Speaker 1: Before COVID nineteen Biennia, we're already looking at European coal
Speaker 1: having only five to ten years of life left, but
Speaker 1: that timeline is shortening further and it's possible that coronavirus
Speaker 1: may be something that the coal industry won't be able
Speaker 1: to recover from. We recently had a record breaking number
Speaker 1: of days without coal in the UK and it appears
Speaker 1: that these records are poised to continue as coal fired
Speaker 1: generation declines across Europe. Today we'll be speaking with Katherine Poseidon,
Speaker 1: a member of the AMIA Energy Transition Team whose work
Speaker 1: includes coal phase out, and Andrea Skendalfo, the head of
Speaker 1: AMA Power at b NF. Today will be calling upon
Speaker 1: a series that BIENNF produces, which are titled EU Power Weeklies.
Speaker 1: As of late, there have been several of these research
Speaker 1: notes that have touched upon the role of coal. These
Speaker 1: reports can be accessed at biennf Go, on the Bloomberg
Speaker 1: terminal at biennif dot com or on biennifs mobile app.
Speaker 1: They are titled YOU Power Weekly. Poland eyes German style
Speaker 1: Cole spinoff as well as coal industry is exposed by
Speaker 1: COVID nineteen and Poland clings to Cole Beyond B and
Speaker 1: E F does not provide investment strategy advice, and you
Speaker 1: can hear the full disclaimer at the end of the show.
Speaker 1: I'm Dana Perkins, joined by Mark Taylor and you're listening
Speaker 1: to Switched on the bn F podcast. Let's hear from
Speaker 1: today's guests regarding Cole Faceoff. Katherine Andreas, thank you for
Speaker 1: joining us today, Thank you, thank you for having us
Speaker 1: d So today is actually a pretty important day I
Speaker 1: think in the UK when it comes to coal. We
Speaker 1: are recording on the day that for the first time,
Speaker 1: the UK has not using any coal for power generation
Speaker 1: for two full months. This is pretty significant and maybe
Speaker 1: let's pring that back over to you guys to talk
Speaker 1: about why and a little history of last in here.
Speaker 1: Maybe we can start with the economics and why the UK.
Speaker 1: Even though it's a big mouston for the country, it's
Speaker 1: not the first time this has happened. So the UK
Speaker 1: has taken a lot of steps to kick call out,
Speaker 1: the most important one being that they actually have their
Speaker 1: own carbon price floor and so essentially UK coal generators
Speaker 1: need to pay extra for emitting, which it comes on
Speaker 1: top of what they really need to pay under the
Speaker 1: EU carbon price SKME. Just to be clear, what is
Speaker 1: that floor? No one really knows. It's said very vaguely
Speaker 1: by the government and they say, uh, we want to
Speaker 1: keep the whole, the entire carbon price at current levels.
Speaker 1: That's what they told us a couple of years ago,
Speaker 1: and that was around twenty five pounds per time. Uh.
Speaker 1: And so it looks like they're targeting something around twenty
Speaker 1: five pounds per time. And the second big thing that
Speaker 1: has happened in the UK is that essentially they have
Speaker 1: a core phase out there and they were the first
Speaker 1: ones to announce um, a big one like that, uh.
Speaker 1: And they started the trend and essentially within the matter
Speaker 1: of a few years from twenty fourteen to twenty eighteen,
Speaker 1: we saw core capacity in the UK declining very very
Speaker 1: quickly and core use also the calining very very quickly.
