COVID-19: The turning point for coal in Southeast Asia?

Coal consumption has shrunk in every sector of every region since COVID-19 sent the world into lockdown and brought industry to its knees. With economic activity and general mobility strangled by public health measures and fears of contagion, electricity use and industrial production dropped in the early months of 2020, hitting coal demand hard.

According to a recent analysis, the world lost 2.9 gigawatts (GW) of coal generation capacity from January to June 2020, as existing power stations were forced to operate below capacity and the construction of new plants was delayed. Tighter pollution regulations in the European Union also resulted in record retirements of coal power plants.

The impact of the pandemic on China, the world’s largest coal consuming country and the first to go into lockdown, contributed significantly to the global coal plunge—especially as coal use is closely tied to electricity demand. Even as China builds up its coal generation capacity to aid its economic recovery, the world’s coal fleet is set to decrease for the first time in history.

In Southeast Asia, only 1 GW of new coal power capacity was proposed this year—0.8 GW of that had already begun construction in early 2020 as COVID-19 struck. This marks a turn from business-as-usual in the coal-reliant region. To put things in context, over the past five years, proposals for new coal plant construction have called for almost six GW of new coal power every year. 

Indonesia attributed delays in coal plant construction to COVID-19’s disruption of the supply of raw materials needed to build plant components. Furthermore, its nationwide lockdown prevented Chinese workers from entering the country and working on new projects. The pandemic has since stalled 8,000 megawatts (MW) of the country’s new coal capacity under construction.

Other than travel restrictions and the disruption of supplies, the availability of cheap gas and the growth in renewables have also challenged coal production. Low-carbon energy sources such as wind and solar have proved not only more cost-effective and environmentally friendly but also more resilient to lockdown measures.

While demand for all other electricity sources (e.g., coal, gas, nuclear power) dipped, the share of renewables in the global electricity supply rose. As the pandemic cut demand for energy, utilities and grid operators sought the cheapest and cleanest energy sources.Energy from solar systems, wind turbines, and hydroelectric dams are more cost-effective—once the infrastructure is up and running—when there is low demand, which made power operators prioritise and dispatch  renewables before turning to more costly carbon sources.

The rise in renewable energy demand was also fuelled by new wind and solar projects coming online this year. Renewables are increasingly being supported by government policies in their governments’ attempts to limit pollution and address climate change. The growing affordability of renewable power also draws investors towards scaling up renewable energy businesses, especially as wind and solar farms can be built more quickly and efficiently than coal plants can.

Coal: A brief history

Coal is the most abundant fossil fuel in the world. People have relied on it for centuries to cook food, heat homes, and power revolutionary inventions such as steamships and railroads. Today, coal is burned to generate electricity and fuel not just our homes but also the industries that keep modern civilisation running.

Buried deep under the ground, coal contains high amounts of carbon and hydrocarbon from plants that had lived millions of years ago. It is classified as a nonrenewable source of energy, as it takes a long time to form. Coal is typically mined underground and transported to power plants, where it is burned to generate electricity.

When burned, the carbon stored in coal combines with oxygen in the atmosphere to form carbon dioxide, which traps the Earth’s heat and contributes to global warming. Coal is widely considered a dirty source of energy, as well—it releases impurities such as sulphur and nitrogen, which contribute to the formation of acid rain and air pollution.

Can the pandemic curb Southeast Asia’s appetite for dirty energy? 

COVID-19 may be speeding up the region’s transition to clean energy, but coal’s reign in the region is far from over.

Home to three of the largest coal pipelines—Vietnam, Indonesia, and the Philippines—Southeast Asia remains the slowest region to wean itself off coal. While the United States and Europe are seeing its demise, coal is still king in the fast-developing economies of Southeast Asia, even as it grows less competitive worldwide.

In 2018, Southeast Asia was the only region which saw a rise in coal’s share of power generation. Elsewhere, major economies have declared their commitment to phasing coal out and switching to clean energy alternatives. The United States and countries in the European Union have all but ended coal’s dominance by shutting down existing plants at record pace, while major energy consumer India has scaled back plans for large new coal power stations.

