Is the Indian coal domino about to fall?
The up-beat claim by the coal lobby that Indian coal power will keep growing for decades has been sorely tested in 2016, as the country’s power sector is rapidly shifting towards renewables, even as public opposition to air pollution, displacement and deforestation for coal mining grows. India’s coal power boosters are now confronting an increasing array of signals which suggest the diversification away from coal will only accelerate in 2017.
Such a shift would provide relief for many communities in India confronted with displacement, lethal levels of air pollution and conflict over increasingly scarce land, water and forests. It also rekindles hope that a peak in global power sector emissions may be far closer than previously thought.
While some signals (such as recent coal production trends) are somewhat tentative, others, like the dramatic downwards revision of official future power estimates, are far more definitive and have huge consequences.
Between April and October this year the Central Electricity Agency (CEA) reports India has commissioned (p. 5) just over 3600 megawatt of coal plant capacity, down almost by half on the year before. While the financial year still has four months to run, the coal sector may well fall short of the 13,000 MW of new plants expected to be commissioned this year. (India’s energy data is reported to match the financial year, which runs from April 1 through to March 30.)
Massive stockpiles of coal at mines and power plants due to reduced demand for power have forced a slowing of mine production, which has remained relatively flat over 2015. To cap it all off, coal plant utilisation rates continue to fall year on year, and are hovering below 60% for the April-October 2016 period.
Over the same period the combined generation of wind and solar grew by over 43 per cent compared to the year before, massively outpacing the growth rate for thermal power. While generation from conventional sources – predominantly coal – grew by a larger amount in absolute terms, renewable generation’s growth at over six times the rate of conventional sources is none-the-less hugely significant. In all, 28% or over a quarter of all new generation between April and October 2016 came from renewable sources.
Coal’s pipeline of projects just got far shorter
There are other reasons why the coal sector is feeling decidedly unwell.
This week the CEA revealed in its draft National Electricity Plan (NEP) that for the five years to 2022 the country does not require any more coal-based capacity addition till 2022 above current levels. This in effect confirms a July analysis by CoalSwarm that the country was facing a coal overcapacity crisis, and a Greenpeace analysis from October that showed that over 90% of the plants currently under construction will remain unutilised by 2022, even at official electricity demand and GDP growth rates.
As expected, given India’s severe energy shortage and millions without electricity, the plan’s estimated growth of 187,000 megawatts (MW) in new capacity between 2017 and 2022 is huge. But the critical point is that the bulk of this – 115,000MW – consists of renewables.
The draft NEP is clear that there is no need for a single additional MW of coal power till 2022. Moreover, considering the over 50,000 MW currently under construction, likely to come on stream in the next few years, there is also no need for additional coal power plants till 2027. This in effect signals that there is no need for a single new coal power plant to be approved, receive finance, be granted permits or break ground in India for the foreseeable future – if ever!
If the draft plan is adopted, it effectively signals the end of the line for new coal plants in India.
Solar tariffs are already on par with those expected from new coal plants. If the fall in the costs of solar and wind continues, and there is no reason to believe they won’t, it is hard to see a financial basis for any sort of a revival for coal.
While 50-65GW of new coal capacity is officially ‘under construction’, overwhelmingly by the private sector, much of it is on very shaky financial grounds. At many of these plants, (at least 15,000 MW) work has been stalled for months, even years. Many plants are struggling to get finance, ensure sustainable supplies of water, acquire land and survive in the face of public opposition. The CEA’s assumption that these plants will be completed may yet prove to be optimistic.
With existing plant utilisation rates continuing to fall to below 60%, (utilisation rates for private generators are even lower) the financial incentive to speed up construction is weaker. With most coal plants designed to run at high utilisation rates of 80 per cent and over, low use spells financial trouble for plants with high fixed costs. Worse still, fluctuating utilisation rates imposes much higher wear and tear – and the maintenance costs that goes with it.
Lower utilisation rates have contributed to the build-up of large stockpiles of coal at pitheads and power plants – over 58 million tonnes. This in turn has forced the government-owned Coal India Limited (CIL) to cut back production to the extent it is now running at just 0.7 per cent higher than last year. (CIL produces over four-fifths of domestically mined coal.)
If the ‘pipeline’ of proposed coal plants is coming to an end, the hope by coal exporters that Indian imports would prop up the ailing seaborne trade look increasingly forlorn.
While thermal coal imports have risen marginally so far this year, on data to September, a big fall is projected in the next few years, with pressure on generators to switch to domestic coal to reduce import-dependence and foreign exchange outflows. The government has announced it wants to end coal imports within a few years.
Something in the air
This week the Chief Executive of the London-based World Coal Association (WCA), Benjamin Sporton dusted off old talking points from the last decade, claiming India would be better off building more coal plants than switching to renewable power, which he claimed was too expensive. The WCA represents coal exporters such as BHP Billiton, Peabody Energy, Glencore and Rio Tinto.