Speaker 1: And that coincides very well with the period when the
Speaker 1: carbon price floor was doubling, so it doubled in that period,
Speaker 1: and it also coincided with when the government announced the
Speaker 1: core phase outdate, which in retrospect looks more like they
Speaker 1: were just formalizing what utilities were later on going to do. Anyway,
Speaker 1: So that's great context regarding the UK specifically, but how
Speaker 1: about the rest of Europe. This is a European story,
Speaker 1: is it not. It is for sure. And one of
Speaker 1: the signals that we've seen from the UK that is
Speaker 1: reflected across the continent really is the speed with which
Speaker 1: coal is starting to move out of the system. And
Speaker 1: in the UK, for example, the first full day without
Speaker 1: coal was only in seventeen and at the time it
Speaker 1: was it was a huge deal. It was followed by
Speaker 1: the first week without coal, and then this year we
Speaker 1: saw a full month and that was a record at
Speaker 1: the time, and now here we are another month after
Speaker 1: that's still with no coal in the system. And the
Speaker 1: goal of the UK is to have no coal at
Speaker 1: all by three but we're already at a very very
Speaker 1: low share, something like two percent of total generation. And
Speaker 1: so what we're starting to see is really a momentum
Speaker 1: behind coal phase outs across the board, where a combination
Speaker 1: of policy drivers and economics are really making it clear
Speaker 1: that a cold phase out date is not necessarily you
Speaker 1: know the reason why this is happening, And in many
Speaker 1: cases it's likely that coal is going to, if not
Speaker 1: officially closed, at least fall very dramatically, even before some
Speaker 1: of those uh even optimistic dates of early twenties for
Speaker 1: some of the whore in whish its European country. Back,
Speaker 1: where do we start? In the UK? Roughly we presented
Speaker 1: generation if I remember while we're looking at something around
Speaker 1: twenty five coming from core. Wow, I mean, it's quite remarkable.
Speaker 1: It's it's a huge drop. Can we go into both
Speaker 1: of those drivers? So, Katie, you mentioned there's policy drivers,
Speaker 1: there's economics drivers. Why don't we take those each in
Speaker 1: turn and go through what those drivers are to explain
Speaker 1: this drop and call across Europe. So on the one hand,
Speaker 1: we have sort of a less well known policy driver,
Speaker 1: but one that is becoming more important right now, which
Speaker 1: is the use targets to reduce emissions, but not particularly
Speaker 1: carbon emissions in general, but actually the pollutants. And so
Speaker 1: the EU has been implementing gradually more strict limits on
Speaker 1: what kind of pollutants in what quantities power plants can emit,
Speaker 1: and just this year and next year essentially there will
Speaker 1: be much stricter limitations coming into force where a number
Speaker 1: of power plants are likely going to realized that putting
Speaker 1: an investment into making you know, the the improvements to
Speaker 1: reduce those pollutant emissions is probably just not going to
Speaker 1: be worth it in the end, it's going to make
Speaker 1: sense to actually close. But the other major policy driver
Speaker 1: is really just the the e use move to a
Speaker 1: greener economy. And of course we've heard a lot about
Speaker 1: the Green Deal and now the Green Recovery Package, but
Speaker 1: even before that, the EU had twenty targets to reach
Speaker 1: a certain share of renewables in energy consumption overall. And
Speaker 1: did we reach those numbers by this year, Well, we
Speaker 1: won't know for sure until sometime next year, but it
Speaker 1: is looking like we are going to definitely reach the
Speaker 1: EU level target. And then each country has had to
Speaker 1: adopt its own overall target and then also granular targets
Speaker 1: for power, transport and for heat. And one thing that
Speaker 1: is pretty important is that the electricity sector targets tend
Speaker 1: to be a lot easier because usually it's a case
Speaker 1: of retiring some coal plants adding for renewables, and the
Speaker 1: share of renewables in the mix increases pretty rapidly. So
Speaker 1: that has been sort of one of the easier ways
Speaker 1: for countries to reach their overall targets. And so we're seeing,
Speaker 1: you know, more and more renewables are competing with coal,
Speaker 1: and if we're talking about the economics and can say
Speaker 1: more about why coal is becoming less and less competitive.
Speaker 1: But the EU now is in a very much sort
Speaker 1: of one directional path towards a greener economy overall, and
Speaker 1: it's becoming very clear that the role that coal has
Speaker 1: to play in a greener futures minimal and falling fast.
Speaker 1: So there is coal and then there are renewables, but
Speaker 1: actually between the two there's something that's actually a lot
Speaker 1: cheaper than coal that maybe a little bit easier to
Speaker 1: mix in, which is gas. And economics for gas have
Speaker 1: actually come down dramatically very recently, making it very competitive
Speaker 1: in number of contexts in locations, can you guys address
Speaker 1: gas And it's into the future of coal in Europe.
