Adani’s solar shift puts Carmichael in the shade

Away 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.