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India’s grand solar plans ruin Abbott’s coal export strategy

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Tony Abbott may well think that coal is good for humanity, but it is going to be hard to convince the Indian energy industry that imported coal from Australia is good for their market.

A new report from Deutsche Bank highlights just how dramatic the renewable energy revolution instigated by the Modi government will be. By 2019, Deutsche Bank says, investment in solar alone will outstrip that of coal generation.

That, in turn, will have a significant impact on coal imports. Because solar energy will have a significant impact on day-time power rates, so the highest-cost generation will be hit hardest. And the highest-cost generation just happens to be imported coal.

deutsche coal solar

Deutsche Bank says that this could cause the volume of coal use to fall significantly. Deutsche says the Indian government forecasts for solar are too optimistic, but even on Deutsche’s own estimates of 35GW of solar by 2020, this causes an 8 per cent cut in the volume of coal burned for generation, rather than an increase as most analysts expect.

This, in turn, would hit the most expensive coal hardest, reducing volumes by the equivalent of 70 million tonnes, or around one-third of current coal imports.

That would save India about $US17 billion a year. But it would be devastating to the Abbott government’s hopes of expanding the Australian thermal coal export industry, particularly in the Galilee Basin. The demand is simply not there, particularly with imports from China also falling by one half.

The government and the developers appear to be wising up to this. The Abbott government has virtually admitted that the Galilee projects could not go ahead without taxpayer-funded finance, and Adani this week reportedly laid off contractors as questions over the future of its Carmichael project intensified.

While Deutsche Bank questions whether the Indian government can deliver on its lofty targets of 100GW of solar and 175GW of renewable energy by 2022, it does not contest the economics.

It notes that while solar may look more expensive than thermal generation on up front costs, over the life cycle (no fuel costs), it is already competing with coal. This graph below shows it is already cheaper on a levelled cost of energy basis than domestic coal. Coal generation with imported coal is even more expensive.

deutsche coal parity

This has been borne out in recent tenders for both solar and coal-fired generation. An auction of 300MW of solar capacity in the state of Madhya Pradesh attracted numerous bids of just above 5 rupees – these included from SkyPower and from majors such as Reliance Power, Adani Power, MK, Welspun, Sun Edison and two public sector companies.

“Looking at the tariffs discovered in recent bids for solar and coal, the parity is almost there for buyers,” Deutsche Bank noted. “Importantly, with increase in coal prices, solar could look cheaper in next few years.” And it is important to note that the bids were fixed for solar, but rising with inflation for coal.

Screen Shot 2015-07-22 at 12.21.24 pm copy

Deutsche Bank further notes that commercial consumers in many major states pay the highest tariffs, and solar  power is already competitive or cheaper than grid power, even without the capital subsidy.

This applied in areas like South Indian states Karnataka, Tamil Nadu, Andhra Pradesh, and Telangana, and other high-industrial-tariff states like Maharashtra, Delhi, Odisha and West Bengal.

It also noted that even if it got to 100GW by 2022, it would remain a small fraction (just 15 per cent) of solar’s potential in India.

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  • michael

    Aren’t exports of Aus coal to india increasing yoy at the moment?

    if you add the total new installed capacity of that graph above for those years, you get 70,000MW of Coal and 28,000MW of solar… That’s a lot of brand new coal fired generators that probably won’t be retired say inside 5 years, so unless we do a terrible job of maintaining/increasing our market share in India, there’s a hell of a lot of consumption of coal to satisfy (this number obviously doesn’t include current installed capacity).

    • Ronald Brakels

      No. Coking coal exports increased but Australia exports almost no thermal coal, that is coal that is used in power plants, to India.

      • michael

        Really, none? In that case, we are already increasing our coking coal exports to them and their demand for thermal coal isn’t going anywhere south soon. What a great marketing opportunity for Australia.

        Where do they get all their thermal coal from? I did see a recent article about potentially buying a heap off Russia

        • Ronald Brakels

          No, not none, very little. I believe India receives less than 1% of our thermal coal exports. India gets most of its coal from India. They produced 494 million tonnes in 2014-2015, an increase of 32 million tonnes or 6.5% over the previous year. The largest exporter of thermal coal to India is Indonesia. Due to the low value of the rouble Russia is burning less coal and exporting more, but the amount is currently fairly trivial compared to Indonesia’s or Australia’s exports.

