Coal: What is it good for?
A look at coal's role in the electricity grid, today and tomorrow.
In what I consider one of this simulation’s universe’s greatest quirks, igniting a dark substance made from dead plant matter pressurized over millions of years turbocharged human progress within a mere century. Although humans discovered coal over 4,000 years ago, it wasn’t until the 1880s that we first used it to generate electricity. Today, coal usage faces extensive criticism over its adverse ecological and health impacts. However, many are likely unaware that coal is still the top source of global electricity generation today, accounting for 35% of the global total1. Coal is by far the most abundant fossil fuel on Earth. The United States alone has more proven coal deposits than the rest of the world has oil reserves2. Let that sink in.
I share these figures to stress just how embedded the coal supply chain and its related systems are in modern civilization. 35% is actually the lowest share coal has ever held in global electricity generation, a clear sign of our dependency. An uncomfortable truth, but one we need to acknowledge. Global discourse around coal has picked up of late, with headlines like these from just the past two weeks:
Despite their thinly-veiled digs at Asian countries, these media institutions are correct: coal usage has never been higher. Why? We now have access to cleaner and denser fuels, global energy markets, as well as renewable sources of electricity generation. So why have we not moved on from coal? Is economics the answer, or is there something else? In my opinion, the main reason is deceptively straightforward:
Energy generation sources are not fungible, and this has massive downstream implications for grid design, power plant reliability, and energy security.
Why does this matter? Well, coal is used primarily as a baseload energy source, which means it can produce a constant stream of electricity. In contrast, solar and wind energy are intermittent sources of electricity as their output is constrained by external factors, namely the weather. This property is reflected in a generation source’s capacity factor (CF), a measure of how much a power plant produces at its maximum capacity versus its theoretical maximum output. An average coal power plant has a 40-70% capacity factor while a typical solar plant runs at 15-20%.
This should make intuitive sense, as coal-powered plants can theoretically run at any time of day, barring downtime for maintenance or other reasons. The major implication here is that coal generates 3–6x more electricity on a per-MW basis than solar/wind, and on a more consistent basis. Replacing the energy produced by 1 megawatt (MW) of coal-fired generation takes ~4MW of solar panels. Remember this when you come across charts that talk about installed power capacity (usually in MW) versus installed generation capacity (usually in MWh).
With this, let’s look at the data around coal to understand where it stands today. We’ll focus on China and India, the two largest coal consumers by some margin.
Coal consumption today
Here is a snapshot of current global coal consumption3:
In many ways, this chart is a great summary of global goods trade since the 1960s. A few talking points:
Today, China consumes more coal than the rest of the world combined. This should not be a surprise. Since the 1990s, China has served as the world’s factory and required a cheap, reliable baseload energy source to fuel its manufacturing sector. It has the world’s third-largest coal reserves and often imports high-grade coal from other nations. Chinese coal plants have a median lifespan of 32 years4, indicating that several plant retirements and/or retrofits are due in the next 5-10 years.
1986: The last year that the US, Europe, and China consumed the same amount of coal.
The United Kingdom, an empire once literally powered by coal, is now officially coal-free for the first time in modern history.
India is one of the few major global economies with increased annual coal usage and production. In 2024, the Ministry of Coal reported a 10% annual increase in coal consumption, reaching 1,245 million tonnes (Mt)5.
The economics of coal
The coal value chain consists of four main stages:
Mining
Processing
Transportation/storage
Consumption
The level of vertical integration in the coal supply chain differs by nation. However, in most cases, specialized players focus on one or two areas. While exact figures vary by region, this is how the delivered cost of coal is roughly split across categories:
Transportation: 45%
Mining: 35%
Processing: 8%
Distribution: 7%
Compliance: 5%
These are average values I obtained after reviewing data from Coal India, China Shenhua Energy, and the World Coal Association. Transporting coal is such a huge business that it alone accounted for 33% of all income for the Indian Railways in 20236. In China, land-based transportation costs can be so prohibitively high that coastal provinces sometimes prefer to import coal via ships from Indonesia/Australia as that works out cheaper on a per-unit basis.
