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Postponing the coal-phase out would come at a higher economic cost – interview with László Szabó

In the new policy context of the European Green Deal, Member States reached a consensus on the strategic long-term vision for Europe to become a modern, competitive and climate-neutral economy by 2050. The decarbonisation of the power sector is key in reducing emissions and the early retirement of coal capacity is one of the most cost-effective ways to achieve this goal.

Falling electricity demand in the wake of the COVID-19 pandemic has not lessened the pressure on coal and lignite plants and it may open the way for a less costly closure of these facilities. László Szabó, Director of the Regional Centre for Energy Policy Research (REKK) spoke with CEENERGYNEWS about the future of coal, based on the results of a recently published report on the state of lignite phase-out in Bulgaria, Greece and Romania.

A critical question for decision-makers is how to sustain a coal and lignite phase-out that is as swift as possible while also ensuring the security of supply, affordable electricity and a just transition in regions dependent on coal.

László Szabó highlights three important factors policymakers should consider regarding the early retirement of coal and lignite power plants.

“First of all, more aggressive deployment of renewables can speed up the process of a coal-phase out and reduce the temporary increase in wholesale prices,” starts Mr Szabó.

Another point of consideration is the bridging role of natural gas power plants, which could replace outgoing coal and lignite capacities to some extent.

“This is already happening in many EU countries due to increased carbon prices we experienced in the past one and a half year,” continues Mr Szabó.

Finally, demand growth should be kept in check through the implementation of end-use energy efficiency measures, that could also offset the temporary hike in wholesale prices due to accelerated coal and lignite phase-out.

“The pandemic induced a collapse in demand for electricity, with some countries seeing a two-digit decrease in consumption due to the economic slowdown,” he says.

However, Mr Szabó is more careful with expectations about the long-term effects of the current situation on the energy market.

The big question revolves around post-coronavirus recovery and its impact on a flattened demand.

A V-shaped recovery model foresees that energy demand bounces back to the original level with the economic rebound, while under an L-shaped recovery scenario energy demand and economic activity do not recover to its previous rate of growth.

“Nobody wants to see of course lower demand for energy if it comes at the price of an economic downturn. Therefore a sustainable reduction of energy consumption is only possible with structural change, but that is not manageable in a short time period,” explains the Director of REKK.

Phasing-out coal and lignite power generation in Central and South-Eastern Europe poses a great challenge but also a great opportunity. However, progress is uneven between countries, which show a different level of ambition in denouncing coal production.

“Greece has already made impressive progress in accelerating its coal phase-out and set out its revised National Energy and Climate Plan (NECP) to leave only 660 megawatts (MW) of lignite capacity after 2023,” says Mr Szabó adding that Greece also has higher renewables penetration complemented with natural gas-based technologies in its energy portfolio.

At the same time, the green energy transition in Bulgaria poses many complicated political, administrative, regulatory and business governance dilemmas. The country relies heavily on large coal and lignite plants, which account for 45 per cent of its total electricity generation today.

“Given that Bulgaria also has a lower contribution of renewables in its energy portfolio, it is likely that the country will follow a more stepwise approach in its coal phase-out,” tells László Szabó.

The share of coal and lignite-based power generation in Romania is smaller than in Bulgaria, but capacity-wise coal-fired power plants are still there in the system as a backup, although they are rarely utilised.

Hungary’s plans to phase out coal-fired generation after 2025 would require the transformation of the Mátra Power Plant, which today provides for 17 per cent of the country’s electricity. The plant management set out several options for the transformation of the facility including a 500-MW combined cycle gas turbine power plant (CCGT), solar units, processing communal waste into energy and electricity storage technologies.

According to Mr Szabó, before committing to any of these technologies the plant management should carry out a thorough assessment of economic viability factoring in the evolution of the electricity market in light of the continued increase of carbon prices, expected growth in installed solar capacities and strategic considerations of imported volumes.

As most lignite producers still operate with some sort of government support, advancing the closure of these plants would decrease aggregate losses and translate into cost reductions for all of society.

However, the social costs of an early coal exit are not negligible by any means,- points out Mr Szabó based on the results of the report modelling early coal phase-out scenarios.

“When considering the labour impact we shouldn’t forget about the future of coal regions,” warns Mr Szabó. “A smooth and just transition will require targeted measures to offset the loss and de-localization of jobs, to boost regional economies and to protect, re-skill and support workers made redundant by the phase-out.”

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