Speaker 1: The reason why the UTS was initially set up, so
Speaker 1: the carbon pricing scheme for Europe. The first goal was
Speaker 1: to actually at some point make coal expensive enough so
Speaker 1: that it can no longer compete with gas, and we
Speaker 1: achieved that about two years ago when we saw the
Speaker 1: economics of coal around Europe turning a combination of cheap
Speaker 1: gas coming from the US and carbon price modifications in policy.
Speaker 1: So that they actually reduced the over supply of carbon
Speaker 1: emissions that we had as a hangover from the two
Speaker 1: thous financial crisis. The combination of these two essentially suddenly
Speaker 1: made gas plants really competitive with coal. We were right
Speaker 1: there at that point where running a gas plant and
Speaker 1: running a coal plant was one and the same. Before that,
Speaker 1: running a coal plant was dirty. Now with the COVID crisis,
Speaker 1: in fact, we have a new status where gas prices
Speaker 1: in Europe have collapsed to record levels. I think we're
Speaker 1: talking about something like four euros per megawuath tour in
Speaker 1: the Netherlands compared to like sixty euros per megat are
Speaker 1: about a year ago. And what this is essentially doing,
Speaker 1: it's saying that we don't need call for everything. And
Speaker 1: one thing you need to keep in mind is that
Speaker 1: many gas fleets around Europe have been sized to actually
Speaker 1: be able to take over code for most of the time.
Speaker 1: So what ends up happening is coal plants are now
Speaker 1: asked to service the eight am to eight p m
Speaker 1: and that area that like eight am to eight pm
Speaker 1: because of COVID is lower because people are staying at home,
Speaker 1: they're not going to work, and so cord plants are
Speaker 1: not saying, well, no, we can't do that, like we
Speaker 1: can't turn on for three or four hours and then
Speaker 1: go away. So economics combined with the fact that these
Speaker 1: assets are not built to service a few hours in
Speaker 1: the day. They're built to run flat out like a
Speaker 1: coal plant hates to turn on and off. The combination
Speaker 1: of these two things has essentially completely pushed them out
Speaker 1: of generation in countries like not just the UK, but
Speaker 1: it is Spain. Wherever we have a large gas feat
Speaker 1: you see this happening in Greece, a country that was
Speaker 1: in love with lignite, and lignite was the beginning and
Speaker 1: end all of everything. Now it's like we there is
Speaker 1: speculation that has been like lignite three days or or
Speaker 1: days when lignite contributed so little to the generation, it's that,
Speaker 1: you know, it wasn't heard of. Is anyone still in
Speaker 1: love with lignite? Are there countries that are are still
Speaker 1: really resisting this, either for economic or political reasons? Definitely,
Speaker 1: and I think the political sort of pushback is one
Speaker 1: of the main reasons why a call plays out in
Speaker 1: those words, is still not in discussion in several European countries.
Speaker 1: It's just become a political kind of hot potato than
Speaker 1: that nobody really wants to touch. One of the reasons
Speaker 1: for that is, you know that lignite and hardcore power
Speaker 1: production and especially in Eastern Europe still is linked to
Speaker 1: the mining sector. So unfortunately the economic impact is being
Speaker 1: felt very heavily in those places and countries such as Poland,
Speaker 1: Czech Republic, Romania, Bulgaria, even Greece, where the government still
Speaker 1: may not want to discuss col phase outs increase. They
Speaker 1: have it has been announced, but the utilities in those
Speaker 1: areas still need to come up with some kind of
Speaker 1: option going forward, because although those regions may rely on jobs,
Speaker 1: as Andreas said, the economics are putting more and more
Speaker 1: pressure on that industry to the point where whether there's
Speaker 1: political will or not, the industry is really struggling. I
Speaker 1: actually used to live next to a giant coal plant
Speaker 1: in Romania. The air quality from from for me personally,
Speaker 1: was not that good, so I I personally, I think
Speaker 1: I would welcome this change. The air quality is a
Speaker 1: really interesting point because that is sort of the one
Speaker 1: area where governments are starting to be able to gain
Speaker 1: traction to discuss cold phase out. You know, just talking
Speaker 1: about closing coal is very unpopular. But once you start
Speaker 1: to actually speak with people and you know, they realize
Speaker 1: that the reason the air quality is for is because
Speaker 1: of cold power generation. That's been one of the sort
Speaker 1: of main factors, especially in Eastern Europe, that is driving
Speaker 1: the conversation towards moving beyond. I thought EU Power Weekly
Speaker 1: was really interesting. And in terms of company strategy that PGE.
