VDKi

Coal-fired power stations can assume the task of system stabilisation. This was shown in the Deloitte study “Analysis of the flexibility of coal-fired power stations for the integration of renewable energies in Germany” compiled on behalf of the German Association of Coal Importers (VDKi), Berlin (Deloitte Finance, November 2019), with a “What if” scenario. From a purely technical perspective, the existing coal-fired power plants in Germany (2018) could absorb and integrate increasing shares of variable renewable energies of 50 %, 60 % or 70 %, without threatening the reliability of the power supply. The average utilisation of the existing coal-fired power plants (2018) would drop to slightly over 30 % in the 50 % renewable energies scenario and to around 20 or 15 % in the scenario 60 % or 70 % renewable energies.

• In “slack periods”, i. e. periods with limited power from wind turbines and solar panels, with a duration from one to three days, coal-fired power plants generate twice as much electricity than on an average day if the proportion of renewable energies is 50 %, and 3.5 times more electricity if the proportion of renewable energies is 70 %.
• Germany becomes the net importer during the “slack periods”. The scope for offsetting through higher imports is limited by the availability of available plants in the neighbouring countries of Germany and the overloading of the interconnectors.
• Almost three quarters of the installed power plant fleet produce heat and electricity simultaneously (CHP). Most CHP plants can change flexibly between heat and power as long as the electricity generation is not restricted by the heat requirement in the cold season. Upgrades of heat accumulators can improve the operational flexibility of coal-fired power stations.

The study did not focus on very low gas prices for power plants. According to experts, the current price level will not remain this way over the long term. Based on a current market evaluation of the gas sector, there will be no suitable conditions for cost-effective continued operation of existing current-regulated gas power plants beyond autumn 2020. The scope of the Deloitte study was limited to a “What if” scenario. It must also be noted that only highly efficient gas and steam power stations are to be promoted within the framework of the CHP. Besides coal-fired power stations, open gas turbines and gas motors may be worth considering for flanking the further expansion of renewables in slack periods and in the cold season, but modern coal-fired power plants must be assessed more favourably than open gas turbines with respect to the emissions. Considering the emissions across the entire causal chain from the borehole/mine through to the power plant, coal is on par with natural gas, as current studies show. Therefore, open gas turbines or gas motors should only be built where power plant output is required for grid-related reasons which cannot be provided by existing coal-fired power plants. The VDKi therefore calls on all political stakeholders to use the capacities of the flexible coal-fired power plants in system stabilisation and thus the integration of renewable energies within the framework of the energy revolution and help shape the discontinuation of coal-fired generation. (VDKi/Si.)

Coal-fired power stations compensate for load peaks, serve as a back-up for periods of little sunlight and no wind and prevent voltage fluctuations which cause significant financial damages in domestic households and industry. The “Coal Commission” had proposed financial incentives for the construction of public gas turbines. These are less effective and would have to be constructed at great expense and in the face of public opposition, whilst coal-fired power stations are already available.

Withdrawal from coal is already fully underway, even without the “Coal Commission”: In 2018, 16.3 % less coal was used (2017: -16.4 %). So far in 2019, this figure stands at 23 %. The hype surrounding a decision to discontinue coal usage is inexplicable.

Excluding the best and currently readily available energy source for securing the German power supply is futile. Countries such as Denmark, France, Great Britain and Canada have formed a joint alliance and intend to quickly exit from coal. Swedish scientists have calculated that this corresponds to 1/150 or 0.67 % of the estimated emissions by 2050 from the coal-fired power stations available worldwide. Germany does not belong to the alliance, but intends to make a decision this year on exiting coal. This would result in a saving of 0.25 % of the estimated emissions by 2050 from the coal-fired power stations available worldwide. No reason to endanger our power supply.

The trend for increased coal continues around the world. In 2018, global coal production was around 7.1 bn t – and therefore above the peak achieved in 2015 (Figure 1). Global trade has increased even more strongly. Take India, i. e.: According to the IMF, the country will achieve the highest economic growth in 2019, at 7.2 %. It has an insatiable requirement for energy – despite producing 720 Mt (2018) itself, its growing demand for coal will only be met by imports of 221 Mt (2018). Coal is not obsolete; rather, it is securing economic growth in Asia. For more information on this topic, see the current annual report of the Association of Coal Importers (VDKi), Berlin/Germany. (VDKi/Si.)

