French energy corporation Engie announced in March that it is closing its coal-fired power plants in Chile, abandoning earlier plans to sell them, Bloomberg News reported. U.S.-based AES, Italian firm Enel and Chile’s Colbún have all pledged to stop building coal plants in the country, and Engie is reportedly trying to shed its last coal plants in Brazil. Is coal dead in Latin America? What do the actions of multinational firms, some of which have promised to eliminate or greatly reduce the production of coal, mean for coal producers and consumers? What forces are driving the moves by energy firms in the region?
Jorge Rosenblut, board member of the Institute of the Americas and former chairman of Endesa: "The question, ‘Is coal dead?,’ reminds me of the old AT&T discussion asking, ‘Is the landline phone dead?’ Or Kodak film? Or all those Sears stores that used to abound everywhere in the United States? Or yellow cabs? Or is it that the solution for the private or public utility business model is changing? Although the perfect solution is still unknown by industry experts, analysts and financiers, the disruption, or business transformation, of the energy field is in progress. As wireless communications, digital pictures, online retail and individual in-town transportation were emerging, debates ensued about how much, how fast and which one would become the new business solution. Meanwhile, business transformation was indeed happening. The future will not be a projection of the past. Those people and entities that either ignored or miscalculated the magnitude of the transformation and its force were hurt badly—an oversight that, unfortunately, affected countless investors, mid- and senior-level managers and workers who were not present at the decision-making table. Regarding energy, the renewables or better stated, the ‘new-conventionals,’ as Francesco Starace, CEO of Enel once remarked, are the new actors that are increasingly proving to be robust solutions. As the Financial Times reported, in 2017 more than half of the sector’s new capacity was coming from the ‘new-conventionals.’ There is still time for utilities to get the solution right and join Enel, Engie, AES, Colbún and other leaders to be among the Ubers of the world and avoid being ‘Uber-ized.’"
Nelson Altamirano, professor of economics at the School of Business and Management at National University: "Latin America is not a significant coal miner nor a large coal thermoelectric producer, and most countries in the region have no coal dependency. However, coal will remain part of the export list or energy matrix for a few countries. Colombia is the largest coal producer, with 90 million tons per year, mostly for export, and it has more than 16 billion tons of coal reserves. Certainly, coal mining will remain in Colombia’s export list. The largest coal thermoelectric producers are Mexico, Brazil and Chile, at 5 percent, 2.3 percent and 11 percent of their respective energy generation capacity. Before 2015, coal was a solution to reduce fossil fuel-based generation in countries where the supply of natural gas was uncertain, for instance in Chile or Brazil. But a renewed political will to support the Paris Climate Agreement in 2015, strong grass-roots activism, population support and the combination of technological progress in renewables, stagnation in clean coal technologies (capture and sequestration) and government incentives have tilted the preference of businesses toward solar, wind, geothermal and hydroelectric. As a result, coal thermoelectric expansion projects that would double the current coal generation capacity have already been canceled in the region and converted into renewable expansions. Just a few small coal projects remain under construction. I am sure Chile will be coal-free in the next 25 years, but coal may still be present in Brazil and Mexico at rates close to 1 or 2 percent of their generation capacity. For now, coal is dead in the region."
Kirk Sherr, president of Clearview Strategy Group: "In recent years, coal has played a negligible role in the Latin American electric generation mix. In the top six regional economies, coal generation has comprised well under 10 percent of electric generation–with Chile as the notable exception. Due to a series of internal (drought, earthquake) and external (Argentine gas production decline) factors, Chile rapidly increased its dependence on coal over the last decade, exceeding 40 percent of energy generation by 2016. But over the last five years, the rapid drop in costs for renewable energy—especially photovoltaic (PV) solar and wind generation—has dramatically changed the generation planning calculus worldwide. Battery storage costs are also falling rapidly and together with intelligent grids, smart buildings and other distributed generation options, historical electric generation cost assumptions are now being turned upside down. This ‘new’ generation environment—renewable, distributed, intelligent and supported by base-load natural gas (maybe via LNG) or nuclear power—has allowed most OECD economies to accelerate the move away from coal. In this environment, forward-thinking multinationals, energy companies and financing entities are responding to intense pressure from shareholders, NGOs, community leaders and citizens to combat CO2 emissions by eliminating coal generation and other ‘dirty’ energy assets. It is worth noting that, per recent U.S. EIA studies, even coal plants using carbon capture and storage result in long-term power prices more than double those of new grid-scale PV solar or onshore wind plants. In this new generation environment, Chile is no different, just a little late to join the aggressive move away from coal."
Leni Berliner, president of Energy Farms International: "Coal is somewhat like Mark Twain, who assured audiences that rumors of his death had been greatly exaggerated. As there is no economically feasible way to burn coal without emitting greenhouse gas and particulate matter, the mining and use of thermal coal for power is in net decline, as countries strive to reduce greenhouse gas emissions. For this reason, energy companies—that is, companies that own and produce a variety of energy generating assets—have been unloading their ‘stranded’ thermal-grade coal mines before competition from inexpensive natural gas and renewable energy makes the global asset value of thermal coal shrink to zero. Nonetheless, coal mining companies are still able to borrow for project development and operations to supply the large thermal coal markets of Asia and Eastern Europe, with 10 banks having actually increased their lending for coal mining and power from 2016 to 2017, according to the Rainforest Action Network report “Banking on Climate Change: Fossil Fuel Finance Report Card.” The health of the markets for metallurgical coal is directly tied to demand for steel and is a very different market from that for thermal. Approximately 60 percent of Latin America’s coal assets are of metallurgical grade and are often referred to as ‘coking coal.’ There is thus still a market for coal in Brazil, Mexico and Chile, which have steel industries, as well as for export outside the region."
María Isabel González, general manager of energy consultancy Energética: "Coal continues to be very important in the Chilean electricity supply and in the world. In fact, during 2017, 39 percent of Chile’s electricity was generated with coal. The plants that Engie will disconnect from the electric system are mainly the ones that are more than 50 years old. According to future operation simulations, it is expected that their shutdown won’t affect the system in prices nor in energy availability. The will of governments to reduce CO2 emissions is the main driver of the decarbonization; however, it is now feasible due to the decrease in photovoltaic and wind power prices. In Chile, power generation from renewable sources represented 10 percent of total generation in 2017. Due to the great solar radiation registered in northern Chile, there is a large number of new projects in development and therefore generation from fossil fuels will be less necessary. In any case, the removal of coal units must be done without affecting security of supply and prices to final users."