At a Glance

  • A report released earlier this month by Wood Mackenzie noted that rising electricity demand and slower buildout of alternative power sources could extend the global coal power cycle and displace up to 2,100 gigawatts of natural gas and renewable capacity by 2050.
  • In a high-demand scenario, coal-fired power generation could peak in 2030, four years later than the agency's "base case" forecast.
  • The economics and political foundation of coal power are strongest in Asia. The report states that in the U.S., although coal power costs more than natural gas or "solar-plus-storage," the cost of new natural gas plants has nearly doubled, and long-duration energy storage technology has not yet matured enough to turn solar and wind into true "baseload" power sources.

In-Depth Analysis

Anthony Knutson, Wood Mackenzie's head of global thermal coal markets, said that for now, national security concerns and economic factors in Asia favor coal power; however, in terms of levelized cost of electricity alone, a hybrid of solar and storage remains cheaper than coal or gas power.

"While the long-term trajectory toward renewables remains unchanged, the actual path is far more complex than many anticipate—countries are simultaneously grappling with energy security and affordability issues," Knutson said in a statement.

Wood Mackenzie expects that by 2030, the levelized cost of electricity for unabated coal power in the Asia-Pacific region will remain below $100 per megawatt-hour, lower than the expected cost of gas power in the region. The report shows that over the same period, U.S. coal power costs will be around $230 per megawatt-hour and Europe around $270; while gas power costs will be around $100 per megawatt-hour in the U.S. and around $150 in Europe.

Citing data from Reuters, the report notes that a hybrid of solar and storage will be cheaper than both coal and gas power in all three regions: around $60 per megawatt-hour in Asia, about $70 in Europe, and roughly $80 in the U.S.

The report says that although U.S. gas power is more economical than in Asian and European countries that rely on LNG imports, its ability to match surging artificial intelligence load forecasts is limited. Long-duration energy storage technology, despite significant progress in recent years, still cannot provide baseload power.

The cost of replacing old coal plants with natural gas and renewables is also rising, delivering a "sticker shock" to power producers seeking to transition. The report attributes this to tariffs, manufacturing reshoring, and infrastructure delays driving up the cost of new solar, while noting that the cost of new U.S. natural gas plants has nearly doubled.

Wood Mackenzie says higher replacement costs and rising capacity market prices are boosting the value of existing coal assets. Last year, capacity prices in parts of the PJM Interconnection soared nearly tenfold, prompting the grid operator to set "price caps and floors" for its next two auctions.

In the report's "high coal demand scenario," thermal coal use will first plateau, then slowly decline through 2050, with average usage 32% higher than in the base case. The base case expects thermal coal use to peak next year, then steadily decline through 2030.

The report notes that if slower growth in clean power capacity is compounded by a lack of "significant investment" in carbon capture and storage (CCS) capabilities, emissions from unabated coal power could increase by 2 billion tonnes. This could further threaten international efforts to limit warming to 2°C—a goal that prominent U.S. climate scientist James Hansen earlier this year called "dead." Hansen first warned of human-caused climate change in 1988 congressional testimony, which environmentalists say significantly raised public awareness of the issue.

David Brown, Wood Mackenzie's director of energy transition practice, stressed in a statement that the analysis is not a forecast but "a warning about the consequences of inaction." "Without urgent action, the world faces a growing risk of sliding toward a 3°C warming path," Brown said. "Our high coal demand scenario... reminds us that there is still room for prevention."

Wood Mackenzie also noted that if short-term demand pushes coal prices higher while Western financial institutions remain reluctant to finance new mining projects, the sustainability of coal demand remains uncertain. Sovereign wealth funds and private equity groups would need to step in to fill the investment gap.

The agency believes the long-term survival of global coal assets will likely depend on whether asset owners are willing to invest in retrofits: unit upgrades to improve load-following capability and overall efficiency; modifications allowing co-firing of alternative fuels such as hydrogen and ammonia; and installation of carbon capture facilities. According to Wood Mackenzie, China has already retrofitted about 15% of its coal units for flexibility to improve load-following, but the technology remains nascent elsewhere. The same applies to co-firing, despite strong interest in South Korea and Japan. And carbon capture, utilization and storage (CCUS)—which Wood Mackenzie calls the "holy grail" of coal power—also remains in its early stages: the U.S. has only one operating project in Texas, while a larger proposed project in North Dakota faces an uncertain future after its main contractor withdrew last year.