In its final report, the commission failed to mention a single word on coal’s contribution to reducing CO₂ emissions, even though coal has been the main contributor to emission reductions in recent decades. By the end of 2018, it had cut its use of fuel for electricity generation by half in comparison with 1990.

The commission has nevertheless recommended reducing the output of coal-fired power stations by 7.7 GW to around 15 GW by 2022. This recommendation is not only completely unrealistic, but shows how the representatives of regions, economy, unions and environmental associations have united against coal as an energy source, which is not represented on the commission. They are also violating the objectives of climate policy, economic affairs and reliability of supply.

Coal-fired power stations are the existing, economical bridge solution for the energy transition. They balance out the fluctuating supply of renewable energy sources. Whether the necessary capacity of open gas turbines will be available by 2022 is highly uncertain. What is certain, however, is that this will incur additional costs that could definitely be avoided. Open gas turbines have a lower efficiency than coal-fired power stations – from a climate policy perspective, this measure is counterproductive. It is making the energy transition more expensive and deeming it necessary to reduce the burden of these costs on the economy. Economic representatives should never have allowed these senseless costs to be incurred in the first place.

As world export champion, Germany cannot cut itself off from the rest of the world when it comes to energy economy. Coal is available without political risk around the world. Natural gas is not only associated with political risk but will make energy supply in Germany more expensive unnecessarily.

It its final report, the commission reduced the “coal economy” to those working in power stations and, as such, ignored those working in both trade and logistics. In the Ruhr region and the Saarland, there are many coal-fired power stations that have either been shut down over the past few years or are still in operation. These regions have long since been victims of the structural change and require urgent support. Instead, this support is flowing into regions with much lower unemployment figures than the Ruhr region. This is clearly tactical from an electoral perspective but has nothing to do with the task of the commission.

Nor can this be justified by the fact that the commission was very late to “discover” coal. In its interim report on possible measures for social and structural political development in the lignite regions, dated 25th October 2018, the commission admitted that its work had only previously focussed on the structural change in the lignite mining areas. It still only considered lignite mining areas, however, when attempting to avoid structural interruptions. Coal remained an “if necessary” option in the interim report, while the final report contained a few suggested projects on structural development in the Saarland. (VDKi/Si.)

The use of coal to generate electricity in Germany declined dramatically in 2017 (-17 %). This is expected to decrease by more than 20 % in 2018. This is primarily due to the increased use of renewable energy sources, particularly wind energy. Coal has therefore already made its contribution to achieving CO₂ reduction targets as set forth in the federal government’s climate protection plan.

As such, there is no reason for the Commission for Growth, Structural Change and Employment to intervene in the power station owners’ freedom of ownership by setting an expiration date for the generation of electricity using coal. A proportionality assessment would have to be carried out to verify that such an intervention was necessary. Since the priority feed-in has already suppressed the generation of electricity using natural gas and coal and the intensification of emissions trading will suppress it further, no intervention in property rights is necessary and the setting of an expiration date for the generation of electricity using coal would therefore be an infringement of freedom of ownership as set forth in the German Basic Law.

The phase-out of coal also would not help Germany to achieve the greenhouse gas emissions reduction target for sectors not subject to emissions trading such as industry and transport (Effort Sharing) as agreed in Brussels on 14th May 2018. By 2030, this sector must have independently achieved a 38 % reduction compared with 2005.

It would also be counterproductive from an energy economy perspective to place an over-proportional onus of adjustment on coal. This is because coal-fired power stations are needed for the energy transition. They compensate for load peaks and serve as a back-up during periods of little sunlight and no wind. What is more, coal-fired power stations are already available, which is not the case for open gas turbines, which have a lower efficiency.

After two years of decreasing global coal mining and declining global trade, the global market has recovered considerably. New power stations are being built in many newly industrialised and developing countries. This will more than compensate for the decrease in consumption, which is principally taking place in Europe. Imported coal is available in all regions of the world and is also required for reliable and cost-efficient energy supply in Germany. In an open national economy, supply using primary energy sources on the world market also constitutes a contribution towards creating an equilibrium in terms of trade with the respective partners. (VDKi/Si.)