Speaker 1: What is that Poland's utility? Is that right? I think
Speaker 1: it is the biggest utility in Poland? Yea, right, Okay,
Speaker 1: So they have a strategy. They have an answered the
Speaker 1: strategy to to phase out coal over the next twenty
Speaker 1: five years, but also they're starting to entertain a strategy
Speaker 1: of divesting or spinning off their coal assets into a
Speaker 1: separate company to make PG itself more investable. Can you
Speaker 1: describe some of the longer term utility strategies here? I
Speaker 1: guess it's air quality, but it's also just utility strategy. Yeah.
Speaker 1: I think on the one hand, utilities are feeling the
Speaker 1: economic pressure that at this point, in many cases, if
Speaker 1: we're looking for, you know, a new source of power generation,
Speaker 1: it makes a lot more sense to build new renewables
Speaker 1: plants rather than new fossil fuel plants, but we're also
Speaker 1: at a point now where new renewables are even more
Speaker 1: competitive with existing fossil assets. So replacing some of the
Speaker 1: oldest and dirtiest, you know, coal powered plants, especially in
Speaker 1: places like Poland, with renewables is actually makes just good
Speaker 1: sense from an economics point of view. At the same time,
Speaker 1: the EU level targets are making it clear that the
Speaker 1: future is going to be with renewable and so utilities
Speaker 1: are starting to realize that, you know, if if they're
Speaker 1: looking to expand, renewables are going to be the place
Speaker 1: to look, especially in Poland, is starting to investigate offshore
Speaker 1: wind um. They're looking at more stable source of generation
Speaker 1: that's still renewable, but also as a way to generate
Speaker 1: jobs and you know a little bit more I on
Speaker 1: my activity in the areas that are bordering to see
Speaker 1: trying to bring more activity back to courts to Utilities
Speaker 1: are trying to basically if they can't get away from
Speaker 1: those costly assets that are really pulling them down, and
Speaker 1: they're sending signals across the board that they're looking at,
Speaker 1: you more sustainable options there. They've understood where the wind
Speaker 1: is blowing and it's their pockets ultimately that are taking
Speaker 1: the hit from from costly coal generation. I do sometimes
Speaker 1: hear though from proponents of coal, and they point out
Speaker 1: that we need baseload power and that's essentially what coal provides.
Speaker 1: So maybe this is a question for you andres from
Speaker 1: an economic standpoint and just from a general grid mix standpoint,
Speaker 1: is everything else all added together? Is that going to
Speaker 1: be consistent enough? And when we all start back at work,
Speaker 1: we are physically going to the office, is there going
Speaker 1: to be some sort of a rebound or a yoyo
Speaker 1: effect that is going to put us exactly back where
Speaker 1: we were regarding coal and everything else in the generation mix.
Speaker 1: So I want to start by clarifying a thing that
Speaker 1: I think a lot of people in the industry no,
Speaker 1: but the people who work in coal often don't distinguish.
Speaker 1: And you said, oh, coal is base load power. Also
Speaker 1: is gas and if cause it's cheaper like it is
Speaker 1: in the US, why should code be base or power.
Speaker 1: So yes, coal is baseload power, but it's not the
Speaker 1: only technology. And you look at the country like France
Speaker 1: and your career is basedload power. So from that point
Speaker 1: of view, I want to make that distinction that the
Speaker 1: fact that core can do baseload power to me is
Speaker 1: actually UH deficiency because if you ask me, well, core
Speaker 1: gas can do both baseload and peak, so um, that
Speaker 1: is a that is like the first thing to keep
Speaker 1: in mind as far as the rebound for coal, if
Speaker 1: you ask me, I struggled to see how core could rebound.
