C.