Here’s a calculation I ran to show the present value of the lifetime costs associated with a typical 500MW coal power plant and a 2,000MW solar farm in China and India. I picked these figures as 500MW is the size of a typical new coal power plant, and its output would be roughly matched by a 2,000MW solar farm. This is purely an academic exercise with many simplifying assumptions7:
PV = present value | O&M = operations and maintenance
LCOE = levelized cost of electricity. For those not familiar, the LCOE of an energy source is the average cost per unit of electricity (i.e., cents per kilowatt-hour) over the lifetime of the source. Although not perfect, it allows for quick comparisons between energy sources.
Despite being 4x larger in installed capacity, solar's total CapEx is only 2.2–2.7× higher, showing significant cost advantages. On a lifetime basis, electricity produced by coal plants is 26-37% more expensive than electricity produced by solar panels. Despite requiring less upfront CapEx, coal plants are immensely fuel-intensive, which results in heavy recurring operating expenditure. This requires plant operators to negotiate coal supply contracts, hire hundreds of workers and/or contractors, and perform constant maintenance. In comparison, solar plants require large upfront CapEx but minimal recurring O&M costs. I acknowledge that solar panels alone cannot directly replace coal plants (since they don’t produce electricity at nighttime), which is why pairing solar with battery storage will help unlock even further cost reductions.
Don’t believe me? Check out this LCOE chart8 by the International Energy Agency (IEA):
Without delving into VALCOE (value-adjusted LCOE), I want you to focus on the dotted orange lines across regions. These show the steep expected decline in electricity costs associated with a solar-battery storage solution. The IEA, an organization that has famously underestimated solar and energy storage deployments on a consistent basis over decades, predicts that solar plus storage will be up to 50% cheaper than coal on a $/MWh basis by 2030. And this doesn’t even account for the negative externalities associated with coal or potential tax credits for solar/storage projects. Imagine presenting two project options to your CFO in which one costs twice as much per unit as the other. I suspect that meeting would be rather brief.
The politics of coal
In India, the Ministry of Coal published a brief last year titled, “Economic significance of the Coal Sector Extends Beyond Energy Production”. I encourage you to take two minutes and read it, just so you understand the ministry’s mindset. I think they unintentionally said the quiet parts out loud. Coal is so tightly integrated into the Indian economy that reducing its usage would directly harm multiple revenue streams for the government and displace hundreds of thousands of workers.
This brief presents a fairly weak protectionist defense of coal and fails to mention the biggest benefit of coal generation in India: energy security for baseload power generation. India lacks significant proven oil & gas reserves but has the fifth-largest proven coal reserves of any nation. This greatly reduces India’s coal import dependency, making coal the obvious foundation of India’s generation mix as seen in the chart below (obtained from here):
While India’s power consumption has generally risen each year given its growth, coal-powered generation has kept up, especially since 2019 (India’s financial year runs from April to March, which is why the 2024–25 generation bar is still low). Today, coal accounts for 70% of India’s electricity generation mix and 55% of its total energy demand.
Thankfully, this likely won’t be the case for much longer. India’s Central Electricity Authority (CEA), a division of the Ministry of Power, published a study last year analyzing various generation mix scenarios in 2030. In it, they forecast that coal will only account for 56% of electricity generation, as a result of increased solar deployments. A 20% reduction in five years is admirable. However, the report also calls for an additional 16.2GW of coal-based capacity by 2030. This is on top of 26.9GW of coal-based capacity already in the development pipeline. While the authors state that this extra capacity is needed to account for potential drought conditions affecting hydropower generation, I remain unconvinced as to why this needs to come from coal and not other sources.
