Melbourne: A new report of Institute for Energy Economics and Financial Analysis (IEEFA) says that International coal projects relying on new import markets such as India were facing financial risks.
IEEFA report, released recently, said that Chinese coal demand growth continued to slow down and the focus was increasingly turning to India.
The study - which used in-depth financial modelling to evaluate the prospect of India as the next big coal import market said that the results demonstrated the fundamental financial problems facing the coal and coal-fired generation sector in India.
"This report is a wake up call to global investors and industry, establishing the uneconomic basis of international coal projects which rely on India as a potential growth market," Tim Buckley, Director of Energy Finance Studies, Australasia for IEEFA said.
Key findings of the report included coal sent to India from the Galilee Basin in Australia, which said it would need a wholesale electricity price double of India's current level to be viable, categorically discrediting the argument that it might alleviate India's energy problems.
The report noted that a key difference between coal fired power generation and renewable energy was the issue of inflation - fossil fuels are inflationary while renewables are deflationary The cost of electricity generation from solar in India had fallen 65 percent in the last three years alone and double-digit declines were forecasted to continue.
It said the financial modeling demonstrates that renewables not only start out cheaper than building new imported coal power capacity, but also get cheaper over time.
In contrast, the average price escalation for imported coal in India equated to four percent annually in rupee terms because it requires purchasing this US dollar denominated fuel.
"India's perilous economic and financial situation creates further uncertainty for companies relying on its ability and willingness to import coal, with its associated implications for inflation, current account deficits, economic instability and energy security," Buckley said.
He said "the good news is that renewables are increasingly affordable and effective: wind, solar and hydro can be built faster and cheaper, in addition to acting as a deflationary driver in the economy".
"A greater reliance on imported coal undermines India's national energy security position and weakens its push for greater energy sector diversity," he said.
It may be recalled that in September, 2011, Australian mining heiress Gina Rinehart sold most of her coal assets in Queensland's Galilee Basin to Indian company, GVK.
First Published: Wednesday, May 07, 2014, 13:32