"For some, shunning coal wouldn't just be expensive; it would mean a lack of energy for human development," says Rahul Tongia of the Brookings Institution.
As we saw in the previous article in this series, developing nations face the dual challenge of phasing out GHG-emitting fossil-fuel power generation while simultaneously building out new power sources to meet increasing demand. Figure 1 shows under current trajectories, despite almost doubling its renewables capacity, fossil fuel energy generation, notably coal and natural gas, are still forecast to grow.
(Other is nuclear and hydro. Renewables include wind, solar, geothermal, and bioenergy.)
Source: bp Energy Outlook 2024.
One of the reasons coal remains a dominant energy source in developing countries is its abundance and affordability compared to renewable energy sources. In nations parts of Africa, coal is not only plentiful but also comes with developed logistics and infrastructure, making it a reliable and convenient option. Unlike renewables, which often require new infrastructure, coal plants are easier to integrate into existing power grids, providing a stable energy supply that is crucial for economic growth.
The reliability of coal is another significant factor. Renewable sources like solar and wind are intermittent and do not provide consistent power throughout the day or year. This intermittency requires costly backup systems, such as battery storage, to ensure a stable energy supply. For countries that lack geological conditions for hydroelectric power or advanced grid management for balancing a mix of renewables and other energy sources, coal remains an easier-to-manage option for baseload power.
Economic considerations also play a significant role. Coal is generally cheaper than other energy sources, particularly when the costs of backup power for renewables are factored in. Moreover, for countries with large coal reserves, such as China and India, coal offers a level of energy security that is hard to match. These countries can avoid the volatility of international energy markets and reduce their dependency on imported fuels like liquefied natural gas (LNG), which has seen price spikes due to geopolitical pressures. The price stability of coal and the security of a domestic supply make it an attractive option for developing economies trying to avoid the economic risks associated with energy imports.
While the cost of renewable energy has decreased, it is crucial to note that the lower cost does not include the additional expenses for battery backup systems, which are required to smooth the fluctuation of renewable power. When they are included, renewable energy sources lose out to coal or natural gas in countries where fossil fuels are widely accessible and reasonably priced. Moreover, forecasts over the next ten years suggest that the cost for large-scale energy storage batteries is expected to keep renewable energy more expensive than coal-based electricity.
Financial barriers to adopting renewables are also significant. The cost of capital in developing nations can be 2 – 3 times higher than in developed countries, making the upfront investment in renewable technologies more expensive. Currency exchange risks further deter foreign private sector investment in clean energy projects.
As Rahul Tongia, a senior fellow at the Brookings Institution, points out, "to achieve desired economic growth in the near future will require parallel growth in energy supply—at a rate that even the most aggressive clean energy deployment in history hasn't been able to meet in full. Thus, for some, shunning coal wouldn't just be expensive; it would mean a lack of energy for human development."
The challenge goes beyond electricity generation. While renewables can address electricity production, coal and natural gas are still essential for industrial production and manufacturing processes.
The infrastructure's age is another consideration. In Southeast Asia, for example, coal plants have an average age of just 11 years. Shutting these plants down prematurely and replacing them with renewables would be far more costly than replacing them at the end of their useful life.
Lastly, the global clean tech supply chains currently lack the capacity to meet both the increasing demands for electricity (mostly met by renewables) and the replacement of existing coal power production.
While the global movement towards cleaner energy is vital, the realities facing developing countries make it difficult to completely abandon coal-based power. The abundance, reliability, and economic benefits of coal, combined with the financial and infrastructure challenges of adopting renewables, mean that coal will likely remain a significant part of the energy mix in these nations for the foreseeable future. This highlights the need for international collaboration and innovative solutions that recognize the legitimate development needs of poorer countries while working to reduce global emissions.
In the final article, we will explore how global cooperation, particularly through mechanisms like Article 6 of the Paris Agreement, could revolutionize our approach to climate action and provide a more effective path to reducing global emissions.
Jerome Gessaroli is a senior fellow with the Macdonald Laurier Institute. He writes on economic and environmental matters, from a market-based principles perspective. To read the previous article of his five-part series for Resource Works, click here.