Speaker 1: In Europe. Demand will rebound and UH probably will start
Speaker 1: burning more gas, but we need to clear up the
Speaker 1: gas over supply. It is clear that at the carbon
Speaker 1: price will keep call out and I think increasingly utilities
Speaker 1: are like well, policies against us, right, Like, it's pretty
Speaker 1: clear we have called phaseouts in most of europe economics.
Speaker 1: Whether they are against us or in our favor, it's
Speaker 1: probably more against us than in our favor. And so
Speaker 1: you see companies saying, well, let's call it quits, let's
Speaker 1: you know, why have this bleeding wound running just like
Speaker 1: cut it off and and and and throw away. Like
Speaker 1: I'm sorry to be so so dramatic, but but that's
Speaker 1: how they see it. And you know, we've been talking
Speaker 1: about the UK, but we haven't touched, for example, in
Speaker 1: Germany where there's like a cold phase out there going
Speaker 1: on and right now in the crisis, lignite, right, a
Speaker 1: fuel that costs nothing, is essentially still more expensive to
Speaker 1: run than gas because of low gas prices and the
Speaker 1: carbon price. You go to Italy and l announced early
Speaker 1: closure of one of its plans. You go to Portugal,
Speaker 1: sorry Spain e DP announced uh the early closure of
Speaker 1: another coal plant there. The PPC in Greece has been
Speaker 1: asking the government to shut down the core plants, and
Speaker 1: the government's the one that's saying, hey, how about we
Speaker 1: take this step easier than what you want to do
Speaker 1: because it's you know, okay, we agree to a phase out,
Speaker 1: but it's still political. So I think that there is
Speaker 1: not going to be there's there might be an apparent rebound,
Speaker 1: but the trend is set, is like this thing is
Speaker 1: going away and it's going away fast. Are the same
Speaker 1: companies that are shutting down co plants? Are those the
Speaker 1: same ones that own the gas and renewable plants that
Speaker 1: are that are taking in their place? Or they are
Speaker 1: winners and losers here? Is it all just kind of
Speaker 1: hera No, I wouldn't say there are winners and losers.
Speaker 1: There are emerging strategies everywhere right. There are the ones
Speaker 1: who bet on compensation for having to close core plants
Speaker 1: are because that's a thing, right like, and so they say,
Speaker 1: let's take the core assets and probably will get paid
Speaker 1: to do that. A very good example is e p
Speaker 1: H from the Czech Republic. They've been buying up all
Speaker 1: coal plants and all glass plants for very cheap prices,
Speaker 1: hoping that either they get used or they get paid
Speaker 1: for that. R W to a certain extent, also bet
Speaker 1: on that when it essentially decided to take all of
Speaker 1: all of the coal generation and and and keep it
Speaker 1: on its books. And then you have the companies who say, look,
Speaker 1: I want nothing to do with code. Ian was well inside,
Speaker 1: I want nothing to do with generation in general. But
Speaker 1: maybe we can think of like Vatonfel that a few
Speaker 1: years ago essentially paid e p H to take to
Speaker 1: lignite plants away from its books. And then you have
Speaker 1: the companies that like an L or e DP, very
Speaker 1: large European utilities that have a mix, have a very
Speaker 1: low call in their mix, and essentially they're saying, look,
Speaker 1: we're looking to phase it out. We're looking to free
Speaker 1: up money to then invest in new technologies. If you
Speaker 1: ask me, obviously, anyone who's like massively exposed to code
Speaker 1: today's suffering. But even you know, there are counter examples
Speaker 1: to that, like the Greek formerly state owned utility, the
Speaker 1: public Park Court. Now it's created. Everyone was betting that
Speaker 1: we're going to have a very bad first quarter and
Speaker 1: because of the coronavirus crisis and a second quarter, and
Speaker 1: in fact, for some iraculous reason, you managed to post
Speaker 1: a profit. If I'm not wrong, Katic and correct me there.
