International Energy Agency says coal-fired power will increase due to gas price energy squeeze

Due to high gas prices and supply constraints, coal is replacing natural gas for power generation, according to the International Energy Agency.

Global coal use for power generation is forecast to rise in 2022 as Russia’s invasion of Ukraine forces nations to find replacements for gas, while wholesale electricity prices treble in a string of markets around the world.

The International Energy Agency, headed by Fatih Birol, said coal use for power is tipped to rise slightly in 2022 as growth in Europe is offset by contractions in China and the US, marking the latest turnaround for the fossil fuel which has been increasingly out of favour as developed nations pursue net zero emissions goals.

Russia’s invasion of Ukraine has limited gas supplies to Europe and triggered a broader international energy squeeze, including in Australia where wholesale spot prices have soared four to five times their normal levels.

International Energy Agency executive director Fatih Birol at the Sydney Energy Forum in mid July. Picture: AFP

“Due to high gas prices and supply constraints, coal is replacing natural gas for power generation in markets with spare coal plant capacity, particularly in European countries seeking to end their reliance on Russian gas imports,” the IEA said in its latest electricity market report.

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“To secure energy supplies following Russia’s invasion of Ukraine, some European countries have delayed coal phase-out plans and lifted previously imposed restrictions on coal.”

Electricity prices have increased three-fold in major markets, including Australia, and gas prices in Europe are four times as high as during the same period in 2021 — while coal prices increased more than three times.

The IEA’s price index for major global electricity wholesale markets hit levels twice the first-half average of the 2016-2021 period.

The Loy Yang coal-fired power station, as seen from Yallourn in Victoria, faces closure in 2028. Picture: Jason Edwards

Global electricity demand is reverting back to more normal levels of 2.4 per cent growth in 2022 compared with last year’s 6 per cent jump as economies emerged from pandemic lockdowns.

Global renewable power generation is expected to lift by 10 per cent this year, displacing some fossil fuel generation, while nuclear generation will fall by 3 per cent.

“Emissions from the global electricity sector are set to decline in 2022 from the highest they reached in 2021, albeit by less than 1 per cent,” the IEA said.

Australia is in the grip of its own energy crisis with the national electricity market hit by a suspension in June, price caps in place for gas and a fresh threat of gas shortfalls in Victoria.

Cooper Energy managing director David Maxwell. Picture: Mike Burton

Victorian and South Australian gas producer Cooper Energy said the world had undergone an energy re-set and realised the importance of the fossil fuel as a bridge to renewables. Strong demand from eastern Australia was continuing.

“We have this disconnect between what people wish for and what they’re doing,” Cooper Energy managing director David Maxwell said.

“I think one has only got to look at the increase in volumes of gas coming from Queensland down to southeast Australia at the moment to illustrate that the issue that the demand has been growing faster than supply … The market is asking for gas to come their way.”

The latest shortage comes as gas demand is typically three times higher in the Victorian winter than summer. A cold snap and booming LNG exports have limited domestic volumes, and Russian sanctions have deprived global markets of supply and deepened a global energy crunch.

Originally published as International Energy Agency says coal-fired power will increase due to gas price energy squeeze