          As for India being a great marketing opportunity, the dreams of Abbott and Co. of exporting hundreds of millions of tonnes of coal to India a year are simply lies. They may be lies of negligence resulting from a refusal to look at the facts and a failure to perform adequate truth hygiene, but everyone, even politicians, has a responsibility to examine facts. If you think exports to India may temporarily slow the decline in Australian coal exports, yeah, sure, that could happen. But it’s not going to stop it. Australia will never build another coal power station as renewables are now a cheaper option and increasing numbers of countries are falling into the same category, including ones that that are Australian thermal coal export markets.

          • michael

            this article showed India alone adding 70GW of additional coal capacity in the next 5 years, surely they aren’t the only country on earth doing this?

            Am i correct that’s about equal to entire Australian generation?

            sure this won’t stop our decline in coal exports if you look at a 40 year horizon, but surely it does a good job of proping up global demand for the next 10-15 years?

          • Ronald Brakels

            Okay, get back to me when coal prices have risen from the current $58 US a tonne to back above $80 US for more than a temporary period and I’ll consider things propped.

          • Michael

            A different Michael: I think you allow domestic partisanship to override any sensible reading of India’s energy demand growth. The ship borne coal trade is what you have to look at – and it is growing. Not exactly soaring, but solid growth. India’s energy requirements that are soaring and, if they are to be successfully met, coal generation at much higher levels is going to be required. Energy production is lagging demand – and this problem is likely to get worse. BP statistics estimate a 122% increase in demand by 2035. Reliable sources of fuel are needed. Indeed, that is why Indian business is investing in Australian coal – to acquire a reliable, and relatively cheap, source, which won’t be derailed by volatile Indian politics. Large scale renewable energy developments in India are facing the normal problems – land acquisition is difficult and slow, production and maintenance standards are questionable, at best, and revenues are negatively impacted by the widespread energy theft and failure to pay energy bills. In that environment, with soaring demand, every single energy project, of whatever type, faces significant difficulties. The dice are then loaded for an established and cheap, if dirty, technology. Unless construction of renewables explodes (where is the capital/land/etc to come from?), which is highly unlikely, coal fired generation must grow.

          • Ronald Brakels

            Solid growth in seabourne coal, a different Micheal? You think a fall in price from a peak of $132 US a tonne in 2011 to $58 US a tonne today and a 5% fall in Australian thermal export tonnage from the year before counts as solid growth? Are you crazy, a different Michael? This year Australia’s coal exports will be down roughly $15 billion dollars compared to 2011. Thanks to reduced demand we’ve had mines suspend operations and sack workers. At current prices at least a quarter of Australian mines supposedly can’t cover costs. Indian investment? What Indian investment? Adani has clearly abandonned the Galilee basin project. But despite all this you say there has been solid growth? I wonder what you would call a disapointing result? Being forced to accept coal from India and being made to bury it in the ground at gunpoint?

          • Michael

            Get your head out of your terribly dull little Australian backside. I was describing the growth in Indian demand and Indian imports. Now, just to get it through your extremely thick skull, there are other imports than those from Australia. Got it, moron?

          • Ronald Brakels

            Oh, a different Michael, you were talking about steady growth in seaborne coal as a whole, which is down tens of billions of dollars and millions of tonnes, has the lowest ship building rate in 10 years, and this year has seen a record number of ships being scrapped? That’s the steady growth you mentioned, is it? So I’ll ask again, are you insane – that is your views are not associated with reality. Or are you just a bit behind the times and you are partying like it’s 2009?

          • Michael

            Point 1: You make up statistics and give no sources. You talk absolute uniformed crap and you think that somehow ship scrapping rates have something to do with the coal trade. I mean, do have a brain? Any brain?
            Point 2: The BP Statistical Review of World Energy 2015 shows that Indian coal production reached 644 million tonnes in 2014, a growth rate of 6.4%. In oil equivalent terms that is 243.5 million tonnes. Meanwhile consumption rose by 11.1% to 360.2 million tonnes of oil equivalent. Facts. Coal imports are rising strongly and each year India is importing more.
            Now, I know this doesn’t accord with your skewed worldview but it is a simple fact. Even the most ideological, uniformed idiot must accept facts. If you don’t, you are clearly insane and you need to seek medical assistance. The loony bin for you.

