The perception of coal as a cheap source of energy results from intertwined economic and structural factors that minimize its upfront and operational costs. Coal has historically been a dominant global energy source, providing a significant portion of the world’s electricity generation for decades. Understanding its economic competitiveness requires examining the supply chain, the age of the infrastructure, and the accounting practices used for its environmental impact. This combination creates a low-cost profile for electricity produced by coal-fired power plants relative to many alternatives.
The Low Commodity Cost of Coal
The most immediate reason coal appears inexpensive is the sheer abundance of the raw commodity worldwide. Extensive and geographically widespread global reserves reduce the risk of supply shocks and encourage a mature, competitive international market. This massive supply pool maintains downward pressure on the commodity price of thermal coal compared to more geographically concentrated fuels like oil.
Coal is also relatively easy to extract, often accessible through surface mining methods, which are less costly than deep underground operations. Furthermore, coal possesses a high energy density in a solid, stable form, making it exceptionally efficient to transport and store. This characteristic lowers the logistical costs associated with maintaining large fuel stockpiles necessary for continuous generation.
The market for thermal coal is standardized and non-proprietary, contributing to low price volatility. When converted to a standard energy unit, such as dollars per million British thermal units ($/MMBtu), coal is often consistently cheaper than natural gas or oil. This inherent cost advantage is the foundation of coal’s economic argument.
Amortized Capital Investments
A significant portion of coal’s cost advantage stems from the age of the existing power plant fleet. While building a modern coal-fired power plant requires massive initial capital expenditures (CapEx), many operational plants are decades old and have already completed their capital amortization.
The concept of sunk costs dictates that the multi-billion dollar costs to build these facilities are no longer factored into the current price of electricity. The price per kilowatt-hour only needs to cover ongoing operational expenses, fuel costs, and maintenance. This dramatically lowers the overall cost structure compared to building any new generation facility today.
Utilities are not required to recover the initial construction debt from current ratepayers, making the marginal cost of electricity generated by these old assets very low. The original infrastructure investment has essentially been paid off, allowing older coal plants to produce power at a price point that new facilities find difficult to match.
Consistent Operational Output
Coal power plants are fundamentally designed to provide “baseload” power, running continuously at a high output level. This continuous operation leads to a high capacity factor, often exceeding 60% and sometimes reaching over 80%, which is much higher than variable renewable sources like solar or wind. This predictability is valuable for grid stability.
The high capacity factor means that fixed operational costs, such as labor, property taxes, and routine maintenance, are spread over a massive amount of generated electricity. Dividing these stable running costs by a large volume of output results in a lower cost per unit of energy produced. The mature, standardized technology of coal plants also contributes to stable, predictable maintenance schedules and costs.
Since coal is a stored fuel, its generation is highly “dispatchable,” meaning the plant operator can reliably increase or decrease output to meet demand fluctuations. This reliability minimizes the need for expensive backup power sources. The combination of continuous, high-volume production and stable operational costs makes the variable cost of coal generation highly competitive.
Unaccounted Environmental Externalities
The quoted “cheap” price of coal-generated electricity often does not represent its true economic cost to society. This discrepancy arises because negative consequences of coal use are treated as “externalities”—costs borne by the public or the environment rather than being included in the consumer price. These unaccounted costs significantly skew the economic comparison with other energy sources.
The most substantial externalities relate to environmental and public health impacts from combustion. These include healthcare costs associated with respiratory illnesses and premature deaths caused by air pollutants like sulfur dioxide, nitrogen oxides, and particulate matter. Climate change damage costs from carbon dioxide emissions are also typically not factored into the price of coal power.
Additional hidden costs involve the management and disposal of toxic coal ash, a byproduct of burning the fuel, which can contaminate local groundwater and soil. Studies attempting to quantify these externalities estimate that the full societal cost of coal-fired electricity can be two to four times higher than the price paid by the consumer. The exclusion of these damages from the utility bill is a primary reason coal production appears economically favorable.