So far in this series, we discussed the structure of the global power industry, the design and market structure for each fuel type, as well as opportunities and challenges facing each fuel type and, in turn, for companies producing equipment for each fuel type.
It’s worth noting that major thermal power generation equipment manufacturers, such as General Electric (GE) and Siemens (SIEGY), have a presence and capabilities in multiple fuel types, insulating them from concentration risks. GE is part of various ETFs, including the SPDR S&P 500 ETF (SPY) and the Industrial Select Sector SPDR ETF (XLI). In this final part of our series, we’ll summarize the outlook for each thermal power.
While coal (KOL) will continue to lose global market share to natural gas and renewables, it will remain the primary fuel for electricity generation in the developing world. An increase in the economic feasibility of new environmentally friendly technologies such as integrated coal gasification cycle (or IGCC) and carbon capture and sequestration (or CCS) may help coal-fired technologies beat market expectations.
The International Energy Agency (or IEA) expects $1.5 trillion–$2.0 trillion to be invested in coal-based power plants over the next two decades. GE expects 800 gigawatts or GW of new coal-fired capacities to come online by 2023.
Natural gas has snatched considerable market share from coal in the US over the last decade. The fall in prices for natural gas has even threatened some of the planned nuclear capacities in the US. With voices against climate change growing, natural gas may surpass coal in new capacity additions across the world over the next decade. According to the IEA, new investments of around $1 trillion will go into building natural gas–fired power plants over the next two decades.
The appeal of nuclear power may be limited to developing countries and the US due to safety concerns and high lead time. While Japan is restarting its nuclear power plants after over three years, new investments in nuclear power plants in the country may remain low going forward. Despite the challenges, the IEA expects over a trillion dollars in new investments in nuclear power plants over the next two decades due to high capital costs. Half of these investments are expected to happen in China, India, and the US. New investments in nuclear power in Europe would primarily aim to replace fossil fuel plants that are retiring.
If $3.5 trillion in investments in thermal power over next two decades sounds big to you, consider that investments in renewables is going to be even bigger at over $5 trillion. We’ll cover solar power and wind power in two separate Market Realist series soon.