As Sporton was pushing his anti-renewables line, media reports referred to the holy city of Varanasi as having the country’s most toxic air, Allahabad in Uttar Pradesh had no clean air days in 2015 and polluted air from India fouled cities in Pakistan. Recent reports estimate that over 500,000 Indians die prematurely each year due to air pollution.
With an urban middle class now waking up to the terrible toll on their health from polluted air, and the realisation that renewables are now cheaper than new coal, the writing on the wall is clear – the Indian coal domino is close to toppling.
http://endcoal.org/2016/12/is-the-indian-coal-domino-about-to-fall/
Steel units want lifting of embargo on day movement of iron ore
Fighting steep rates for mineral transport in Odisha, one of the highest in the country, steel units have called for lifting the embargo on the daytime movement of iron ore. Allowing unrestricted mineral freight movement will help ease raw material prices for the end-use industries, they pointed out.
Apart from steel and other mineral based industries who have to fork out higher prices for ore, the state government is also losing a sizeable chunk of revenue. The embargo in day movement of ore in mineral-rich districts of Keonjhar, Sundargarh and Angul is already showing up in the shortfall in revenue collection, especially in the mining sector.
Steel and other end-use industries have already appealed to the state government to take a call on withdrawing the embargo on day movement of ore. A decision, however, is still pending.
"The decision to lift the embargo on day movement has to be taken at the district level. The respective district collectors can take a call after factoring in law and order issues and available infrastructure to sustain the mineral freight load", said a government official.
The state government has already notified a uniform freight policy for mineral transport, fixing a ceiling on maximum permissible transportation charges. But, local transporters have rallied to violate the government notification. Besides, the restriction on movement has offered scope to transporters to collect more. The mineral transportation rate is 40-55 per cent higher than the government notified ceiling due to a ban on daytime movement.
"The uniform freight policy as announced by the state government is yet to be implemented on the ground. Transporters are charging huge prices for mineral movement in the night. Freightrate by road is now 40 per cent of the ex-mine price of iron ore and this is seriously affecting the end-use industries who are battling for survival", said a senior executive with a steel company.
The local administration has imposed the restriction, which is also helping the transporters. Taking advantage of this daytime embargo on mineral transportation, the local transporters are charging exorbitant price from mining lease holders and end user industries for transportation of mineral in the night. There are instances where transport agencies have been found to be engaged in restrictive and obstructive activities in mineral transportation in Joda and Koira sectors.
Pursuhottam Kandoi, president, All Odisha Steel Federation said, "The industries are already facing a slew of restrictions. There should not be any curb on the movement of minerals. Daytime embargo needs to be lifted in the interest of the end user industries. This will help cut prices of raw material reaching the plants."
In the case of one-way transportation of iron ore in Joda for up to 28 km, the highest producing circle, the maximum freight rate notified by the government is Rs 184 per tonne. But, transporters were charging Rs 325 per tonne, about 40 per cent higher.
Similarly, for 40 km one-way distance, the freight rate charged by transporters is almost double the amount as per the government notification. The transports charge Rs 495 per tonne, but the maximum rate for a 10-wheeler vehicle, as per government notification it is Rs 224.
Iron ore, steel futures retreat from multi-year highs
Steel and iron ore futures in China retreated on Wednesday after a two-day run-up that lifted the industrial commodities to multi-year highs amid Beijing's efforts to address overcapacity in its steel sector.
Iron ore for delivery to China's Qingdao port dropped $US4.24 or 5.1 per cent to $US79.18 a tonne, a day after hitting its strongest level since October 2014, according to data from Metal Bulletin.
The pullback in iron ore came amid a backdrop of weaker end-user consumption in the physical market and the release of lacklustre data for property and infrastructure investment a day earlier, Metal Bulletin said.
China has cut 88 million tonnes of steel capacity this year under an economic reform to slim down its glut-hit sectors, nearly double the target of 45 million tonnes and helping spur an 86 per cent rally in steel futures this year.
Beijing's environmental crackdown has also hit heavy polluters including mills, forcing them to reduce output or shut temporarily.
China has punished nearly 700 more regional officials for inadequately protecting the environment in the latest round of rolling inspections, the state news agency Xinhua reported.
The most-active rebar on the Shanghai Futures Exchange closed down 2.6 per cent at 3375 yuan ($US489) a tonne. The construction steel product rose to its highest since April 2014 on Monday, hitting 3557 yuan.
Iron ore on the Dalian Commodity Exchange dropped 4.8 per cent to 605 yuan per tonne, after spiking to a nearly three-year high of 657 yuan on Monday.
"Since steel shutdowns have been one of the main drivers of the steel rally, in our view, we don't think iron ore rallying is fundamentally justified, though it is clear that Chinese market participants disagree," Macquarie analysts said in a note.
The retreat in steel prices also followed data on Tuesday showing that China's crude steel output rose for a ninth straight month in November, suggesting that Beijing's closure of excess capacity has not stopped mills from producing more to chase rising prices.
Warm Regards
Anurag Singal
Sr Manager –Business Development
Essel Mining & Industries Ltd
14th Floor, Industry House
10,Camac Street –Kol-71
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