According to provisional calculations by the German Coal Importer Association (VDKi) in Berlin, global trade in coal rose 1.5 % in 2017 to 1,140 mt, while worldwide demand for coal increased by 2 % to reach 6.9 bn t. Following a decline in 2016, which the International Energy Agency (IEA) recently reported on, supply and global trade have rallied. The USA’s seaborne exports alone saw a rise of 30 mt (60 %). Sea trade increases were also registered by Russia and South Africa, both at 7 %. South Africa, formerly an important supplier to Europe, now sends the majority of its exports to countries in Asia (Figure 1).

The decline in production in 2016 was mainly brought about by the difficult circumstances in the USA, where there was a series of insolvencies, and by the closure of unsafe mines in China. In 2017, however, both countries saw renewed growth, with the USA registering a 7 % increase and China 2 %. Mining in India also witnessed a sharp rise (+3.2 %).

The increase in global trading volumes of coal is primarily attributable to the growing demand in the ASEAN states, where the manufacturing industries are witnessing continual growth. The construction of modern coal-fired power plants and a growing steel industry are generating extra demand for coking coal and steam coal. The development models in these countries are, similarly to China, built on coal and will not be supported by renewable energy sources for some time yet.

Bucking the global trend, German coal imports have declined sharply by around 10 % or 6 mt. Though imports of coking coal were up by 0.6 mt and coke imports were up by 0.3 mt, the use of these resources in electricity generation actually fell by roughly 15 %, equivalent to almost 7 mt. The main reason for this is the almost relentless expansion of wind farms in a year of exceptional wind output. In 2017, the contribution made by onshore wind turbines to the gross electricity generation rose by 30 % or 2 % points, while the offshore wind contribution grew by 47 % or 1 % point. By contrast, the proportion of gross electricity generated by coal fell by 17 % (3 % points) in 2017.

These figures provide compelling evidence that the phase-out of coal power generation is already under way and no further government intervention is required. Nevertheless, coal-fired power plants are still urgently needed to support the volatile supply levels of renewable energy sources, even if their output is falling. To this end, coal-fired power plants must be granted fair access to capacity markets. The latest decisions of the European Council of Energy Ministers fall short in this regard. Neither coal power plants nor gas turbines can operate within the planned CO₂ limits. The highly efficient gas and steam turbine power plants are only constructed in connection with industrial combined heat and power systems or district heating, not to offset the fluctuating supply of renewable energy sources. If the European Union sees out its plans, it will seriously jeopardise the reliability of supply in Europe. (VDKi/Si.)

Coal mining fell worldwide by 3.8 % to 6.7 bn t in 2016. This was due to the trend in China (- 185 mt) and the USA (- 147 mt). The shale gas boom was not the only factor to play a part in this in the USA. The USA is a provider with relatively high costs on the world market, which has put the industry under pressure. In China, the central government has started to close uncertain, expensive mines. However, China’s imports rose to 124 mt, in particular to balance out production cutbacks as a result of working-time restrictions.

Without these two effects, global coal mining would have risen by 64 mt rather than falling by 268 mt. Coal mining increased in Colombia (5.8 %), Russia (2.9 %), Australia (2.9 %), India (2.1 %) and Indonesia (1.2 %). The rise in production in these countries shows that there are still nations with a growing demand for coal. While India mines a substantial amount itself, but also imports large quantities from the global coal market, there are a good number of ASEAN states that are triggering demand on the world coal market in order to supply newly built coal-fired power plants.

For that reason, seaborne trade in power station coal only dropped by 0.7 %. By contrast, seaborne trade in coking coal fell by 5.2 %. As a result, world seaborne trade dropped by 1.8 % from 1,135 mt to 1,115 mt. The decline slowed down compared with the previous year (-8.5 %).

The downward trend in coal prices came to an end, too. Compared to its lowest levels, the price for steam coal doubled at times, and that of coking coal even tripled. This caused coal to temporarily move to a different competitive position compared with natural gas in terms of energy production. Prices have fallen again in the meantime. Both temporary price fluctuations were overreactions attributable to the production reductions in China.