China’s electricity generation mix is similar to India’s, except for a steeper decline in coal’s share of total generation:
(Chart obtained from Ember Energy)
This decline in electricity generated by coal is the result of both policy and economics, which resulted in an explosion of installed renewable energy generation capacity. China is such a big deployer of solar energy that it installed more solar in H1 2024 (102GW) than the cumulative installed solar capacity in all of India (98 GW). The IEA predicts China’s coal usage will peak in 2027, and coal is expected to account for only 44% of its electricity generation mix by 2030. While the Chinese government approved more than 100GW of new coal capacity permits in 2023, this figure plummeted to just 9GW in H1 2024. It doesn’t take much to understand what’s going on here.
Parting thoughts
In the world of energy, paradoxes are a constant. Coal helped us advance as a civilization. Coal is resource-intensive, non-renewable, harmful, and an inefficient way of generating electricity. Coal is here to stay in major economies. Coal is no longer an economically attractive way to generate electricity. The list goes on and on.
I think it is important to acknowledge some of the realities of the world we live in. History tells us that as economies develop and industrialize, their electricity demand increases. With a renewed push for manufacturing, vehicle electrification, and data centers for AI, China and India will soon require energy supply that is an order of magnitude more than current levels. It is naive to expect both nations to use only oil/gas to bridge this gap, given they have to import these fuels.
That being said, long-term public sector investment in new coal plants is financial folly. Even with higher capacity factors and supposed carbon capture technologies to reduce plant emissions, coal power plants are 30-year assets that require continuous maintenance and fuel supply while solar/wind farms need minimal oversight once operational. The balance sheet for operating a coal power plant is unappealing. If energy security is the biggest concern for India/China (which is completely understandable), maintaining/retiring existing coal plant fleets while significantly increasing PV/wind/nuclear/battery capacity is the way to go.
China has already figured this out, and India is waking up to this reality. Massive grid infrastructure upgrades are required to integrate renewables into legacy grid networks. Solar cells, wind turbines, nuclear plants, and batteries will require billions of dollars in manufacturing and supply chain investments, creating far more jobs than those lost due to a shift away from coal. This is why I don’t buy the protectionism line of defense for coal. Instead of resisting the future, governments need to embrace it and prepare for the next wave of technological advancement in energy.
While coal-fired generation won’t disappear anytime soon, achieving true energy security doesn’t require it anymore. Renewable energy sources have now demonstrated for years that they are cheaper, more environmentally-friendly, and financially accretive for economies. I remain fervently optimistic that the real explosion of cheap, renewable, and low-emissions electricity is almost here.
Hannah Ritchie and Pablo Rosado (2020) - “Electricity Mix” Published online at OurWorldinData.org. Retrieved from: 'https://ourworldindata.org/electricity-mix' [Online Resource]
“Data Page: Coal consumption”, part of the following publication: Hannah Ritchie, Pablo Rosado and Max Roser (2023) - “Energy”. Data adapted from Energy Institute. Retrieved from https://ourworldindata.org/grapher/coal-consumption-by-country-terawatt-hours-twh [online resource]
60% capacity factor (CF) for coal, 15% CF for solar | Coal plant lifetime: 30 years, solar plant lifetime: 25 years | 3% discount rate for China, 5% for India | Coal CapEx (China) = $350–$500 million for 500 MW, Coal CapEx (India) = $450–$600 million for 500 MW, Solar CapEx (China) = $200–$300 million for 500 MW, Solar CapEx (India) = $250–$350 million for 500 MW | Coal OpEx (China) = $30/MWh, Coal OpEx (India) = $35/MWh, Solar OpEx = 1-2% of CapEx
IEA (2024), LCOE and value-adjusted LCOE for solar PV plus battery storage, coal and natural gas in selected regions in the Stated Policies Scenario, 2022-2030, IEA, Paris https://www.iea.org/data-and-statistics/charts/lcoe-and-value-adjusted-lcoe-for-solar-pv-plus-battery-storage-coal-and-natural-gas-in-selected-regions-in-the-stated-policies-scenario-2022-2030, Licence: CC BY 4.0