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Solar undercuts coal in India, as another bank quits Adani mega-mine

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Another week, another couple of nails hammered into the coffin for the Australian coal mining and export plans of Indian conglomerate, Adani Group.

The first came with the news on Monday night that Standard Chartered – one of the largest investment banks in the UK – has become the latest international financier to withdraw its support for the development of one of the largest new coal mines in the Southern Hemisphere, in Queensland’s Galilee Basin.

In a statement released on Monday, Standard Chartered said both parties – the bank and Adani – had agreed to end the bank’s role in the Carmichael coal mine after an ongoing review of its feasibility and delays experienced by Adani in getting project approvals.

galilee

Last week, the project’s prospects received a major blow when the federal government’s environmental approval of the coal mine was overturned by the Federal Court last week, after it ruled that environment minister, Greg Hunt, had failed in his duty to assess all risks to endangered wildlife.

This week, the second nail – and arguably, the far more serious threat to Adani’s mega-coal mine development – comes in a new report from the Institute for Energy Economics and Financial Analysis, which predicts a rapid decline in coal imports to India –  20 per cent a year, effectively starting now – due largely to a changing energy market where new solar generation is already cheaper than that from coal.

There IEEFA report notes that the tariffs agreed for solar in the July 2015 Telangana and Madhya Pradesh state solar tenders were around 1 rupee/kWh cheaper than electricity from imported thermal coal and fixed for 25 years, which would result in a considerable deflationary impact.

“With falling prices of solar, imported coal has become the most expensive source of incremental electricity generation,” said Jai Sharda, the report co author and a financial expert from Equatorial research.

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The installation of 175GW of renewable energy – equivalent to three times the electricity capacity of Australia – is one of a number of key policy initiatives that will enable the rapid transformation.

“As momentum builds, the Indian electricity market is rapidly pivoting toward a significantly higher reliance on renewable energy and energy efficiency,” said Sharda.

In July alone, the IEEFA report notes, there have been eight major deals, with the single biggest international endorsement being SoftBanks’ $US20 billion, 20GW solar joint venture.

Facilitated by a $US50 billion grid upgrade, solar electricity is key, with IEEFA forecasting installs of 75GW by 2021/22 capable of delivering 110TWh, or 22 per cent of the required electricity increase.

“India is replicating Germany’s and China’s systematic electricity sector transformation, with the added advantage that the cost effectiveness of this is accentuated by the fact that the price of solar electricity has dropped by 80 per cent in five years,” said Tim Buckley, director of Energy Finance Studies at IEEFA.

“While many commodity forecasters have assumed Indian imports will continue to grow, as a result of the transformation, IEEFA forecasts a peak in Indian thermal coal imports in 2015, with a rapid ~20 per cent pa decline thereafter, says the report.

“The profound transformation announced in 2014 by the Indian government is gaining momentum,” said Buckley. “While most financial commentators have questioned India’s capacity to deliver, all sign are pointing towards success.”  

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  • lin

    Given these figures, you’d need to be a complete and utter Abbott to put all of your financial eggs into the coal basket.

  • michael

    is it true that India is installing new coal-fired generation capacity the equivalent of 60% of the entire australian coal generation capacity each year at the moment?

    • Henry WA

      Michael

      India is also reported as intending to double or triple its own coal mining capacity. All projections from India may prove to be somewhat inflated, whether it is new coal-fired generation, new mine capacity, or new renewables. However the bulk of the money will surely go to wind and solar, if they are now not only cheaper, but also without the pollution and environmental damage of coal. The cost advantage of renewables over new coal will only increase over the next several years before the proposed Carmichael Mine first starts to export coal. Even now coal imported by India from Australia cannot profitably compete with either local coal or coal from Indonesia, that situation can only get worse for the Carmichael Mine.

      • michael

        Agreed the projections are even more astounding, I meant currently being built… Maybe someone has a reputable link to whether or not the 20GW of coal capacity in construction right now is real or not?

        • Horst

          Maybe, but its quite possible that they are being built because they have contracts that need to be fulfilled rather than because they really need them.