Imported coal is still a competitive, secure and reliable energy source. As renewable energies cannot guarantee a reliable energy supply on their own, thermal power plant output will continue to be an essential contributor for a fairly long time. Coal is an ideal partner for this – it is protected against crisis because its source countries are spread across the world. And natural gas does not produce zero emissions either. If the German energy transition is to remain a success, it must also be implemented in other sectors. CO₂ emissions in road traffic and heating applications rose in 2016. The greatest increase in CO₂ emissions was from the use of natural gas, at 9.5 %. (VDKi/Si.)

In August 2016, the German Coal Importer Association (VDKi), Hamburg, presented its annual report which, among other things, addressed the development of global coal markets (Figure 1). According to the report, coal mining fell worldwide by almost 3 % to 7.0 bn t in 2015. At 10 %, the drop in coking coal was significantly sharper than the 1.6 % drop in steam coal. This was caused by the general global economic trend and the declining demand for steel in China in particular. American producers of coking and steam coal have been hit particularly severely. A hard US dollar, the steel crisis and shale gas made for an explosive mixture for almost all producers. Except for Consol Energy, all American companies were dropped from the Dow Jones US Coal Index and each in turn filed an application for creditor protection under Chapter 11.

Chinese mining declined by 1.5 %. Chinese imports tumbled by 32 % and swept Indonesian and Australian production along with it. The 18 % drop in Indonesia was particularly extreme, because poorer quality coal was even more severely affected by Chinese regulation. Australia was able to compensate for the declining coking coal supplies to some extent thanks to additional supplies of high-quality steam coal.

According to the VDKi, India has a key role to play in the further development of the market. In 2015, the country saw production increase by 10 % compared with the previous year. If it could throw off the shackles of bureaucracy and overcome its logistical issues, the country’s level of self-sufficiency would increase again. Failing that, the growth in demand would make room for even more coal imports.

1,104 mt of seaborne trade comes from 833 mt of steam coal and 271 mt of coking coal. Australia regained its position from Indonesia at the top of the list of the biggest coal exporters in 2015, with a total of 387 mt – of which 202 mt and 185 mt were steam coal and coking coal respectively. Russia maintained its position, while Colombia and South Africa overtook the USA. Indonesia sends 97 % of its production to Asia. Australia places a similarly strong emphasis on Asia, which receives 87 % of Australian seaborne trade. Owing to their geographic location, Russia, Canada and the USA are able to supply both markets and trade is shifting increasingly towards Asia. Colombia (still) sends the majority of its exports to Europe.

In the Atlantic market, demand for steam coal in 2015 increased by 0.5 % to 217 mt. By contrast, demand in the Pacific market fell by 7 % to 616 mt. The Atlantic market’s share of the overall market is 26 %.

Chinese imports fell by 32 % to 156 mt. A slight increase of 1 mt in its imports to 216 mt made India the largest importer. Japan also upped its imports only slightly to 191 mt.

Steam coal prices continued to fall in 2015. This deterioration came to an end for the majority of countries in early 2016, but it is still too early to speak of it bottoming out, according to the VDKi. Whether the market shakeout in the interim was sufficient for this or not cannot yet be determined. The FOB prices on the US East Coast fell in January 2016 compared with the same month the previous year by 14 US$/t to 43 US$/t and were at 44 US$/t in June 2016.

The Pacific steam coal market showed
the same trend. At Richards Bay, the FOB price fell from 61 US$/t to 51 US$/t in 2015. By June 2016, it had risen back up to 58 US$/t.

The Russian Baltic coast FOB prices dropped in January by 13 US$/t compared with the same month the previous year; prices even fell for exports to Asia by 17 US$/t. When calculated in roubles, however, revenues did increase slightly – an exceptional situation resulting from the particularly weak currency.

Trade on the global seaborne coking coal market experienced a much sharper decline than global steel production, namely by 12.3 %. The market shares of individual countries have also seen a marked shift. Australia’s market share rose by eight percentage points up to 68 %. The USA’s share dropped by three percentage points down to 14 %. Although Russia was able to double its market share the previous year, it almost halved in 2015 – falling from 11 % to 6 %.

