Saturday, January 30, 2016

Coal on the skids - China, India, USA, Great Britain, and Australia

Coal production and the seaborne coal market are all suffering as renewables ramp up and coal-fired power is reassessed due to pollution, health and greenhouse gas emission concerns.

Coal prices for Newcastle thermal coal is just above US$56 per metric ton. Major coal markets in India and China are drying up. Vietnam has just announced a review of coal power citing the need to implement all international commitments in reducing greenhouse gas emissions.

There is increasing closure of coal power stations driven by health impacts from pollution as well as growing concern to reduce emissions after the historic UN climate conference Paris Agreement.

Coal is in structural decline. And it needs to be.

A study by Ekin and McGlade published January 2015 into fossil fuel resources and the 2 degree limit found that, without any Carbon Capture and Storage, 88 per cent of coal needs to stay in the ground, unburnt.

So here is a list of recent heartening news on the coal front.

China closes mines, imposes 3 year new mines moratorium

Recent news from China shows that there was a 3.5 per cent drop in coal production, coal-fired electricity generation fell 2.8% and overall power generation dropped 0.2 per cent, the first fall in 50 years, according to The Guardian. Carbon emissions are likely to have fallen 3 per cent. Coal-intensive heavy industry such as iron, steel and cement also had reductions.

China's imports of coal reduced by 35% year-on-year in December 2015, and the government has also put in place a moratorium on new coal mines for three years, reported Reuters. In 2015 China shut around 1,000 coal mines with a total capacity of 70 million tonnes, and plans to close a similar amount in 2016. China has even considered transition arrangement, allocating 30 billion yuan ($4.56 billion) in funds over the next three years. This will support the closure of about 4300 small and inefficient coal mines and redeploy around 1 million workers, reports Reuters.

While pollution impact on population health may be the driving force for reducing coal, the surge in renewables is also driving this change. China's clean-energy investment rose 17 percent to a record $110.5 billion in 2015, almost double the $56 billion spent in the US. China plans to increase wind and solar power capacity by more than 21 percent in 2016.

"China will maintain a total of wind, solar, hydro and nuclear installs at a combined 60 to 70 gigawatts per annum for the next decade, meaning coal used for coal-fired power generation will actually decline each year going forward in absolute terms" said Tim Buckley, director of energy finance studies at the Institute for Energy Economics and Financial Analysis, according to the China Daily.

US puts new coal leases under 3 year review to align with climate policy

In the US President Obama, citing climate change as a reason, announced a Moratorium On New Coal Leases On Federal Lands. During the moratorium an intensive review will be undertaken into the coal industry which is expected to take 3 years. While it won't halt existing mining, it will delay many projects pending the outcome of the review that should align coal resource development with climate policy.

On a sub-national level, New York Govenor Andrew Cuomo announced in his State of the State speech that New York state’s remaining coal-fired power plants will close by 2020.

In California the Insurance commissioner asked all insurance companies doing business in the state to voluntarily divest from coal companies and said he will also require insurance companies to disclose their coal company holdings.

Coal’s share of total electricity generation fell in November 2015 to a record 29 percent share of US Electricity generation.

UK pledges coal power station phaseout by 2025

In November 2015 the UK government pledged to phase out all coal fired power stations by 2025. More recently there has been commentary about the UK's ‘looming’ electricity supply gap. This comes as the Cameron Government has wound back subsidies for Renewables leading to policy uncertainty and withdrawal of investment in the sector.

On 18 December 2015 the last British underground coal mine closed permanently. The Kellingley deep coal pit in Yorkshire closed for the last time displacing 450 coal miners, who will be provided with severance packages of 12 weeks of average pay. Re-training and support for those that will now be out of work is evidently not part of the package.

The last day was marked with a miners march from the Town Hall to the coal pit, including brass band, with applause from the crowd of thousands.

India expanding local coal but also massive renewables expansion

In January 2016 India's energy minister said that solar power is now cheaper than coal. Tweeting on January 19 Energy and Coal minister Piyush Goyal (‏@PiyushGoyal) said: "Through transparent auctions with ready provision of land, transmission etc., solar tariffs have reduced below thermal power cost".

There are almost 18,000 villages in India still without electricity according to Prime Minister Narendra Modi. His priority has been to expand electricity generation and transmission across the nation and carbon emissions have been of secondary concern.