          • Reality Bites

            India has 280 million people without access to power, so yes they really need them. India also intends to double coal production to exceed 1 billion tonnes per annum by 2020. There will be 60 new mines (wonder if Tim Buckley will say they will be stranded assets!). They also intend to increase power generation by 50% by 2020 and the bulk of that will be from coal. India also has a reported 24,000MW of generation capacity that had no coal to fuel it and the energy deficit was 3.6%, that is the average of demand exceeding supply (officially but unofficially probably grossly understated). In the biggest power outage they had 620 million customers offline. Sure they are increasing renewables, but the bulk reliance is on coal. You can read it all yourself at http://powermin.nic.in/

          • Tim Buckley

            As a generalisation, domestic mine mouth coal fired power plants are far more cost effective than an imported coal fired power plant. The first has almost zero freight transportation costs, the second will pay $10-30/t for rail, $5-10/t for port loading, $5-15/t for ocean freight and another $5/t for unloading, even before you pay the mining cost of imported coal. IEEFA’s analysis is based on the fact that delivered, imported coal on average can be well over double the price of mine mouth coal, and imported coal has material negative implications for a country’s energy security, inflation and current account deficit. Feel free to read our analysis at the IEEFA website.

          • Reality Bites

            You didn’t mention the digging up part, which is around USD25 to USD40 pmt. Indian miners are paying USD35 to USD50 via the recent tenders for the resource in the ground, whereas Australia is selling quality thermal coal at USD60 FOB. Adani is actually seeking energy security for its own power stations. They know that despite all the promises of the Modi government, history has proven time and again that India has difficulty meeting targets. Currently there is even a market for the coal washery rejects in India. Surely even IEEFA can see that burning poor quality coal sourced from Indian mines is more damaging to the world environment than burning higher quality Australian coal? It will not be forever, eventually battery storage and renewables via distributed generation will be the answer, possibly even by 2030, but for baseload power right now it is not there.

          • Horst

            280m people in India need power? They’re standing in their lounge room with sad faces holding DVD player in one hand and power plug in the other?
            I find this recent concern by the Coal (and nuclear) industry for the poorest people on earth deeply disingenuous, they need a lot of other things before a nationwide electricity grid. The power they need first, for lights and charging mobile phones can easily be supplied by solar panels and small batteries.

  • Phil Patterson

    Wow, just wow, and this was essentially what you’ve been predicting for some time too if I remember correctly? I’m a massive fan of your work and insight, and just wondering, in your own personal, expert opinion, if you think this means the ADANI and Shenhua projects are doomed to failure and will be scrapped, if India will indeed have zero coal imports by 2021, and if you personally think the idea of coal being completely gone in 20 years is now a genuine possibility? Many thanks for this.

    • Tim Buckley

      Phil, Like you, I am a big fan of Sophie and Giles excellent work in helping educate us about the global transformation happening while Australia largely sleeps through it. I’ll have an go at answering your question if I may. IEEFA has long argued that the Galilee basin is too remote, and the coal too low quality, to be commercially viable for development. The world no longer needs ever more thermal coal export supply as seaborne demand is now in structural decline. The forward price of thermal coal out to 2021 is now down at US$56/t – the financial markets are telling us no recovery is expected. As to the Watermark project, IEEFA likewise believes this is a project that will likely never provide an adequate return on the $1.7-2.0bn total investment, or even a viable return on the $1.0-1.3bn still required to be invested. As such, it is in Australia’s national economic interest to protect our best farmlands for a sustainable, growing industry of the future rather than building yet another unviable export coal mine. Cheers Tim

      • Phil Patterson

        Thank you very much for this Tim, much appreciated.

  • Reality Bites

    How about reporting the truth that Adani terminated both SCB and CBA, which fits with Adani’s termination of other contractors pre works and is sensible given that there are ongoing delays in finalising the approvals. The project is far from over.
    “Adani Australia has requested the termination of Standard Chartered’s financial advisory role, on the basis of Adani’s concerns over ongoing delays to a now five-year long approvals process in Australia,” the spokesman said.

    Read more: http://www.afr.com/business/mining/adani-cancels-second-bank-standard-chartered-from-carmichael-project-20150810-giw85g#ixzz3iYU7nDnR
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