Editor's Note
The reverberations of the COVID-19 restrictions continue to escalate with the Indonesian utility PLN grappling with escalating capacity payments at a time of declining demand. Pakistan and Bangladesh, which are both pursuing major expansions of coal plant capacity, could face similar problems or they could emulate Egypt’s decision to scrap a major coal plant when faced with slowing power demand growth. For its part, the International Energy Agency (IEA) is estimating that global coal demand could fall substantially in 2020, depending on how long the Covid-19 crisis runs for and the nature of stimulus policies adopted by countries such as China and India.
The IEA’s warning comes as the domestic thermal coal price in China has fallen into the range that could trigger government intervention to limit imports. With China now the destination for coal cargoes unwanted by Indian and European buyers, the financial stresses on Indonesian, South African, Australian and Russian exporters may be about to escalate dramatically.
The short-term disruption to coal producers comes on top of the escalating moves of more major players in the financial services industry to back away from coal. In Europe, Allianz has unveiled restrictions on coal lending to kick in in 2023. In Australia, Westpac has announced it will exit all support for thermal coal mining and power by 2030. Interestingly, Westpac also included a new section in its policy specifically on metallurgical coal, signalling support for decarbonising the steel sector. Westpac’s retreat comes as a major investor in Teck Resources, the world’s second largest metallurgical coal exporter, wants the company to dump its entire coal division to become more attractive to pension funds wary of supporting companies involved with coal.
|
|
COVID-19 is giving the thermal coal sector a look at its long-term future
The dramatic decline in coal power generation caused by the COVID-19 crisis may make 2020 a microcosm of thermal coal’s declining fortunes, writes Simon Nicholas from the Institute for Energy Economics and Financial Analysis.
Shelving of Chinese-backed plant in Egypt highlights overcapacity risk in Pakistan and Bangladesh
The shelving of the 6600 megawatt (MW) Hamrawein coal plant in Egypt due to slowing demand should be a warning to Pakistan and Bangladesh which both have big coal plans and growing overcapacity, writes Simon Nicholas from the Institute for Energy Economics and Financial Analysis in China Dialogue.
Climate action under duress: how the Dutch were forced into emissions cuts
It took the Dutch Government over four years to respond to Urgenda’s initial court win directing major cuts on the country’s greenhouse gas emissions, writes Stephen Buranyi in the Guardian.
|
|
|
Global coal generation crushed in April: It has been estimated that power generation in ten major countries fell by 15 per cent and is likely to have caused about a fall in global coal demand of about 8.9 million tonnes. The fall in coal demand in April in the same ten countries — France, Germany, India, Japan, Spain, Taiwan, Turkey, the UK, South Korea and Vietnam — is estimated to have been greater than the estimated 7.5 million tonne decline in coal used in the first quarter of 2020. The largest decline in April was in India where power generation is estimated to have fallen by 19 per cent with coal generation bearing the brunt of the fall. (Argus)
IEA argues coronavirus has become tipping point for coal: The International Energy Agency (IEA) estimates thermal coal consumption could fall by 10 per cent in the first quarter of 2020 compared to the same period in 2019 with a slightly smaller decline in metallurgical coal use. The IEA estimates that coal demand will decline by about five per cent in China, even more in India and by between five and 10 per cent in South Korea and Japan. The IEA estimates falls in coal consumption of up to 25 per cent in the United States and about 20 per cent in the European Union. The total 2020 decline in coal consumption, the report argues, will hinge on the nature of the stimulus package in China, the speed of recovery in countries such as India and the rate of growth in Indonesia and Vietnam. (Guardian, International Energy Agency)
Eskom closes plant due to risk of ash dam collapse: Eskom has closed the 1600 MW Camden coal plant for up to three months due to the risk of collapse of the coal ash dam. Eskom stated that “the current dam has reached its maximum height and therefore it poses a safety risk to all personnel on site [and] neighbouring communities, and could also be a cause for environmental contravention.” The power station was first commissioned in the late 1960s, mothballed for 15 years from 1990 with the plant’s six units progressively recommissioned after 2005. The plant is one that is likely to be closed as new units at the Medupi and Kusile plants are commissioned. (BusinessLive)
