Tuesday, February 15, 2011

Renewable energy and the price of coal

One of the key issues relating to climate change, energy independence, and pollution control is that coal-powered electricity is cheap, compared to the less environmentally destructive alternatives. As a result, one of the big goals (or dreams, depending on one’s point of view) is to make renewable energy as cheap as coal. However, there is an implicit assumption here that is often overlooked. That is that coal power is, and will always be, cheap. Since the price of coal is a significant portion of the cost of coal-based electricity, this assumes that coal prices will be low and constant. How does this assumption compare to the data?

Figure 1. The spot price for Australian thermal coal exports, last 5 years. (source)
As the above figure shows, the price of coal has varied by more than a factor of four over the past five years. Of course, most coal is sold on long term (and not always public) contracts which contain less volatility than the spot price, but the point is that like all resources, it is not (to borrow a phrase from a competing energy type) too cheap to meter. Even in the US, which is somewhat limited to exposure on world markets by its meager export facilities, the assumption that coal will always stay cheap is worth questioning. The USA may be facing a generation glut at the moment due to industrial scalebacks caused by the recession, but axing plans to diversify the energy base due to low current prices is not a good long-term policy.

1 comment:

Coal said...

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