The surge in coal demand in Europe, which resulted in a 400% increase in the export price for coal over the past two years — has bolstered export earnings for SA coal miners such as Exxaro and Thungela. However, it is not expected to result in lingering demand for coal for energy generation.
Instead, the global energy crisis triggered by Russia’s invasion of Ukraine is causing profound and long-lasting changes that have the potential to hasten the transition to a more sustainable and secure energy system.
This was one of the main findings of the latest edition of the International Energy Agency’s World Energy Outlook.
“The global energy crisis triggered by Russia’s invasion of Ukraine has prompted a scramble by many countries to use other energy sources to replace the natural gas supplies that Russia has withheld from the market. The encouraging news is that solar and wind are filling much of the gap, with the uptick in coal appearing to be relatively small and temporary,” said IEA executive director Fatih Birol.
Based on prevailing policy settings, the report sees global demand for every fossil fuel exhibiting a peak or plateau over the next 10 years.
“Coal use falls back within the next few years, natural gas demand reaches a plateau by the end of the decade, and rising sales of electric vehicles (EVs) mean that oil demand levels off in the mid-2030s before ebbing slightly to mid-century,” the report says.
Surprisingly, the IEA found, despite concerns about the effects of the current energy crisis and the increased use of coal in European countries such as Germany, global CO2 emissions from fossil fuel combustion are expected to grow just less than 1% in 2022, just a fraction of their increase in 2021, as a strong expansion of renewables and electric vehicles prevents a much sharper rise.
The relatively small increase in coal emissions in 2022 has been considerably outweighed by the expansion of renewables.
New IEA analysis of the latest data from around the world shows that these CO2 emissions are on course to increase by close to 300-million tonnes in 2022 to 33.8-billion tonnes — a far smaller rise than their jump of nearly 2-billion tonnes in 2021.
According to the report, while the crisis has briefly pushed up utilisation rates for existing coal fired assets, it is unlikely to bring higher investment in new ones.
Another significant finding of the report details the shortfalls in clean energy investment in emerging and developing economies, where demand for energy is set to grow the fastest.
“If China is excluded, then the amount being invested in clean energy each year in emerging and developing economies has remained flat since the Paris Agreement was concluded in 2015,” it says.
One reason for the lack of investment in renewables in developing countries is the high cost of capital. A solar PV (photovoltaic) plant in 2021 in key emerging economies was between two‐ and three‐times more expensive than in advanced economies and China.
This was driven not only by higher country risk, which is reflected in higher rates for sovereign bonds, but also by higher sectoral risks that translate into a higher premium for debt and equity, and by a lack of bankable projects.
In SA, the cost of capital for utility scale PV projects in 2021 was between 8% and 9%, similar to the cost of debt in India, Mexico and Indonesia, while the lending rate in Europe, China and the US ranged between 2.5% and 4%.
“Today’s rising borrowing costs could worsen the financing challenges facing such projects, despite their favourable underlying costs. A renewed international effort is needed to step up climate finance and tackle the various economywide or project-specific risks that deter investors,” according to the report.
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