So why has Southeast Asia been slow to follow suit?

Booming development and growing populations have made the region more economically dynamic than others, meaning that electricity demand is set to rise in the years to come. Coal is still seen as the most consistent and reliable power supply for driving development and supporting the region’s fast economic growth, especially in countries with rich indigenous supply and relatively low power generation costs.

Coal’s continued affordability and availability make it attractive to a region where electricity is still out of reach for many—and where there is little political will to change course. Although recent analyses point to the growing competitiveness of renewables, many governments in Southeast Asia still choose to invest in coal, with the Philippines saying that it “can’t afford to ditch coal”.

According to a study by the Renewable Energy Institute, renewable energy technologies are still more expensive than coal power in Southeast Asia. Even without subsidies, coal is currently the most cost-efficient technology for generating new electricity in the region, where millions of households still lack access to power. 

Coal is expected to meet surging electricity demand in countries like Indonesia and Vietnam, whose burgeoning economies will account for close to 60 percent of the region’s power demand by 2040. Despite ambitious targets to scale up renewables in their energy mix, countries will continue to lean on coal to meet rising energy demand for at least the next decade.

Earlier this year, the Cambodian government approved two new coal power plants due to be commissioned by the end of 2021. According to a government spokesperson, the plants are meant to secure electricity from next year to 2024, particularly when hydroelectric dams lose steam during the dry season. Cambodia has experienced bouts of drought in recent years, making these falls in hydropower steeper than expected. Meanwhile, the country’s electricity demand is expected to increase by 9 percent each year from 2015 to 2040.

According to data from the Electric Department and Electricity Authority of Cambodia, both domestic and imported coal will surpass hydropower in the country’s energy mix from 2020 onwards. This will push fossil fuel–generated power to a whopping 74 percent of the country’s total energy mix by 2030.

The International Energy Agency (IEA) forecasts that global coal demand will remain stable despite sharp declines in the United States and Europe, due to strong economic growth in Asia. It is predicted that Asian coal power generation will surpass the fall in coal power elsewhere, maintaining coal’s place as the world’s predominant fossil fuel over the next five years.

Why is it so hard to break with coal?

Lack of funding and resources, government corruption, and restrictive policies inhibit Southeast Asia’s ability to shift away from coal and build an affordable and reliable renewable energy supply. In many countries, coal power remains heavily subsidised by the government, which keeps it competitive against renewables-generated electricity.

The costs of air pollution, greenhouse gas emissions and other negative externalities are often not taken into account in coal pricing.

Technological and logistical hurdles pose further challenges to the expansion of cleaner alternatives. Indonesia, for instance, does not have strong electricity grids on the many islands that make up its vast archipelago. This hampers its ability to finance renewables at scale by building large renewable energy projects.

Observers also note that coal’s dominance in the region is entrenched by persistent corruption and nepotism in the region. Licences for coal power projects are often handed out to government cronies and moved along through bribes. In Southeast Asia’s power sector, political and business entanglements make the relationship with coal a tough one to break.

Dirty energy goes hand in hand with dirty politics 

The case for clean energy is not only that it does not emit carbon dioxide but also that it is seen to be relatively clean of corruption, a representative from the Indonesian Forum for the Environment (Walhi) said in an interview with Mongabay. Coal, on the other hand, is perceived to be fuelled by corporate and financial motives, and providing opportunities for the political elite in Southeast Asia to accumulate more power.

A report released by local and international environmental NGOs in 2018 revealed that collusion often takes place between politicians and coal businessmen and that political elites have conflicts of interest in the coal business. Government ministers, for example, commonly serve as shareholders of coal firms and are incentivised to keep the business of coal running.

Coal’s gaining a bad rep 

Globally, public disapproval of coal is rising. The growing media spotlight on the climate crisis and air pollution has stirred up anti-coal sentiment worldwide. In Indonesia and Vietnam, whose capitals rank among the most polluted cities in the world, there are louder calls for alternative energy, especially as electricity generated from solar and wind becomes cheaper. Provincial governments in Vietnam have even blocked coal development entirely in the last few years.