Report reveals the big thirst of Australian coal mines: A report by Ian Overton, a University of Adelaide water policy analyst, estimates that in 2018 about 292 billion litres of water was used in coal mining in New South Wales and Queensland. He estimates about 653 litres of water was consumed for each tonne of coal produced. Almost all water used in coal mining is consumed and not available for reuse. The report, which was commissioned by the Australian Conservation Foundation, estimates 158 billion litres of water was used for coal power plants with about 1560 litres of water used per megawatt hour (L/MWh) compared to 10 L/MWh for solar and wind generation. (Guardian, Australian Conservation Foundation)
Report warns Bangladesh power hub could become pollution: A report by the Centre for Research on Energy and Clean Air (CRECA) estimates that air pollution from 9800 MW of proposed coal plants in Payra would cause between 18,000 and 35,000 premature deaths over the units’ 30-year operating life. The proposed projects, comprising eight plants with a total of 16 units, would make it the second largest power centre in South Asia and fourth-largest in the world. CRECA estimates the combined plants would make Payra one of the largest global sources of mercury pollution with emissions of between 600 and 800 kilograms per year at potentially dangerous levels for the area’s over 500,000 residents. (Centre for Research on Energy and Clean Air)
Indian agency proposes scrapping coal washing policy: The Ministry of Environment, Forest and Climate Change has proposed scrapping a 2014 policy requiring coal supplied to power plants over 500 kilometres away to be washed to reduce ash content to below a quarterly average of 34 per cent. While power utilities estimate coal washing reduces the ash content of Indian coals from 40–45 per cent to 33 per cent, only two new coal washeries have been established since the policy came into effect in January 2016. While the policy was originally touted as part of the government’s international climate commitments, a co-benefit of lower ash content coal would have been increased capacity of the railway system and reduced power plant pollution. The Ministry of Power argues washing coal increases the cost of coal and argues the plan to install pollution controls on power plants will obviate the need for the policy. (Business Standard)
South Korean NGOs call for audit of financing of Doosan: Four South Korean NGO groups have called on a government accountability agency, the Board of Audit and Inspection, to investigate the decisions by the Korea Development Bank and Export-Import Bank of Korea to provide a total of 2.4 trillion won (US$2 billion) in financing to bailout the struggling coal plant manufacturer, Doosan Heavy. The groups argue that financing was provided without any requirement for the restructuring of the business and question whether the banks undertook due diligence before approving funding for the company. A recent pre-feasibility study on Doosan and KEPCO’s proposed role in the proposed Jawa 9 and 10 plant in Indonesia predicted the companies would incur losses on the project. (Climate Home)
|
Australia: NSW Department of Planning breached record-keeping act by failing to note details of phone discussions with Glencore over mine expansion.
Australia: Bylong Valley Protection Association granted permission to defend planning decision to reject KEPCO’s proposed Bylong coal mine.
Cambodia: The Ministry of Mines and Energy is looking to allocate four coal mining concession areas covering 794 square kilometres.
Czech Republic: Parliamentary committees call for investigation of a possible lawsuit against Poland over the approval for an expansion of the Turow coal mine.
India: South Eastern Coalfields wins financial approval for 135 kilometre coal railway to cater for 65 million tonnes a year from the Gevra, Dipka and Kusuminda mines.
India: Expert advisory committees allocating as little as 10 minutes to consider projects including coal mines and power plants.
Mongolia: Australian mining company Terracom sells Baruun Noyon Uul coal mine and US$15 million in liabilities for US$2.
Mozambique: Vale suspends maintenance on Moatize operations as losses mount with weakening coal price and demand.
Pakistan: Hubco floats the possibility that it could convert two oil-fired units at its 1208 MW Hub Plant to run on coal.
Poland: Tauron imposes cuts of 20 per cent on miners’ hours and pay for a three month period as Covid-19 restrictions hit power demand.
US: Arch Coal, which produces only coal, opts to change name to Arch Resources.