One of the problems is that local coal is high in ash content which adds to pollution and reduces population health. According to the World Health Organisation (WHO) New Delhi's air is the worst in the world today. A 2013 report found that as many as 115,000 people die in India each year from coal-fired power plant pollution, costing the country about $4.6 billion, according to Scientific American. Climate Change And Coal poses a real quandary for India, reports National Public Radio (NPR).

India set an ambituous target to expand to 175 GW of renewable energy capacity by 2022, of which 100 GW would be solar. After only 1GW of solar installs in each of 2013/14 and 2014/15, IEEFA estimates 2015/16 installs will more than double to 2.5GW, double again in 2016/17 to 5-6GW and then 9GW by 2017/18. By 2021/22, IEEFA forecasts cumulative installs of solar to exceed 80GW – close to the Indian Government’s target of 100GW set one year ago.

French President Hollande and Indian Prime Minister Modi launched the International Solar Alliance (ISA) initiative in Paris during the UN Climate Conference. In January they were present at the establishment of the headquarters of this initiative in India.

In a speech at Foundation Stone Laying Ceremony of the International Solar Alliance (ISA) Headquarters in India, Energy Minister Piyush Goyal said, "While India has embarked on possibly the world’s largest scale-up of renewable energy, Prime Minister Shri Narendra Modi’s vision is to bring the benefits of renewable energy to the entire world." (Watch speeches on Youtube)

The ISA brings together 121 solar resource rich countries to jointly innovate and achieve better efficiencies and economies of scale to promote affordable clean energy, particularly in the field of solar energy.

France has committed €300 million to developing solar energy over the next five years in order to finance the initial projects.

India has also embarked upon a major energy efficiency program of manufacturing and distrivbution of LED lights. Goyal said, "We have reduced LED bulb prices by 80 per cent while increasing distribution from less than a million to more than 100 million in less than two years. This programme will replace 770 million bulbs and 35 million streetlights by 2019 and will help reduce 22 GW of peak demand, save more than 100 billion units of electricity annually (more than $6 billion savings) and reduce 85 million tons in carbon dioxide emissions every year."

But it is not all roses. Thermal coal generation is still expanding, although at a much slower rate than was initially planned.

30,000 Megawatt Thermal Power capacity has been added during the 20 months of National Democratic Alliance (NDA) Government, raising the country’s coal fired generating capacity to 164,953 MW.

The Global Coal Plant tracker details that India has opened 98,410MW in the five years from 2010 to 2015. There are a further 214,469MW either announced, at pre-permit stage or permitted, and a further 75,665MW presently under construction. But 85,065MW of planned coal plant has already been shelved.

According to a Coalswarm report from March 2015 (Boom and Bust: Tracking the global coal plant pipeline (PDF)), "Grassroots citizen opposition, coal supply issues, and other problems have caused financing for new coal plants to dry up. ...Less than 10 GW of new construction has started since mid-2012. For every project completed in India since mid-2012, six projects have been shelved or cancelled. Nevertheless, approximately 300 GW of capacity remains in planning, a potentially dangerous carbon bomb."

India has ramped up it's own coal production with 15 new coal mines starting production by March 31 to add to the 8 existing production mines. The increased local production has reduced the need for imports. In December 2015 coal imports were down 34 per cent for the same month year on year.

Energy minister Piyush Goyal attended a round table conference in Japan on clean coal technologies and efficient coal based power generation to initiate a joint study on energy mix for high-efficiency coal-fired power generation and renewable energy technology. One hopes that carbon emissions and implications for national and international climate policy will be factored into the study, and it is not a ruse for Japan to sell it's latest coal technology to lock in emissions for the next 50 years.

Output of the state run Coal India is estimated to hit record 550 million tonnes in fiscal 2016, reducing need for imported coal such as from Australia. Coal imports fell to about 132 MT in April-December 2015 from about 155 MT in the same period in 2014. They are likely to fall further during 2016. But the most recent news is that Coal India will need to scale back production as they have pithead stock of some 40 million tonnes.

Australia: new mines approved as coal export markets shrink

Here in Australia we are just starting to see the first signs of political support for coal waning slightly with NSW Premier Mike Baird sending senior government officials to meet with several anti-coal group campaigns during January 2016. While this is positive, it is far too early to judge as Baird's government considers approvals to mine 1.2 billion tonnes, and has already approved 1.8 billion tonnes of new coal mining since he became premier.

But it was clear back in 2013 that Australia's coal expansion risked stranded assets.