The downward trend in coking coal prices continued in 2015. The price of Australian prime hard coking coal suffered a serious slump from 114 US$/t in January 2015 to 77 US$/t in January 2016 (-32 %). Up to May 2015, the price stabilised around 94 US$/t. It responded to the trends in ore prices and was not influenced by the development of steam coal prices. By June 2016, it had risen to 89 US$/t.

At the beginning of 2016, the increase in capacity of the bulk carrier fleet almost came to a standstill. This was caused by an increase in the number of ships sold for scrap. As a result, the price of scrap almost halved the previous year. Owing to the poor market climate, it can be assumed that the amount of scrap will continue to increase and the ships being scrapped will be younger and younger.

For capesize ships heading to Rotterdam with a capacity of 150,000 dwt, the freight rates at the beginning of 2015 amounted to 5.90 US$/t from e. g. Colombia. The freight rates continued to increase up to the middle of the year but slumped again at the end of the year and were only 5.20 US$/t at the beginning of 2016. The current freight rates from Colombia have remained at this start-of-year figure.

The real gross domestic product (GDP) grew by 3 % globally in 2015. Two countries in particular helped to increase this average considerably. In China, real growth was 6.9 %; in India 7.4 %. According to the OECD’s Interim Economic Outlook from February 2016, only India is set to continue to grow at the same rate, whereas Chinese growth will lessen, albeit remaining above 6 %.

In future, development will be shaped primarily by India and Southeast Asia. Despite the growing contribution of renewable energies, coal will remain one of the mainstays of energy supply. The predominant driving force behind this is the construction of new coal-fired power stations in national economies with a backlog of economic demand.

The International Energy Agency’s (IEA) Medium Term Outlook anticipates that demand for coal, including lignite, will fall in the OECD area up to 2020 – and this fall will be consistent in all OECD countries. By contrast, demand for coal in OECD non-member countries will grow.

The IEA also anticipates that seaborne trade in Asia will see a marked increase once again, from 954 mt in 2016 to 1,128 mt in 2020, whereas it will see a decline in Europe and North America. Overall, this would result in growth of 1.2 bn t in 2016 to 1.35 bn t in 2020. This growing demand would enable better use of capacity. In fact, additional export capacity would need to be made available for the future. These findings are a marked contrast to the general perception of the coal industry and campaigns that call for the finance sector to be phased out of fossil fuels.

According to the VDKi, the development of the global coking coal market is influenced by excess capacity in China. Initial recovery of prices for ores and coking coal at the beginning of 2016 is still no indication that the crisis is over. In reality, the prices should have given way once more. Given that structural improvements in China have only just begun, it is still too early to be able to assess the effectiveness of the protective measures put in place by the European Union.

One sign of recovery in the sector may be, according to the VDKi, the increase in capacity use in global steel production from 65 % in December of the previous year to 71.5 % in April. Whether or not this is an indication of the much anticipated light at the end of the tunnel remains to be seen and depends on economic development around the globe. (VDKi/Si.)

 

On 15th January 2016, the VDKi (German Coal Importer Association) in Hamburg welcomed a high-profile guest to its New Year’s Reception. The President of the IG BCE (German Industrial Union for Mining, Chemicals and Energy), Michael Vassiliadis, delivered his keynote speech in front of an audience of around 170 members and guests.

He considers the latest fossil-fuel phase-out proposals from the initiative of the German think-tank Agora Energiewende to be entirely unconvincing. In his opinion Germany needs a comprehensive approach for its energy policies that incorporates social, economic and climate policy objectives. Instead, Agora Energiewende subordinates energy policy to a regulation strategy based solely on climate protection. The Agora ideas could not stand up to the demands of reality, commented the IG BCE President.

In spite of – and indeed because of – the energy transition, coal is an indispensable, competitive energy source that is reliably available and can compensate for fluctuations in the supply of renewable energy sources, while also remaining an important raw material, particularly for the steel industry.

The VDKi President, Dr. Wolfgang Cieslik, pointed out that record kilowatt-hour power generation from renewable energy sources alone does not represent success. Rather, power has to be supplied to consumers and made affordable, neither of which can be guaranteed by renewable energies. Expansion of the grid, he continued, cannot keep up with the unchecked development of green energy, and the annual subsidies total almost 25 bn €. Furthermore, grid operators incur enormous follow-up costs which will ultimately be borne by electricity consumers. Cieslik went on: “Even in the wake of the Paris Climate Change Conference, it is clear that coal-fired power plants are the only means for generating a reliable and affordable power supply.” (VDKi/Si.)