Speaker 1: And it was because of their grids division. So there
Speaker 1: are surprises everywhere, and and and I think this is
Speaker 1: a period where companies like our w or PPC or
Speaker 1: others that are heavily exposed to CODE are discovering new
Speaker 1: profit making sectors of their business. This is definitely involves
Speaker 1: a lot of economic signals, but I want to know
Speaker 1: at the end of the line emissions targets, how much
Speaker 1: of that success or failure of hitting those targets it
Speaker 1: has to do with coal? How big is it as
Speaker 1: a part of the whole when it comes to emissions,
Speaker 1: coal is going to play a key role in whether
Speaker 1: or not the EU is able to meet its twenty
Speaker 1: thirty target. And then it's it's ultimate goal of economy
Speaker 1: wide net zero emissions. So cole in the power sector
Speaker 1: accounts for about two thirds of total power sector emissions
Speaker 1: in the EU now, and so if if the Block
Speaker 1: is really serious about reducing you know, that that chunk
Speaker 1: of emissions, it's going to have to take a very
Speaker 1: serious step towards reducing emissions from cold But as they
Speaker 1: mentioned earlier as well, the electricity sector is one of
Speaker 1: the more straightforward sectors of the economy to de carbonized.
Speaker 1: And so the EU, if they want to meet net zero,
Speaker 1: is going to have to do quite a lot of
Speaker 1: work in buildings and heating and transport, and that's gonna
Speaker 1: be harder. So it's gonna make a lot more sense
Speaker 1: to try and take bigger, more straightforward steps in decarbonizing
Speaker 1: the power sector. Um, the you has put you know,
Speaker 1: this green recovery really front and center in its post
Speaker 1: COVID stimulus plans UM and especially it has set out
Speaker 1: this mechanism that is really designed to help bring the
Speaker 1: countries and regions that are going to have, you know,
Speaker 1: a much steeper path towards decarbonization on board. So the
Speaker 1: Just Transition mechanism was set up as part of the
Speaker 1: Green Deal announced at the end of twenty nineteen. But
Speaker 1: from seven and a half billion euros that were meant
Speaker 1: to go towards that fund in the Green Deal, the
Speaker 1: new recovery package has increased that by more than four times,
Speaker 1: so it's now forty billion euros that will go to
Speaker 1: making sure that you know, no, no regions or or
Speaker 1: areas are left behind from the transition. One of the
Speaker 1: key points though, is that no funding will be available
Speaker 1: unless those regions produce a just transition plan, so they'll
Speaker 1: have to actually, you know, lay out targets concrete steps
Speaker 1: on how to de carbonize, and it's very unlikely that
Speaker 1: they'll be receiving funds if they don't acknowledge at least
Speaker 1: it needs to move past cold and start taking steps
Speaker 1: concrete steps in that direction. Andreas, you mentioned you had
Speaker 1: a sum up thought can you bring us on home?
Speaker 1: So yeah, like, I think what we're seeing here is
Speaker 1: that call is on the way out in Europe. What
Speaker 1: what we're essentially seeing is, you know, low gas prices,
Speaker 1: high carbon prices are making the economics of coal plants unbearable. However,
Speaker 1: as we've seen in the past, gas prices do not
Speaker 1: need to stay low and carbon prices do not need
Speaker 1: to stay high. And I think this is where European
Speaker 1: policy comes in. European policies essentially the continents insurance to say,
Speaker 1: no matter what the economics do, we are kicking this
Speaker 1: thing out. And I think this period right now gave
Speaker 1: a future vision. The COVID period gave a vision of
Speaker 1: the future to call operators. But there are still the
Speaker 1: ones let's say, well, well, maybe things change for us,
Speaker 1: And that's where European policy comes in and says, even
Speaker 1: if they do, don't hope on it, don't go out
Speaker 1: investing in these things. And I think that's the key
Speaker 1: difference between now and let's say European policy ten or
Speaker 1: fifteen years ago that essentially wasn't clear enough, and you
Speaker 1: see new code, we would see new coal blensing countries
Speaker 1: like German, countries like the UK, you would see updates
Speaker 1: and retrofits. And I think that's really important to keep
Speaker 1: in mind that there's been this shift and probably that's
Speaker 1: you know, we we saw an acceleration of the shift
Speaker 1: during the COVID nineteen crisis. Thank you so much for
Speaker 1: providing the perspective both from the economics and the policy
Speaker 1: landscape for the future of coal Katie and Andreas great
Speaker 1: having you with Mark and I here today. Thank you
Speaker 1: for having us. Bloomberg an app is a service provided
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