Coal industry assets are the penny dreadfuls of new economy

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A single dollar can buy an awful lot of coal assets these days – coal generators in Australia and Germany, a coal mine in Queensland, or a share in the biggest coal company. But as market forces turn, Tony Abbott and his government still just don’t get it.

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They used to be known as penny dreadfuls – the highly speculative stocks that became the playthings of the mining boom of the 1960s and 1970s and what followed. And judging by the moniker accorded them, they were mostly bad outcomes.

The currency units might have changed, but it seems that the moniker still applies – not just to speculative mining stocks with tall tales of mythical or unobtainable ore bodies, but to the thermal coal industry, with equally tall tales of a long-term market for its commodity.

And it seems that one dollar, a greenback, or even just one euro can go an awfully long way in the coal industry these days.

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In Australia, it can buy you a mine that just three years ago was valued at $860 million. Brazilian miner Vale and Japan’s Sumitomo Corp have just sold the Isaac Plains coking-coal mine in Queensland to Stanmore Coal for a single dollar. Sumitomo bought a half stake for $A430 million in 2012.

In Germany, one euro can buy you a share in a brand new, never used, 1.6GW coal-fired generator in Hamm. RWE has offered to pay €1 to the 23 municipalities for their share of the $4 billion facility that not only faces major technical issues, but it is also effectively redundant and not needed in a country now more dependent on renewable energy.

One dollar will also buy you a share in Peabody Coal, the world’s biggest privately-owned coal company. Four years ago, those shares would have cost $US72, but the case for coal is no longer as compelling as it once was. Dozens of other listed companies are worth even less, having gone broke or filed for Chapter 11 bankruptcy protection.

Back in Australia, AGL Energy got a dollar’s change from its dollar when it bought the 2.4GW black coal generator Liddell in the Hunter Valley. It came as part of a package with the Bayswater coal generator bought from the NSW government for a total of $1.5 billion.

But given the value of Bayswater and the value of discounted coal stockpiles, AGL effectively saw Liddell as a “free option”, a facility that would run as long as its major customer, Tomago aluminium smelter, continues to operate.

A bunch of other coal assets in Australia have also closed, or are about to close. These include the Collinsville, EnergyBrix, and the Playford and Northern coal-fired generators, along with Wallerawang in NSW.

Many large coal-fired generators might also close, but the cost of closure – and the remediation that it will trigger – is greater than the cost of running the plants. So in the absence of a government handout to help with mitigation costs – and without a carbon price – the generators keep running.

Of course, coal is not the only asset that you could have picked up for nothing, or next to nothing, in recent months. Earlier this year, Canadian Solar effectively bough a 1.5GW portfolio of large scale projects in Australia from Recurrent Energy for free, part of a broader package of projects in the US and elsewhere.

At the time of that purchase, investment in large-scale renewable energy projects in Australia had effectively come to a halt. They had been for two years, and still are, a reflection of government policy to reduce the target, and then announce to the world that the government did not like certain forms of renewables, funds would be curtailed, and that the reduced target for renewables was “more than enough” for Australia.

Coal, on the other hand, has had the full backing of the government. Tony Abbott declares it is “good for humanity” and has taken key measures that benefit the coal industry and few others – such as dumping the carbon price, slashing the renewable energy target, and trying to cripple other research and financing organisations.

Abbott even borrows the marketing bullet points from Big Coal in arguing that it is the only way to bring hundreds of millions of Indians out of “energy poverty”.  The World Bank, the IEA, and other groups say this is nonsense.

While Abbott and his team echo the US Republicans and rail against fossil fuel “sabotage”, Michael Bloomberg, the billionaire businessman and former New York mayor this week wrote that the demise of coal was being caused by market forces, and not as a result of any “War on Coal”.

Bloomberg said the coal industry had been in decline for a decade, and much of this had been due to the fact that consumers were demanding cleaner air and action on climate change, and coal pollution was killing 13,000 people a year in the US alone.

“King Coal is dying of natural causes: Market forces, technological advances, and public demands for clean air and climate action have combined to make alternative sources of energy more financially attractive.”

Bloomberg noted that the price of new wind power in most parts of the US was now lower than that of coal. The same is true in New Zealand, which is about to close its last coal-fired generators because renewables – mainly wind and geothermal – are cheaper.

Indeed, wind, and pretty soon solar, are the cheapest form of energy for any country that needs new generation, and that does not include the savings from avoided environmental impacts.

“Critics (and he might have included the entire Abbott government here) continue to argue that we shouldn’t reduce our coal use until China and other countries do so,” Bloomberg noted. “But that’s like saying, ‘We won’t stop killing our people until you stop killing yours.’ Not only would it be absurd, it would also be economically foolish.”

In Australia, the grim reality facing the coal industry is now affecting promoters of mega coal projects, such as Adani’s Carmichael project in Queensland’s Galilee Basin, and the Watermark project in NSW’s Liverpool Plains.

The Adani project has become a pariah, with potential investment partners and international banks walking away from the opportunity to earn millions of dollar in fees for the simple reason that the economics – let alone the environmental impacts – do not stack up.

