India's plan to stop importing coal deals another blow to Australia | RenewEconomy

India’s plan to stop importing coal deals another blow to Australia

India’s ambitious plan to cease thermal coal imports within 2-3 years blows another hole in Abbott government’s backward-thinking policies.


In the same week that China and the US launch a historic agreement to address climate change and work towards a faster transition of their economies towards a low carbon future, Indian Prime Minister Narendra Modi’s new government has also upped the ante considerably.

In a landmark announcement that has caught the global coal industry totally by surprise, India’s Energy Minister, Piyush Goyal has announced an ambitious target that could see India cease thermal coal imports within two to three years.

Far from being the saviour of the world’s billion tonnes per annum (tpa) seaborne thermal coal industry, India could follow China, America, Japan and the EU by putting in place a series of strategies that limit the Sub-Continent’s reliance on imported fossil fuels.

Structural decline of seaborne coal

The three nations of China, the US and India collectively accounted for 4,250Mt or 76 per cent of the world’s consumption of thermal coal in 2013.
The US saw peak domestic thermal coal consumption in 2007, with a decline of 20 per cent since then. China has been growing coal consumption at 10 per cent annually over the decade to 2011, but the last three years have seen a rapid deceleration in demand growth, culminating in coal consumption demand down 1 per cent year to date in 2014, with imports taking the brunt of the decline.

However, with electricity demand growing at 6 per cent annually over the last decade, India has been one of the last bastions of strong global growth for thermal coal, with demand doubling in the last decade.

A greater reliance on imports

With all the issues of accommodating 1.3 billion people, protecting the environment and trying to modernise the Indian economy, domestic Indian coal production has been growing well below target at only 2 per cent annually for the last five years.

This has seen a marked increase in reliance on imported coal, which has grown from 10 per cent market share five years ago to well over 20 per cent in 2013/14. As an aside, almost all of these coal imports have been sourced from Indonesia and South Africa, the two closest coal exporting nations to India.

This makes the announcement to target a cessation of thermal coal imports into India within two to three years surprising. This will be a huge challenge for the Modi government and the electricity industry, but the logic is compelling and motivation is clear. A panel discussion with Minister Goyal at the World Economic Forum (WEF) earlier this week set out the motivations behind this historic move and can be viewed online.

Minister Goyal outlined the need for an “paradigm shift” of the Indian electricity system, putting a time frame for urgent actions of four to five years, with the target for results to be well entrenched by the time of the next national election in 2019.

While Minister Goyal acknowledged the pressing challenge of climate change, his motivations also reflect addressing air pollution, energy security risks from an electricity system lacking diversity of supply due to its reliant on coal, and solving the critical need to address energy poverty and deliver electricity to the more than 300 million people living beyond the reach of the Indian electricity grid.

He also stressed the added economic pressures of double digit interest rates due excessive inflation, plus the associated need to address India’s massive fossil fuel-based trade deficit in order to stabilise the currency.

Minister Goyal expressed confidence in the government’s ability to reinvigorate the India’s economic growth, with the aim to lift real gross domestic product (GDP) growth from the current 5 per cent annually back towards the target of 8 per cent annually. Ambitious for sure, but consistent with the rate of GDP growth delivered for five years prior to 2012.

Central to this ambition is the need to facilitate the delivery of a significant uplift in the amount of electricity delivered to consumers in India. Minister Goyal outlined a plan to attract $US250 billion of new capital investment to the Indian electricity sector over the next four to five years. For this to occur, foreign investors need confidence in the economic and regulatory system in India.

This also requires a stabilisation of the currency, so foreign investors can invest without a massive erosion of their capital value through an ongoing devaluation of the Rupee. Minister Goyal recognises that increasing India’s electricity supply through expensive imported coal will undermine this goal through the combined impact of raising the current account deficit and building domestic inflation.

The cost of landed coal imports is 2-3 times as expensive as domestic coal – Coal India Limited’s results this week reflect an average sale price for Indian domestic coal of US$24/t. Even after the collapse of seaborne coal markets, Newcastle benchmark thermal coal is US$62/t.

Minister Goyal’s electricity system’s paradigm shift is aggressive and ambitious. But it is also well thought through, economically and socially necessary.

A key target is the delivery of electricity to 52 million households (more than 300 million people) who live beyond the grid. Despite a plan to attract $US50 billion of new investment building out a nationally interconnected transmission and distribution grid, Minister Goyal acknowledged the cost of extending the centralised grid to remote areas is prohibitive, particularly as most of these households live in poverty and cant afford the high cost of centralised electricity.

