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Adani’s solar shift puts Carmichael in the shade

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adani_1384876fAway from the sound and fury around Adani’s proposed coal mine in the Galilee Basin, a tectonic shift is happening in the global energy industry.

But focus too hard on Carmichael, as the Australian Government appears to be doing, and you may just miss it.

Even at the height of the coal boom, Adani’s Carmichael mine proposal was uneconomic. A fact now reinforced by the need for the government to consider backing it with a taxpayer-funded $1 billion subsidy – putting public money where financial institutions would not tread.

But even so, it risks becoming collateral damage due to a little observed US$10 billion strategic pivot to renewable energy by Adani.

Adani is central to a profound energy transition in India, which is on track to achieve a national 40% renewable energy target by 2030, equivalent to 350GW, or around seven times Australia’s total electricity sector.

Whilst Adani continues to pursue down-scaled coal expansion in India, its focus has been squarely re-aligned to the growth opportunities created by renewable energy.

In the past six months alone Adani Enterprises has commissioned the largest single site solar plant in the world and a US$500m new manufacturing facility to produce the solar modules to be used in its multi-million dollar project in Central Queensland.

Adani’s renewables investment pipeline is projected to cost over US$10 billion and will have consequences for the already tenuous prospects for capital raising for the Carmichael proposal. Even government subsidies are not likely to be a sufficient risk mitigation to change the overall dynamics, especially since Adani Enterprises’ current market capitalisation of equity is US$1.1bn,[i] against which it has net debts of US$2.4bn.

How Adani Enterprises plans to concurrently fund this, plus a four-year, A$10bn greenfield investment program in building the world’s largest new thermal coal mine complex, together with its greenfields in-house power station, 400km railway line and 50Mtpa coal port, is very much open to question.

The global energy sector is unrecognisable from the one which existed in 2011 when Adani purchased Carmichael.

Most strikingly, the cost of installed solar in India has dropped by 80% in the past five years and imported coal is now more expensive than solar power. With thermal coal import volumes on track to drop by 20% to 160Mt in 2016/17 against last year, new seaborne thermal coal projects in Australia look unbankable.

Indeed, new import coal fired power generation in India costs upwards of Rs6-7/kWh (A$115-135/MWh), more than double the unsubsidised price of hydro, wind and solar tariffs which range from Rs3-5/kWh (A$58-95/MWh), even without factoring in inflationary fuel price and foreign currency risks of coal.

Moreover, Indian Energy Minister Piyush Goyal has repeatedly stated he plans to end virtually all thermal coal imports into India by the end of the decade.

India is changing fast and Adani is adapting with it. Carmichael is a relic in energy market terms and Adani’s solar plans put the proposal firmly in the shade.


Tim Buckley is the Director of Energy Finance Studies, Australasia for IEEFA. He has 25 years of financial markets experience, including 17 years with Citigroup culminating in his role as Managing Director, Head of Australasian Equity Research.

   

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  • trackdaze

    Is it an import into india if a fair sized chunk of qld will effectively be a province of india?

  • Geoff

    No wonder the government want to give him $1b because they have nothing else going for them. adani is no idiot, he knows full well that the world is transitioning and if India want to go RE, then he wants a piece of the action. The mine won’t go ahead, it’s just the far right idiots that has turnbull by the balls and calling the shots.

  • Chris Fraser

    Minister Goyal is reportedly a friend of Gautam Adani. How is it, given his publicly stated energy policies, that he can still string Adani along ?

    • Hayden

      He’s also reportedly a friend of PM Modi (who is pro solar) as well. There’s something going on here that I can’t piece together. I believe the energy minister has put a three year moratorium on new coal generators. as well.

    • Brunel

      Are you serious?

      ABC 4 Corners went to Delhi to interview MP Goyal and Goyal said “I do not give a damn about providing a market for QLD coal or Adani coal”.

  • Ken Dyer

    Adani is buiding solar farms in Australia too.

  • Ken Dyer

    Adani is buiding solar farms in Australia too.

  • john

    Perhaps the federal government is only making statements for Australian eyes only.
    Once Adani announces that the mine is not going ahead watch the spin then.
    The story will be that the country lost this bounty because of the terrible court action not the underlying financial viability of the project.
    I can hear a post truth story in the wind in the very near future.

    • Mike Shackleton

      At the very minimum they be able to “put their hand on their hearts” and say they did everything to facilitate the construction of the mine, it was just market forces that prevented it.

  • nakedChimp

    Just came up:
    State’s $21 billion game changer
    ADANI will today announce the creation of 500 white collar jobs

  • Rob G

    The government continues with its self inflicted wedgie. The 1 billion rail line to nowhere just boggles the mind. I think that they think this will fix the debt, but its the kind of shortsighted vision that will only harm. Now we have the backdown on the emissions intensity scheme – something even utilities have been begging for.

    Each day I ask myself what is the point of this government?

    • FIFO69

      The $1b will go into constructing the multi-user rail network which will allow other potential projects in the Gilalie.

      Also note that it is a loan, not a free handout.

      Its a similar arrangement to the deal that was done in the late 70s to construct the rail network for the Bowen Basin.

      We now have a coal mining province that provides $billions in revenue for the State and federal Governments. Would you prefer that this was never built too and central Queensland remained flogged out cattle grazing country for the past 30 years?

  • FIFO69

    Do you really think Adani doesnt know how to run its own business Tim?
    What a load of rubbish. Surprising what passes for journalism these days..

  • FIFO69

    India’s new draft National Electricity Plan document states that for the FY1617 period a total of 48Mt of imported coal will be required for plants designed for imported coal. Section 9.2.1.2 also states that there may be a requirement for additional imported coal in FY1617 for blending and due to domestic railway constraints.

    Additionally, for the period from 2021 through to 2027, imported coal is predicted to remain at 50Mtpa.

    The Carmichael project will produce 60Mtpa at nameplate capacity. Note that approval is sought for 60Mtpa but it is not obligated to produce this capacity and may ramp up or down based on market demand.

    Assuming 50Mtpa goes to India to supply Adani’s current powerstations (totalling 10,440MW of combined capacity) and potentially the 16,500 MW of capacity that Adani has under implementation and planning stage then that only leave 10Mtpa of coal to export elsewhere.

    Given that global coal demand is projected to increase by 15% through 2040 the Carmichael project should be a safe bet as they will have competitive advantages as they can build efficiencies into the project. Adani will own the supply chain from mine to powerstation and will get the coal at wholesale prices. The Adani owned Udupi and Mundra powerstations are also on the coast meaning minimal overland transport costs once off the ship.

    • Ben

      FIFO69 they may run those thermal plants through to 2027 but by that point, solar and associated storage will be far cheaper. That’s the end of the road for coal. Jobs for generations is delusional crowd pleasing bullshit. The risks to Ag & fisheries just not worth it. Any Gov funded railway will almost certainly result in a large write-down within a decade. Gov have already removed planning roadblocks so why isn’t private enterprise looking into their own rail as they have in the West?