Cambodia’s embrace of new coal has received backlash from international brands concerned about their emissions reduction targets. In a letter addressed to the Cambodian government, companies such as apparel giants H&M, Puma, Adidas and Gap emphasised, “Electricity decisions made today will lock Cambodia into a future that appears to be the opposite of global and regional trends and less attractive to our industry.”

The potential fallout with global fashion brands threatens Cambodia’s economy, which relies heavily on the industry for economic growth. Fashion accounts for around 80 percent of the country’s export earnings, with the garment and footwear sectors employing a large proportion of its labour force. In 2018, Cambodia exported $13.1 billion worth of textiles. Its largest importers include the United States and Germany, whose companies are both drawn to the country’s low manufacturing costs and coming down hard on environmental and labour practices.

Worldwide, major companies have declared plans to cut their environmental footprints and go carbon neutral, as sustainability gains traction among customers. The fashion industry has received growing criticism for being one of the most polluting industries—it is single-handedly responsible for 10 percent of the world’s carbon emissions.

The fashion houses’ letter to the Cambodian government further stated that “countries that today prioritise renewable energy and a green future will avoid wasting money on outdated technologies that will soon be obsolete and expensive”. Old coal heavyweights such as India and the United States are witnessing this first-hand, facing stranded assets as more banks and investors abandon coal.

With increased pressure from the climate movement and growing competition from renewables, financiers are finding it too risky to invest in coal. Three of Singapore’s top banks—OCBC, UOB, and DBS—have dropped coal, announcing last year that they will cease financing new coal plants.

It’s clear that coal projects face strong headwinds, yet Southeast Asia continues to plan for more coal. The Vietnam Energy Institute projects coal to remain the linchpin of its power supply for the next few decades, even as the country races ahead in Southeast Asia’s turn to renewables. Next year, almost 12 GW of wind projects are expected to come online in Vietnam, even as it leads the region on solar energy. In 2019, the country beat its own target by adding 4.45 GW of new solar capacity instead of its planned 1 GW by 2020.

A report by the International Renewable Energy Agency (IRENA) revealed that as early as next year, operating 1200 GW of existing coal capacity could prove more costly than running a large-scale solar power station. While observers forecast a tipping point as coal financing dwindles, the fossil fuel is still considered the most reliable source of power for developing nations today.

Is there hope for a future powered by renewables? 

To keep the Earth well below the 1.5 degrees centigrade threshold—beyond which deadly heatwaves, intense storms, and severe flooding will become commonplace—global coal power generation needs to fall by 80 percent below current levels by 2030.

If electricity demand remains low, this year’s coal plunge is expected to cause an 8 percent drop in global carbon dioxide (CO2) emissions—a reduction six times larger than the record 0.4 gigatonne (Gt) fall during the global financial crisis. According to the IEA’s Global Energy Review 2020, kickstarting the economy with cleaner and more resilient energy infrastructure in the wake of COVID-19 will be a boon for both people and planet.

It is now cheaper to build new renewable power than to continue operating 60 percent of the world’s coal fleet, an analysis from London-based think tank Carbon Tracker has found. In just ten years, that amount is projected to increase to 100 percent.

As financial institutions gradually ditch coal, observers are optimistic that Southeast Asian countries will soon find it easier to pivot away from the dirty fuel, especially as COVID-19 shows how resilient alternative sources of energy are in the face of crisis.

The world is still far off-track from the major coal reductions needed to meet the Paris Agreement, and there are concerns that a higher rebound in emissions will erase any progress made during the pandemic, especially when more countries recover economically.

Even so, the performance of renewables during the crisis might just be the silver lining to the global power industry. Only time will tell whether the lessons brought about by COVID-19 will spell the end of coal.

This story was written in partnership with Southeast Asia Globe.

https://kontinentalist.com/stories/will-covid19-replace-coal-with-renewable-energy-in-southeast-asia