Whilst the target is for eventual delivery of electricity 24/7 for all, Minister Goyal acknowledged 4/7 (i.e. access to light and cooking in the evening) would be a massive improvement on the current total absence of supply. Distributed electricity generation and the roll-out of micro grids will be the near-term solution to addressing this key priority of the Modi government. This will involve small distributed solar systems with battery storage and LED lighting.

Addressing the massive 25-30 per cent grid transmission and distribution losses is a key government priority. Rather than continuing to produce ever more coal-fired power only to lose a quarter of it before it reaches the customer base, Minister Goyal stressed the combined need to boost transmission efficiency and resolve the financially distressed state of many State electricity distribution companies so they can actually afford to pay for electricity deliveries received.

Only through a dramatic improvement in this payments process can electricity generators then gain the confidence of financial institutions in the bankability of their power purchase agreements.

Another key priority is to attract $US100 billion of new investment over the next four to five years into solar and wind power generation. Minister Goyal has articulated a target to drive a five-fold increase in installations of renewable energy to 16-18 gigawatts (GW) annually, relative to the 3-4 GW installed in 2013/14. Modi-solar-innner

The target is for 10 GW annually of solar, and 6-8 GW of new wind farms. The regulatory and policy framework for such a massive uplift is largely in place, and WEF panel discussion highlighted the urgency of India’s electricity system demands can be best addressed by renewables, given solar systems can be installed in months rather than the many years required for the planning and construction of thermal, hydro and nuclear power plants.

Minister Goyal articulated a target of 100GW of cumulative solar installs across India by 2022, 500 per cent more than the previous government target.

Minister Goyal also detailed the intention to dramatically leverage the financial power of a new initiative that was reinstated in the 2014/15 budget in May 2014. This is the immediate 80 per cent accelerated depreciation allowance for renewable energy investments.

The government is actively lobbying the top 250 tax paying entities across India to lower their immediate tax bill by investing in renewable energy projects. This also brings an entirely new capital base to bear on the renewable energy sector, somewhat similar to the tax equity system that has transformed the US renewable energy markets in the last five years.

Minister Goyal cited the National Thermal Power Corporation and Coal India Limited as examples of companies that fit this strategy. Coal India has subsequently announced it will invest $US1.2 billion in solar projects across India – bringing to bear its $US10 billion of net cash sitting idle on its balance sheet. Minister Goyal also pointed out that the 250 top tax paying entities also generally have very strong credit ratings, such that they can best leverage the financial markets at significantly lower rates than many of the incumbent electricity generators.

Minister Goyal has also set a very ambitious target for Coal India to double its domestic coal output over the next five years to 1,000Mtpa, a 15 per cent annual growth rate. A significant uplift in domestic coal production, particularly associated with an increased emphasis on mine mouth coal-fired power plants and improved railway efficiencies would cost-effectively facilitate increased electricity supply without the rampant electricity price inflation that would result from an increased reliance on imported coal.

Overall this represents a very ambitious plan for India’s electricity system to undergo a paradigm shift. A huge step-up in renewable energy would provide energy system diversity, improved energy transmission and distribution efficiency would lower electricity losses and hence help restrain domestic power system inflation. The associated US$250 billion capital investment program would help sustainably lift economic growth and domestic employment opportunities.

An ambitious plan, but one that is well thought out and which has a clear focus on concurrently resolving India’s energy poverty and building air and water pollution crisis. A clear change from India’s previous plan which involved ever more reliance on expensive, imported coal-fired power.

Tim Buckley is Director of Energy Finance Studies, Australasia for the Institute of Energy Economics and Financial Analysis (IEEFA)

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  1. barrie harrop 6 years ago

    More bad news for Aust PM at upcoming G20.

    • michael 6 years ago

      probably not immediately worrying, seeing as current analyst report show Indian thermal coal imports up 35% yoy in October…. however not sure how much the current indian supply has any relevance to australia… more an indonesian issue, but don’t let that get in the way of a good Abbott whack

      • Maurice Oldis 6 years ago

        since he is betting our economy on coal he deserves a plethora of whacks!!!

      • Tim 6 years ago

        Not immediately worrying? Ha. It’s a fair bet he’s peeing his pants.

      • Allan Quartly 6 years ago

        Where do you think the Indonesian coal is gonna go? Stay in the ground? I don’t think so. They will pump it into the market and drive the price of coal down further. Gonna be a lot of losses in Australia from our over investment in mineral production. That means less taxes, less services, less money for superannuation tax break and fuel subsidies. A downward spiral predicted back in Gillard and Swan’s time. They tried to do something about but it has all been undone.