          • Ronald Brakels

            So, a different Michael, you are saying India’s coal tonnage imports are up. That is certainly true. And seaborne coal is down. That is, coal borne by sea to anywhere.

          • Michael

            You lie and then you move the goal posts. Does anyone take you seriously? I mean, can you even take yourself seriously?
            The seaborne trade is increasing by about 7% a year on average. Seaborne coking coal trade is rising at about 1.6% a year.
            Seaborne trade in the Asia Pacific region rose 7.7% in 2014.
            Despite the best efforts of all the green agitators, and the increase in renewables capacity, coal consumption in the Asia Pacific rose in 2014. You can oppose coal if you will. But, do try and get your facts right.
            Whle China’s imports of coal shrank last year, India’s rose, as did South Korea’s, Japan’s, and Taiwan’s. The UK and Germany are also big importers.
            The fundamental error you are making is an astonishing blindness to the rise in demand. Gas is the fastest growing hydrocarbon, oil production is also increasing, as is coal. That is why prices are low and investments in renewables are declining (2014 figs capacity grew but the absolute amount of investment declined from 2013). Now, this may change, and more money may flow into renewables, but at the moment the cash is flowing to hydrocarbons. The reasons are straight forward: technological advances in extraction techniques and cheap prices.

          • Ronald Brakels

            I didn’t lie. We just weren’t talking about the same thing. I don’t even know what we disagree on. You responded to a comment where I wrote, “…the dreams of Abbott and Co. of exporting hundreds of millions of tonnes of coal to India a year are simply lies.” Do you disagree with that? Do you think Australia will export hundreds of millions of tonnes of thermal coal to India?

          • Michael

            You claimed the seaborne coal trade was declining – by tens of billions of dollars and millions of tonnes. it isn’t. Even a basic survey of what is going on would have taught you that. So making that claim, without knowing the facts, is at best a lie. Your exaggeration – tens of billlions of dollars – is in the grand tradition of Goebbels and Nazi agitprop.
            If you don’t know what you are talking about shut the eff up!
            As to whether Australian coal will be exported to India: I’d guess it would be highly likely. It would be almost impossible to prognosticate on volumes or duration.

            If you really wanted to stop, or hinder, that development you would be strongly backing the development of the coal seam gas industry in Australia. Australian gas exports would be far cleaner that Australian coal exports. Gas generation is taking over from coal in America due to legal limits on emissions. Those limits don’t exist in India and there would be many who would argue that India can’t afford them.
            Some contribution in that area, in support of emissions limits which would encourage the construction of large scale gas generation, would be highly advisable.

            If you think that, in India, renewables are going to make anything more than a fractional contribution (less than 20%) before 2035, you are living in la la land.

          • Ronald Brakels

            A different Michael, spot price of seaborne coal is has fallen to less than half what it was in 2011, so even with long term contracts having an effect why do you say that seaborne coal shipping hasn’t declined by billions of dollars?

          • JonathanMaddox

            “truth hygiene” FTW!

          • southland

            My sentiments exactly – a contender for addition to
            http://www.weaselwords.com.au/home/

  • Sunbuntu Ltd

    Tata and several other large energy companies currently have about 4500 MW of newish thermal plants mothballed as Coal India can not supply enough coal.

    They can not use either Indonesian or Australian coal as it is priced in USD and even with the fall in price, it is too expensive to burn given the regulated electricity prices.

    As someone who travels to India several times a year specifically for solar projects. (Disclaimer we are a renewable developer) The various governments have allowed ‘large’ power users (over 100GW-h pa) to purchase power directly but all others buyers still have to use the state controlled Electricity companies and the regulated prices.

    • cardigan

      Moth balled?

      http://www.tatapower.com/cgpl-mundra/home.aspx

      “Coastal Gujarat Power Limited (CGPL), Tata Power’s wholly-owned subsidiary, has implemented the 4000 MW (800 x 5 units) UMPP, (Ultra Mega Power Plant), near the port city of Mundra in the state of Gujarat in India. This UMPP is India’s first 800 MW unit thermal power plant using supercritical technology, and is arguably the most energy-efficient, coal-based thermal power plant in the country.

