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Group counters bullish projection on Indian coal demand, says peak coal in sight

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Group counters bullish projection on Indian coal demand, says peak coal in sight

A recent energy report challenges the assumption that India will see substantial increases in coal consumption amid the rapid growth of its economy.

According to the Institute for Energy Economics and Financial Analysis, peak thermal coal use could be "just around the corner," contrary to the International Energy Agency's projection that coal demand in the country will more than double to 1,230 million tonnes of coal equivalent in 2040, from 575 million tonnes of coal equivalent in 2016.

IEEFA's forecast is based in large part on the massive price declines in renewable energy generation, as well as economy-wide efficiency efforts being undertaken across the country.

"This idea, that India could be near peak coal demand, would have seemed laughable just a couple of years ago," said Tim Buckley, lead author of the report and IEEFA's director of energy finance studies, in a Nov. 21 report.

"But this is no longer the case: coal-fired power plant [utilizations] are at record low levels, coal-related stranded asset concerns are rising, coal plant expansions are increasingly on hold and all the while the price and performance of renewable energy is improving."

Wind and solar energy prices hit record lows this year in India, resulting in increased installations of new renewable generation compared to coal-fired power generation. For the year, net thermal additions fell to just 7.7 gigawatts, while renewable additions jumped to 15.7 GW.

The economics of renewables have dramatically improved, IEEFA found, with both wind and solar down 50% in just two years, to roughly US$0.038 per kWh.

Going forward, the country aims to install an annual 21 to 22 GW of renewable energy, while net thermal power capacity additions are projected to contract to below 5 GW annually over the coming decade, driven by the retirement of end-of-life subcritical coal-fired power plants, the report said.

"India's national decarbonization policy is in line with global trends, which have seen renewable energy infrastructure investment running at two to three times the level of new fossil fuel capacity investment since 2011," Buckley said in a news release accompanying the report, adding that the country is on track to catalyze US$200 billion to $300 billion of new investment in renewable energy infrastructure over the coming decade.

As a result of the renewable energy transition across the country, Buckley said that Indian demand for imported coal will most likely decline, "undercutting what U.S. and Australian exporters had hoped would be a long-term growth market."

The IEEFA believes that Indian coal imports likely peaked in 2015 and the country now may be approaching peak thermal coal consumption.

When Coal Minister Piyush Goyal announced plans in 2015 to virtually end thermal coal imports within three years, imports reached a record 217.8 million tonnes, then slid 6% to 204 million tonnes in 2015-16 and another 6% to 191 million tonnes in 2016-17, the report said.

"India's target to all but cease thermal coal imports by the end of this decade is now the logical economic outcome, especially since plants using expensive imported coal are increasingly the high-cost dispatch option," Buckley wrote.

"As [India is] the second largest importer of thermal coal globally, this is a materially adverse development for thermal coal-export nations."