        • michael 6 years ago

          you do understand that those ‘measures’ would currently still be collecting zero dollars in revenue yet be tied to spending measures which would need funding from elsewhere? and as the price falls further from those ‘windfall pricing’ period, there’s absolutely no chance of collecting revenue due to ‘super profits’…

          • Rikaishi Rikashi 6 years ago

            The superprofits tax is not particularly relevant, since we are talking about industries which will soon be unprofitable.

            As I understand it, your claim is also false since the tax-dodges would only work for a limited time. Clive and Abbot destroyed that tax barely in time for those companies to keep their immense profits.

      • Feargal Gallagher 6 years ago

        There’s this mechanism called the market, and when there is less demand for something, the price falls. Doesn’t matter that India deals with mainly Indonesia. Now Indonesia has more coal and less buyers. Do you see what that would do to the price of Tony’s paymasters’ coal?

  2. Keith 6 years ago

    This is all consistent with what PM Modi has been saying from day 1. The only surprise is that the coal industry is surprised, but then again I guess that’s what happens when you live in denial and use advisors who are also living in denial.

    Same story for Tony Abbott and his “advisors”.

    It is urgent that both major political parties in Australia come to terms with the impending collapse of the export coal industry, and also plan for the same thing to happen to the gas industry down the track.

    Expanding the RET would be a good start.

    • jane 6 years ago

      Nah. Too sensible. The Liars would far rather sit in a circle, fingers in ears chanting lalalalallalalalalalalalalalalalalala

  3. Andrew Woodroffe 6 years ago

    My September issue of Photon International turned up, today, on p28 in the German wrapup; RWE AG will shut down amost 9000MW of coal and lignite by 2017, E.ON SE has plans to retire 7,741MW of capacity by 2015. Kodak time for coal?

    • Glen S 6 years ago

      We can only hope so. It does appear that the huge market that coal producers thought was opening up has just slammed shut. I would love to be a fly on the wall in the Peabody board room right about now!

      • John McKeon 6 years ago

        Oh, I so hope this is all true good news. After over a quarter of a century with climate scientists trying to warn the world of the dangers of climate change, I have absolutely NO sympathy for fossil fool investors and the tax payer funded rackets that prop them up.

      • Keith 6 years ago


        It would be pretty depressing, the CEO is determined to take down Peabody in a classic Kodak way. They are still rabbiting on about coal lasting forever.

        Have a look at the press release by Peabody after the US-China announcement and then see if their view makes any sense.

  4. Ronald Brakels 6 years ago

    Not sure how this will play out. While production will decrease, Australian coal mines will probably still produce high energy content, low sulphur coal, even if the price of coal falls to $40 US a tonne. (A falling Australian dollar could soften that blow somewhat.) $40 US a tonne is well below what is currently paid for similar grades of Indian coal. Also, air quality in Indian cities tends to be horrendous and Australian coal has a slight edge there over most imports and domestic Indian coal. Burning Australian coal still kills people, but it does kill kill slightly fewer people. So India may decide to import Australian coal as all up it may be a better deal for them economically than to rely only on domestic coal, or they may decide to protect their domestic industry and reduce and then cease imports. After all, it’s not as if India is any stranger to autarky. But no matter what India decides, Australian coal is in for a hard time. It is a dying industry. And that’s good because people are dying as a result of coal.

    • wideEyedPupil 6 years ago

      A major issue for India using domestic coal is they must displace many farmers and their families to dig it up. That results in protests and other actions which slow them down. I hope that just encourages Solar CST efforts in India.

  5. Henry WA 6 years ago

    “Minister Goyal has also set a very ambitious target for Coal India to double its domestic coal output over the next five years to 1,000Mtpa, a 15 per cent annual growth rate. A significant uplift in domestic coal production, particularly associated with an increased emphasis on mine mouth coal-fired power plants and improved railway efficiencies would cost-effectively facilitate increased electricity supply without the rampant electricity price inflation that would result from an increased reliance on imported coal.”
    This is the danger of the Modi/Goyal Plan. Somehow the rest of the world needs to make it financially attractive for India to increase its renewables even more rapidly than its latest targets and not to increase coal output or coal fired electricity at all, other than perhaps to replace the oldest and least efficient plants. India’s current relatively low use of electricity per head of population and its unreliable grid make it the ideal major country to be powered principally by wind and solar. However foreign capital, foreign loans and loan guarantees will be needed to assist in addressing the problem of India’s inflation and high cost of capital

    • wideEyedPupil 6 years ago

      also the prodigious amount of blue sky and sunshine most of the year make it attractive. so why was Modi saying rip the shit out of our Gallalie Basin for his mate Adani today?

  6. Alen T 6 years ago

    Is this effectively the death blow for the Galilee basin mining projects?