The whole fiction of developing the Galilee basin with mines such as Clive Palmer's China First, or Adani's Carmichael mines were predicated in the existence of expanding export markets, paticularly China and India.

That is clearly no longer the case.

Financial analyst Tim Buckley identifies that there is No market for Galilee coal, not even in energy poor India in a RenewEconomy May 2014 article. Coal from the Galilee Basin will require a price approaching US$90/t to recover costs, and the current $54/t price just doesn't cut it. The cost of coal power generation in India is also competing against solar and wind projects which offer real cost savings over lifetime use due to the free fuel cost when compared to coal.

Over the past five years the coal industry has lost 94 per cent of it's market value, with Bloomberg reporting on the level of debt and bankrupcy of coal mining companies.

The risk in Australia is that coal mine companies will go bankrupt or sell to a much smaller company with limited financial resorces, such as a recent sale by Anglo-American to Batchfire Resources, leaving their mines needing extensive rehabilitation without the funds for the work. That means the dirty job of cleaning up the mess might be financed by Australian taxpayers.

A response by the Australian Government to the market pressures on Australian coal miners has been to relax environmental regulations around mining, reported by business journalist Peter Ker in the Sydney Morning Herald.

"This telling import data confirms the last flicker of hope has been snuffed out, not least for Australia’s Galilee Basin,” said Buckley. “It also carries massive negative implications for Indonesia’s coal export market, given the concurrent collapse in Indian demand.” reports Joshua Hill in Cleantechnica: China Electricity Demand Slows, Coal Consumption Drops, Hits Australia Hard

But the social licence for coal has already been effectively withdrawn. Do you remember the kerfuffle over Jonathon Moylan's ANZ Bank hoax letter and Whitehaven's Maules Creek Project open cut coalmine?

It seems the real hoax was perpetrated on investors by Whitehaven, Gillespie Economics and NSW Planning Department in approving the project on shoddy economics. Whitehaven shares have dived in the last 5 years by 95 per cent to a low of 41 cents.

Risk of stranded coal assets, utility death spiral

The latest report by the Smith School from Oxford University found that the risks of stranded assets for thermal coal were substantial, particularly for Australia, Germany, Japan and the US with a large proportion of coal fired electricity generation.

"We find that the environment-related risks facing the thermal coal value chain are substantial and span physical environmental impacts, the transition risks of policy and technology responding to environmental pressures, and new legal liabilities that may arise from either of the former. These environment-related factors have the potential to create stranded assets, which are assets which have suffered from unanticipated or premature write-downs, devaluations, or conversion to liabilities."

The report warns that "Australian miners carry significant exposure to both commodity prices and policy and disaster risks all around the world." It also warns of the risk of the 'Utility death spiral' with "A large country with dispersed populations, plentiful sun, and falling electricity demand spells the perfect storm for Australian utilities". Wind and solar power scaling up are rapidly eating into the market share of conventional power stations. Relatively cheap and efficient battery storage systems such as Tesla's Powerwall will only enhance this trend.

The report is by Ben Caldecott, Lucas Kruitwagen, Gerard Dericks, Daniel Tulloch, Irem Kok, James Mitchell and is titled "Stranded Assets and Thermal Coal: An Analysis of Environment-related Risk Exposure" (PDF). It is available from the Smith School Stranded Assets Publications webpage. It looks in particular at the top 100 coal-fired utilities, top 20 thermal coal miners, and top 30 coal-to-liquids companies and comprehensively assesses them for their exposure to environment-related risks.

Much of the data required drilling down into the details of specific assets, much more than investors are likely to seek or have available. “Investors have almost no idea about the real environmental performance of companies they own,” said lead author Ben Caldecott in Climate Home report. “The data needed to understand this is usually not reported and if it is, it may be inaccurate or out of date. If they care to look at all, investors currently look at aggregated carbon emissions or intensity at a company level.”

The report was pretty scathing on carbon capture and storage (CCS) technology to facilitate continuation of thermal coal, although they leave open that it may play a part down the track for carbon negative processes using BECCS in the future.

"It is our view that CCS is unlikely to play a significant role in mitigating emissions from coal-fired power stations. Deployment of CCS has already been too slow to match IEA and IPCC scenarios. CCS compares unfavourably with other power sector mitigation options, especially considering that CCS also reduces plant efficiency, exacerbating existing merit-order challenges for conventional generators. CCS should remain an attractive option for industrial and process emitters that have few other mitigation options, and may be significant as a long-term option for delivering negative emissions with BECCS." the report says.

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