As the German Coal Importer Association (VDKi) in Hamburg suggested last summer, the steady growth reported in the production of coal (coking and steam coal) for more than a decade is now expected not just to have stagnated but to have declined for the very first time. The VDKi estimates that global production has decreased by approximately 150 to 200 mt to 7 bn t and seaborne coal trade has also fallen by 50 mt to 1.12 bn t. The particulars of the VDKi assessment are as follows:

• Production has dropped by 110 mt in China and by 70 mt in the USA.
• Australia and India were able to maintain or substantially increase steam coal production.
• For a number of reasons, Indonesia was no longer able to increase its production of steam coal as in recent years, and instead cut down production of coal and lignite by 11 % to 408 mt.

Seaborne coal trade and any changes in it are primarily determined by China and India. China is mainly responsible for the decline, having reduced coal imports by more than 30 %, or 73 mt, to support its own coal mining industry. However, thanks to the 6 % import duty on steam coal being cut due to the trade agreement with China effective February 2016, the export situation could improve for Australia at least.

There have also been clear shifts amongst exporting countries:

• Compared with the previous year, Australia and South Africa were able to maintain their export levels in 2015, exporting 386 mt and 76 mt respectively. Russia was able to increase exports by 7 mt, or 5 %, to 150 mt, and Colombia increased exports by 2.5 mt up to 79 mt. This was aided by the depreciation of the Russian rouble and the Colombian peso.
• By contrast, provisional figures provided by the VDKi show that Indonesia reduced exports by 32 mt, down to 325 mt, and that the USA likewise reduced exports by 20 %, or 17 mt, down to approximately 65 mt.

Apart from a brief interruption, the price of coal on the global market is now in its fifth year of decline. It reached its highest point in 2015 in February, at slightly more than 63 US$/t cif ARA for steam coal, and temporarily dropped to its lowest point in December at just under 50 US$. In mid-December 2014, steam coal still cost approximately 30 % more than it does today, at 72 US$/t. The price of shipments in February and March 2016 is already below 50 US$.

The EU has predominantly recorded a decline in coal imports compared with 2014. Imports to the United Kingdom in particular have fallen sharply (37 %). In 2015, Italy and Germany imported roughly the same overall amount of coal as the previous year. Spain increased its imports by 2 mt to 18 mt. An increase in the amount of power generated using renewable energies in the EU countries, combined with altogether unsustainable economic growth, is expected to limit steam coal imports in 2016.

The fact that the clean dark spread (costs for coal, freight and CO₂ certificates) remained cheaper than the clean spark spread (costs for gas, transportation and CO₂ certificates) in 2015 was deemed positive by the VDKi, despite considerable pressure on gas volumes and prices. This bolstered the position of coal-fired power generation behind the leading sources of renewable energy in the “race to cover the load” and further suppressed gas-fired power generation in Europe. Power was frequently exported to countries that rely heavily on gas-fired power generation, such as the United Kingdom or the Netherlands. Moreover, as a result of the wet summer in 2015, power was exported to countries with insufficient power plant capacity on the grid, such as France and Austria.

Although the use of coal in Germany fell only by a total of 0.7 % to 57.7 mt SKE in 2015, the use of coal in the steel industry remained unchanged at 17.8 mt. The use of coal to generate power fell by a moderate 0.8 % to 38.0 mt SKE and by a minimal 0.1 mt SKE to generate heat. Roughly two thirds of the total amount of coal consumed in Germany is used to generate electricity.

In view of the “climate-related political mood”, the amount of coal imported by Germany in 2015 was significant: According to provisional calculations by the VDKi, it has fallen by just 4 % to roughly 54 mt. 89 % of the overall consumption of coal in Germany, which stands at 57.7 mt SKE (provisional figure), was covered by imports, and 11 % was covered by domestic coal. (VDKi/Si.)

Prof. Dr. Franz-Josef Wodopia became Managing Director of the Association of Coal Importers (VDKI), Hamburg, on 1st January 2016. He therefore succeeds lawyer Dr. Erich Schmitz, who has retired.