    This has been quite the week for Abbott…Labor (thankfully) refusing to accept a deadly cut to the RET target, the US-China announcement and Putins response to the comments Abbott has been throwing around.

    • Rikaishi Rikashi 6 years ago

      And the death of the associated Abbot point expansion hopefully.

    • Ronald Brakels 6 years ago

      Yes. Only the mad would go ahead now, particulary now that coal exports to China have already plunged and the price of coal is less than half what it was at its peak in 2011 and given that the quality of the Galilee basin’s coal is lower than what we normally export and so worth less.

  7. screaminkid 6 years ago

    To go RENEWABLES is a no brainer for cash strapped India as they are CHEAPER energy sources to set up in remote areas& the climate mostly supports solar & wind power?it is the ONLY way to provide energy in remote villages quickly& cheaply? FOSSIL & Nuclear fuel takes years of construction and BILLIONS in revenue to create& poor STILL cant pay for it??
    Australian COAL MAGNATES, like American Armaments CORPORATIONS your GREED has ruined you??

    • bill edwards 6 years ago

      If this is all true , how come India is in the process of setting up a multi million dollar coal mine in Queensland. Also you are saying China is cutting down on the amount of coal they will be using, but one of Chinas companies being Yang Coal who has several mines in Australia and are 5 billion dollars in debt annouced they are investing 3 billion to prop up their operations.The Koreans are in the process of opening a new mine in N.S.W also.I cannot see these companies investing this amount of money for no gain.When you look at the coal industry there is alway a down turn every 5 to 7 years.But I guess time will tell.

      • JonathanMaddox 6 years ago

        “how come India is in the process of setting up a multi million dollar coal mine”

        Adani is taking this risk for his own private profit, not for the public good. New coal mines are risky investments indeed, in the current climate.

  8. Bluex 6 years ago

    Australia has been given sufficient time to develop its other industries. Too bad once you have easy money, you tend to waste it all.

  9. Leslie Graham 6 years ago

    This is the stage we should have been at over 30 years ago.
    Thanks to the cowards and gullible dupes of the climate change denial industry this is all probably too little too late.
    Thanks a lot morons.

  10. Pete 6 years ago

    You all have no idea.

  11. Chris O'Neill 6 years ago

    “Minister Goyal has also set a very ambitious target for Coal India to double its domestic coal output over the next five years to 1,000Mtpa, a 15 per cent annual growth rate.”

    1 gigatonne per year of Carbon emissions will originate from Indian coal mines. Won’t that be great?

    • Ronald Brakels 6 years ago

      Actually maybe 2.6 gigatonnes of CO2 depending on the carbon content of the coal. Fingers crossed we actually soon see a levelling off and then fall in Indian coal consumption rather than a massive increase.

      • Chris O'Neill 6 years ago

        “Fingers crossed”

        Yeah that’ll work.

        • Ronald Brakels 6 years ago

          That recent decline in China’s coal use? That was totally me and my overlayed fingers.

      • Blind Freddy of Cairns 6 years ago

        Sorry to burst your bubble, however this is actually bad news for the environment. Indian coal is of poor quality with a high ash content, compared to the high calorific value of Australian coal, which can also be low ash and sulphur. Not importing coal will mean more pollution rather than less. Don’t believe me?! Goyal recently said, “Coal, which generates about three-fifths of the country’s energy, would retain an “essential role” in India’s energy mix, as in the United States, despite more environmentally friendly alternatives.” Tim Buckley is just a coal anarchist who doesn’t really care about the environment, just getting rid of coal.

        • Ronald Brakels 6 years ago

          I’m pretty sure that if India used less coal they would have less coal pollution. And if you look at my other comments here you’ll see that I did mention that Australian coal is less polluting.

  12. Shazia Immlli 6 years ago

    Australia need not worry. Indian companies are ready to invest in Australian coal.

    Adani plans to put 7-8 billion$ & many more companies will come forward.

    Australian coal have low sulfur content & its good for India if prices remain around <60

    • Glen S 6 years ago

      Except prices need to be at > $100/tonne for the mine to even start turning a profit. How’s that going to work?

      • michael 6 years ago

        they’re aiming for vertical integration, changes the required financial metrics

        • Glen S 6 years ago

          So far the only financing appears to be from the QLD government for a few hundred mil and they now have a MOU from Bank of India for $1bn. Where is the rest coming from? I understand Adani is highly leveraged with their existing debts.

          It seems the Australian big four are the next choice, are they likely to want to go near this given 8 other international banks have already refused to touch it?

          • wideEyedPupil 6 years ago

            Sadly Yes if history is any guide. Especially with QLD govt carving out an opportunity of something for nothing for them.

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