Economics of Coal

Future of Coal in Global Markets

Phase-out of unabated coal use is arguably one of the top priorities to achieve climate mitigation targets. According to the Intergovernmental Panel on Climate Change (IPCC), share of coal in primary energy use needs to decrease to 1-7% by 2050. Power sector is of particular importance, as unabated coal-fired power generation should be reduced to 80% below 2010 levels by 2030 and phased out before 2040 globally. IEA has a similar but slightly different perspective. Under its “Sustainable Development Scenario”, by 2040, the share of coal is required to decline to 11% in primary energy supply and 6% in power generation.

As of 2020, prospects in the coal sector are not aligned with the need to rapidly phase out coal. On the other side of the coin, regardless of alignment with climate mitigation targets, share of coal in both primary energy supply and power generation are projected to decrease. Under its “Stated Policies Scenario”, IEA projects the share of coal power generation to drop down to 21% in primary energy supply and 25% in power generation by 2040. According to World Energy Council scenarios, global coal demand is expected to peak in 2025 the latest. By 2050, the share of coal in primary energy supply is projected to decrease to somewhere between 7 to 18%, depending on scenarios.

The last but not the least, Bloomberg New Energy Finance projects coal-fired power generation to peak in 2026 and end up with a 12% share in the power mix by 2050, down from the current level of 38%

IEA’s projections on share of coal in energy and power mix for 2030 and 2040

There are a variety of factors that lead to a projected decline in coal use. An increasing number of developed and developing economies are committing to short and medium-term coal phase-out in the power sector. At the same time, access to finance for new coal investment is becoming constrained, as an increasing number of banks and other financial institutions announce that they will no longer support any coal-related investment. As a result of these dynamics, coal fired power generation is expected to either stagnate or decline globally. 

On the other hand, the challenge to find cost-effective substitutes for coal in industrial energy use (especially in iron, steel and cement sectors) means that coal might remain relatively important in meeting the energy demand in these sectors. 

Coal Consumption of Turkey in Other Sectors

Electricity sector is the main consumer of coal in Turkey, in line with the global trends. Between 1990 and 2018, coal use for electricity and heat production increased by 410%.

Consumption of hard coal, lignite and asphaltite by sector, 1990 – 2018. Data source: Energy Balance Sheets of the Ministry of Energy and Natural Resources

In 2018, 79% of lignite, 78% of asphaltite and 55% of hard coal was consumed for electricity and heat production in thermal power plants. 18% of hard coal was consumed for coke production, which, in turn, is used for steel

Sectoral consumption of lignite, Demand for coal by sectors (1000 TEP) Data source: Energy Balance Sheets of the Ministry of Energy and Natural Resources

Sectoral consumption of hard coal, Demand for coal by sectors (1000 TEP) Data source: Energy Balance Sheets of the Ministry of Energy and Natural Resources

Sectoral consumption of asphaltit, Demand for coal by sectors (1000 TEP) Data source: Energy Balance Sheets of the Ministry of Energy and Natural Resources

8% of lignite and 7% of hard coal is consumed by the residential sector for heating. From 1990 until 2018, use of lignite in the residential and services sector has decreased by 1/3 , while hard coal consumption in the same sector has increased by 180%. In the same period, natural gas established its dominance in the residential and services sector, rising to a share of almost 80% by 2018, from essentially zero in 1990, arguably due to the transition away from lignite and coal for heating, in order to curb air pollution.

Steel production and coal use

Turkey is the 2nd largest iron and steel producer in Europe, and 8th largest in the world.

Global steel production is dependent on coal. 70% of the steel produced uses coal. In Turkey, hard coal and coke accounts for 52% of overall energy consumption in iron and steel production. The difference could be explained by the fact that 70% of steel production in Turkey is made of scrap metals, which is fueled by electricity and natural gas, while primary steel production which is predominantly fueled by coal accounts for 30% of total steel production. This 70:30 secondary steel production to primary steel production ratio is the mirror image of the global 30:70 ratio.  

95% of coke supply in Turkey is used by the iron and steel sector. 84% of coke supply in Turkey is produced domestically from coking coal, while the remaining 16% is imported.

Energy consumption in iron and steel production according to energy sources, 2018. Data source: Energy Balance Sheets of the Ministry of Energy and Natural Resources