Still, the Abbott government doesn’t get it. Environment minister Greg Hunt has launched an extraordinary attack on the environmental groups that have fought the Carmichael mine.

Abbott himself told The Australian on Friday that environmental groups were “sabotaging” the coal industry through protests and court action. Which might explain why the Abbott government is keen to support the mining lobby, which has forced a parliamentary inquiry into whether environmental NGO’s should be allowed to receive tax deductible donations.

“As a country we must, in principle, favour projects like this (Carmichael),” the Prime Minister told The Australian. “This is a vitally important project for the economic development of Queensland and it’s absolutely critical for the human welfare literally of tens of millions of people in India.”

Not so much a triumph of hope over reality, but a stunning disregard for environmental impacts and market forces. If Abbott were to put money into Carmichael – as his government has signalled it might, via its northern infrastructure development fund – it would be an act of absolute recklessness, and make even the proverbial lift boy look like an investment genius.

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17 Comments
  1. Rob G 4 years ago

    I do worry that our KGB government will ‘kick in’ with the tax payer dollars and we’ll find out well after it is built. It would be a crime against Australia. If banks won’t touch it, why should our government – utterly reckless, but I wouldn’t put it passed them.

  2. john 4 years ago

    It is a sad indictment for the knowledge within Australia that statements that are not exactly true are given prominence as if they were ground breaking findings of some truth that coal has a bright future.
    It is 1880 technology we are on our way to the 2020;s rather a long way away from then. It is about time that the energy situation was put on a footing, as is happening due to technology developed, in the last quarter century not 100 years before this time.
    Eventually people wake up they have been not told the truth and one thing is certain being mislead leads to a huge voter revolt.

  3. David Osmond 4 years ago

    Don’t forget Anglesea in your list of coal power stations that are closed/closing.

  4. Chokyi Nyingpo 4 years ago

    “There is no issue too big for Tony Abbott to show how small his thinking is.”
    – Anthony Albanese – Nov 15, 2014

    Now if only the alternate government leader can show some spine and wake up to the fact that coal is dying faster than you can blow a candle out, then we might move on towards a greener, more profitable and healthier future.

    Pigs, fly, kettles, black?

    • Jacob 4 years ago

      You mean 15 Nov 2014

      • Ronald Brakels 4 years ago

        The country of Canada’s Pants does it that way, Jacob.

        • Jacob 4 years ago

          RenewEconomy does it the British way.

          • Ronald Brakels 4 years ago

            I’ve always wondered about the British way. Do they lie back and think of Enland?

  5. JustThink4Once 4 years ago

    The parroting of coal industry lines is an embarrassing affirmation of a political party that’s well and truly bought and paid for.

  6. Phil Patterson 4 years ago

    Seeing as how the entire world is more or less pulling out of coal and fossil fuels and into renewable energy for climatic, environmental, health and obvious economic reasons, do you forsee Adani officially pulling the plug on the Galilee basin project this year Giles?

  7. Rurover 4 years ago

    Staggering that the government can complain that environmental groups are “sabotaging” the coal industry, when they have done their level best to sabotage, kill off & denigrate the renewables industry in Australia. And I wonder which industry has the better long term future, both for the world and for Australia.

    The other stupid comment from the PM that these coal projects are “critical for the human welfare of literally tens of millions of people” ignores the fact that the mining and transport and burning of coal has literally KILLED tens of millions of people over the past couple of centuries.
    Not to mention the fact that the power needs of poor rural people will be much more quickly, safely and efficiently met by scaleable renewables!

  8. JIm 4 years ago

    A coalition of coal and reckless stupidity. If taxpayers are to foot the bill for bad fossil fuel investments in the interests of the PM’s vanity it is going to get very ugly..

  9. Gary 4 years ago

    Greg Hunt is just trying to distract from his own incompetence. What the court case proved was that he didn’t even understand the law in his own portfolio.

  10. Jacob 4 years ago

    “We won’t stop killing our people until you stop killing yours”

    Brilliant line by Mr Bloomberg! Asthma does kill. And coal miners have been dying for centuries.

  11. Rob 4 years ago

    As the coal industry exits stage right could they please leave the door ajar for Tony Abbott and the COALition who will soon be joining them in Dumdum Land.

  12. David Rossiter 4 years ago

    Tony Abbott (or as young Aussie children like to say, amid much laughter and with the relevant body touching actions, – toe, knee, abb, bott) just does not get it.
    He talks about India and its energy poverty and assumes that coal is the only form of energy there is and therefore coal is good for mankind. Wrong and an illogical argument
    There are dozens of other forms of energy that are really good for mankind, solar, wind, biomass, hydro but coal is now generally regarded as being not good for mankind.
    To be kind to man we have to R-E-D-U-C-E our dependence on coal but not our RET. Yes energy is good for mankind but coal is not. We need to wean ourselves off coal.
    As for the Adani Carmichael project the total emissions from its projected 60 million tonnes per year for sixty years exceed the entire carbon budget for Australia, if we are not to exceed 2 degrees of warming.

  13. patb2009 4 years ago

    The Greens should buy up some of these assets for a buck, and then use them to wreck the profitability of other generators.

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