      As per the bidding norms, the Project was designed to be run on imported coal. The Project is expected to benefit close to 16 million domestic consumers apart from supplying cost competitive power to industry and agriculture.”

      Moth balled?

      http://profit.ndtv.com/news/corporates/article-essar-power-commissions-1st-unit-of-120-mw-paradip-power-plant-754564 April 13, 2015

      “Essar Power, one of India’s leading private sector power producers, today announced commissioning of the first unit of 30 MW project at its 120 MW captive power plant at Paradip in Odisha.

      The 120 MW coal fired power plant will meet the power requirement of Essar Steel’s 12 million tonnes per annum integrated palletisation facility in Odisha.

      Upon completion, Essar Steel would have access to cheap and reliable power supply, thereby improving its competitive edge.”

      Tata are moth balling steel plant in the UK because of the high cost of energy due to phasing out coal.

  • I’m very worried about Deutsche bank analyses. Assuming Fig 11 came from them, they must have a strange idea about capacity factors. They seem to think that 23GW of coal plus 3GW of solar in FY16 can be replaced with 9GW of solar plus 4GW of coal in FY20. FY16 would yield 166 TWh/y of electricity. FY20 will yield only 44 TWh/y. Boy that’s a massive increase in energy efficiency!

  • Correction:
    They suggest that 23GW of coal plus 3GW of solar in FY16 will be replaced with 29GW of solar plus 69GW of coal in FY20. I fail to understand how solar capacity can exceed coal capacity. Maybe I just don’t understand Fig 11.

    • Gary

      That is annual capacity additions.

  • Kanaga

    Very informative

    • cardigan

      But misleading:

      http://WWW.INDUSTRY.GOV.AU/OCE
      “To meet its growing energy requirements, India is developing all available technology options. The Government has set ambitious targets to increase the installed capacity of renewable technologies to 175 gigawatts in 2022 (from around 65 gigawatts in early 2015). India is also rapidly expanding its coal-fired electricity generation capacity, with around 113 gigawatts of new capacity already under construction or approved in addition to the 205 gigawatts of existing capacity. In 2012, coal-fired electricity accounted for 60 per cent of India’s installed capacity and 71 per cent of its electricity generation. Given the investment underway in the sector, coal will remain a key input into India’s electricity generation.

      India is the world’s third largest producer of thermal coal. While production has increased over the past few decades, the pace of growth has been insufficient to meet demand. Consequently, India has become more reliant on imported coal (thermal coal imports increased from 10 million tonnes in 2000 to 142 million tonnes in 2013). Most of India’s thermal coal imports have been sourced from Indonesia because of its relatively low-cost compared with other internationally traded coal; its specifications more closely match India’s domestic coal; and several Indian companies own Indonesian mines.

      India’s investment in new coal-fired generation capacity will support an increase in coal use. India has plans to almost double its production to one billion tonnes by 2020 to meet its growing requirements. However,growth in production is likely to be constrained by difficulties in accessing land, lengthy approval processes, inadequate transportation systems, and poor productivity largely stemming from the use of outdated production techniques. Further, the increased use of advanced coal-fired generation technologies will require high quality coal that is not available in large quantities in India. As a result, India is likely to continue to rely on imports.”

      Ajur Mathay, supposedly replacing former IPCC chairman Rajendra Pachauri at TERI sometime, makes it quite clear what India really intends to do about its fossil fuel usage, especially coal:

      “In 2030, the country’s electricity requirement is going to be 3-4 times of what it is today.

      Today, we require one trillion units of electricity annually. If we are energy efficient we would require three trillion units by 2030, and if not then we need four trillion units. To do that, we will need to set up all forms of electricity generation.”

      The reality is there is a limit to the amount of hydro plants that can be set up due to land acquisition and environmental concerns. There is a limit on gas-based power due to the non-availability of domestic gas.

      Nuclear is not easy to set up and there is a lot of opposition to it. So, coal has to form a large part of the energy mix.

      For energy services, you need energy. What we have to ensure is all new industries, homes, commercial spaces that come up are more and more energy efficient.

      Apart from that, if someone was expecting zero coal from us, that is unrealistic and they will be disappointed.”

  • Dinesh Dutta

    India will see nation building in this century and renewable energy is an important pillar. Good luck to my country.