|
COVID-19 accelerates financial crisis of Indonesian utility: Indonesia’s publicly owned utility, PLN, is grappling with how to address increasing operating losses from generous capacity payments to independent power producers for coal and gas projects. Melissa Brown from The Institute for Energy Economics and Financial Analysis (IEEFA) estimates PLN’s operating loss in 2020 is likely to be 28.7 trillion rupiah (US$1.9 billion) and could require a government subsidy of 92.7 trillion rupiah (US$6 billion). PLN is now reportedly seeking agreement with private power producers to reduce fixed power purchase payments as COVID-19 restrictions have hit power demand. The CEO of PLN recently flagged the possibility of delaying debt repayments due in 2020 until 2021 before backtracking. IEEFA estimates PLN’s fixed power purchase payments which are expected to increase from 120 trillion rupiah (US$7.8 billion) in 2020 to 164.5 trillion rupiah (US$10.7 billion) in 2021. Indonesia has the world’s fifth largest amount of proposed new coal plant capacity with a further 11,840 MW under construction. (Institute for Energy Economics and Financial Analysis)
Slump in Chinese domestic thermal price may prompt import curbs: The fall of Chinese domestic thermal coal prices to 460–465 yuan per tonne (US$64.98–65.84 per tonne) at Qinhuangdao port could prompt the government to intervene in the market by curtailing imports to protect local producers. The National Development Reform Commission (NDRC) has designated domestic spot prices of less than 470 yuan per tonne for 5,500 kilocalories per kilogram coal as falling into the “red zone” warranting intervention to cut thermal coal imports. An anonymous market source said that the NDRC has indicated it will intervene if necessary to ensure thermal coal prices trade in the range of 470–500 yuan per tonne. Import restrictions would affect Indonesian and Australian exporters and to a lesser extent Russian suppliers. (Platts)
Allianz tightens coal restrictions: Allianz, the largest European insurance company, has announced it will tighten its coal policy to exclude coverage for companies that do not have a “credible” strategy to exit coal consistent with limiting global warming to a 1.5°C increase. The policy states Allianz will not invest in companies deriving more than 30 per cent of the electricity from thermal coal and/or planning more than 300 MW of new coal capacity. However, the policy allows for coal plant upgrades and refurbishments below the 300 MW threshold. After December 31, 2022 insurance coverage will not be provided to companies with revenue of over 25 per cent from thermal coal mining or over 50 million tonnes a year. NGO groups welcomed the announcement but urged Allianz to bring forward the 2040 end date for an exit from all coal investments and insurance and to include funds managed for third parties in the policy. (Insurance Business, Allianz)
Australian bank sets 2030 deadline for thermal coal exit: In the latest update to its climate policy, Westpac, one of Australia ‘big four’ banks, has pledged to end all support for thermal coal mining projects by 2030. The bank states it will not take on new thermal coal customers and has set an emissions-intensity target for power projects of 0.25 tonnes of carbon dioxide equivalent per megawatt hour (CO2e/MWh) by 2025 and 0.18 CO2e/MWh by 2030. The NGO group Market Forces estimates this will mean any company planning to operate a thermal coal mine or power station by the end of the decade will not be able to attract finance from the Commonwealth Bank, Westpac or the three local insurance companies. For the first time Westpac’s policy includes a section on metallurgical coal which includes a commitment to support technological developments “that reduce the dependence of the steel industry on coal” and to ensure co-produced thermal coal meets its power generation emission standards. (Westpac, Market Forces)
Investor pushes Teck to sell its coal division: Teck Resources is being pressured by a small shareholding hedge fund, Tribeca Investments, to sell its coal and oil projects to concentrate on base metals. Tribeca argues that offloading its coal division, which generated 46 per cent of the company’s revenue in 2019, would increase its environmental standing and boost its share price. In particular, Tribeca believes cutting its fossil fuel exposure would increase the company’s attractiveness to pension funds and other finance providers which are increasingly wary of lending to companies with a significant environmental impact. Teck is the world’s second largest exporter into the seaborne metallurgical coal market and operates six mines in Canada. (Financial Post)
Glencore and Anglo cut 2020 coal production estimates again: Glencore, the world’s largest thermal coal exporter, has revised its 2020 export estimates downwards to 132 million tonnes, a 5.7 per cent fall from the 140 million tonnes exported in 2019. While the company’s South African and Australian mines have continued to operate despite COVID-19 restrictions, Glencore's Colombian mines have been hit by restrictions and a rapid decline in European demand. Glencore owns a one-third share in the Cerrejon mine which has continued to operate at a reduced rate while its Prodeco operation has been placed on a care and maintenance basis. Glencore warned that with continued uncertainty about European demand, productions from its Colombian mines are “at risk of further reduction.” Anglo American has forecast a 20 per cent decline in its 2020 production from mines in Colombia and South Africa to 22 million tonnes. (Argus)
Coal India’s sales collapse as Modi urges increased production: Coal India, which produces about 80 per cent of all of India’s domestic coal, has reported a 25.5 per cent slump in sales in April compared to the same period in 2019. The government-owned company also reported a 10.9 per cent decline in production in April against the same period in 2019. The Indian Government has extended the COVID-19 lockdown by two weeks to May 18. The slump in domestic coal mining came as Modi pushed for the fast-tracking of environmental clearances for mines and measures to increase private sector interest in more efficient and lower cost coal production. (Reuters, Times of India, Coal India)
|
|
|
|
