Staying power How new energy realities risk extending coal's sunset

The world is facing a stark reality: coal-fired power could be a bigger part of the energy mix for longer than expected, scuppering efforts to meet climate change goals. New realities for energy markets in recent years have become more, not less, supportive of coal-fired power.

Russia’s continued invasion of Ukraine and the turmoil in the Middle East have pushed energy security to the top of government agendas. Power demand growth is surging around the globe. Large loads driven by the proliferation of data centres and energy-intensive manufacturing mean energy markets are pulling in all the power they can get, often regardless of carbon intensity. What’s more, coal technology has room to run with the prospect of lower-emission innovations that could make coal more palatable in a renewables-dominated world.

Despite falling coal demand across Europe, the US, Japan and South Korea, the availability of cheap domestic coal resources continues to drive strong demand in the power sectors of many economies across South and Southeast Asia. China is the key driver of our outlook for peak coal as renewables, nuclear and hydro expand, but coal has proved resilient even as the country’s energy transition gathers pace.

In this issue of Horizons, we explore how energy security, power demand and technology choices risk the greater use of coal for longer. Anchored by a new high demand case for coal, developed specifically for this Horizons report, we examine the drivers of a higher outlook for coal and what this means for investors, technologies and global climate goals.

Wood Mackenzie forecasts global peak coal demand in 2026. In our base-case Energy Transition Outlook, global coal-fired power generation falls around 70% between 2025 and 2050. Competitive costs for renewable power, advances in battery storage, a nuclear renaissance and growth in dispatchable natural gas-fired capacity reduce the utilisation of coal assets globally. The largest contraction in coal is in Asia, driven by China. The region accounts for 78% of the world’s coal consumption today.

Source: Wood Mackenzie

Predictions of ‘peak coal’ have long proved premature, however. The 1997 Kyoto Protocol, the 2015 Paris Accord and the global agreement at COP26 in 2021 all fired up optimism that coal had had its day, but global coal demand has continued to rise nonetheless. Between 2013 and 2025, China’s coal-fired power output increased by more than 36% as its economy doubled in size. Right now, coal is the single largest source of electricity generation globally.

This underscores the reality that coal demand has consistently proven more resilient than expected. We continue to believe that our base-case forecast of peak coal demand in 2026 is the most likely outcome, but have developed a high coal demand case, in which coal demand is more resilient for three key reasons:

• Energy security and affordability: For several of Asia’s largest and fastest-growing economies, coal is a strategic domestic resource that supports energy security, affordability and employment.
• Power demand growth: In an era of rapid power demand growth driven by data centres, artificial intelligence (AI) and wider electrification, governments and companies may opt to run existing coal assets harder and longer, slowing investment in lower-carbon alternatives.
• Technological improvements: Progress in the use of coal as a flexible power supply source, and advances in technologies such as carbon capture, utilisation and storage (CCUS) and hydrogen co-firing, could improve the emissions profile of coal plants, extending their operational life.

In our high coal demand case, the world’s power systems are still dominated by low-carbon sources of power. But nine countries in Asia hold the cards to the future of coal. In a departure from our base case, coal demand in India, Indonesia, Vietnam, Pakistan and Bangladesh grows faster, reflecting stronger capacity growth and young asset lifetimes. Markets such as Malaysia, Thailandand the Philippines with an effective moratorium on new-build coal could alter course if cheape rcoal can sway the debate. In recent years, China has proven adept at running its coal assets harder to meet strong demand growth and could repeat this as its power demand climbs.

In our high coal demand case, coal generation is, on average, 32% higher than in our base case from 2025 to 2050. Coal still peaks, but around four years later than our base case, in 2030. This is followed by a slower plateau for coal through 2050.

With higher coal burn, there is a corresponding slowdown in zero-carbon power capacity, energy storage and natural gas-fired power. Wind, solar, energy storage and natural gas capacity falls by around 2,100 GW from 2025 to 2050. Reducing carbon emissions would become an even greater challenge. Without significant investment in carbon capture and storage capacity, unabated emissions from the coal sector rise by 2 billion tonnes compared with our base case.

Source: Wood Mackenzie

China and India are the bedrock of global coal demand. The world's largest coal producers and consumers, both regard their vast coal resources as pillars of their energy security and are working to limit energy imports. China mined more than 4 billion tonnes of thermal coal last year, covering 90% of its total coal demand, and its government has been clear that despite massive investment in clean energy, it will prioritise energy security ahead of phasing out coal. India continues to expand domestic coal production to reduce its import reliance, producing over 1 billion tonnes for the first time in the 2024-25 fiscal year.

Coal production globally sustains substantial direct and indirect employment, serving as a vital driver of local and regional economic activity. Provinces and states such as Shanxi in China and Jharkhand in India rely on coal-mining royalties and taxes as essential revenue sources. These funds underpin economic development, social welfare programmes and infrastructure investment.

Coal-fired power also helps to keep energy prices low across Asian markets. Domestically produced 5,500 kcal/kg bituminous coal in India and China currently ranges between US$3-$4 per mmbtu at the power plant. Domestic coals cover 85% to 90% of demand in China and India.

Comparatively, seaborne thermal coal markets have proven to be extremely volatile. While prices can be competitive with domestic markets, prices for an equivalent imported coal climbed to more than US$14/per mmbtu following Russia’s invasion of Ukraine in 2022. Pacific basin LNG prices are currently more than double the price of domestically produced coal. Like imported coal, LNG prices have surged as high as US$36 per mmbtu. Countries that import energy have an economic incentive to double down on domestic coal production.

Almost all major economies have made the wind-down of coal-fired power assets a cornerstone of their decarbonisation plans. Lately, many power generators around the world have been extending the lifetime of coal plants or increasing utilisation rather than reducing it. There are four core reasons.

Source: Wood Mackenzie

• A rapidly electrifying global economy is colliding with the realities of energy technologies today. AI’s massive appetite for power is driving a strategic race for power supply across every major energy market.
• Zero-carbon power cannot do it all. Energy storage has not evolved fast enough to convert wind and solar into baseload resources. In the US, natural gas is now doing much of the heavy lifting as power demand surges, but cannot do it all, making coal a reluctant lifelinefor baseload demand.
• Investors are getting ‘sticker shock’ when replacing coal-fired power. While solar power is the lowest-cost source for new power generation, in most developed economies, renewables face tariff threats, higher production costs from reshoring and infrastructure delays. The cost of new gas capacity has nearly doubled in the US. While softer LNG prices will support gas demand growth in Asia, most of the demand growth will be in industrial and residential sectors. In both China and India, natural gas remains only around 3-4% of total fuel inputs into power.
• With replacement costs of coal escalating, the value of existing coal assets is rising. Much of this value is tied to the value of capacity rather than to the value of selling energy during high energy price hours. For example, capacity markets in the US have awarded a premium to dispatchable capacity, including coal-fired power.

As the world expands electrification, it is also maximising existing power assets, including the latest coal fleets, within a renewables-heavy grid. When the average life expectancy of a coal plant is between 50 and 60 years and fleets in China, India and Southeast Asia are young, there is an economic incentive to maximise plant lives, optimise operations and deploy technologies to reduce emissions.