CLEVELAND/ SYDNEY: Rapid expansion of renewable energy combined with weakening electricity demand are two key factors reinforcing the structural decline of seaborne thermal coal markets, according to a new briefing released today by the Institute for Energy Economics and Financial Analysis (IEEFA).

In ‘Global Energy Markets in Transition’ IEEFA examines major global electricity sector trends, focusing on the unprecedented take-up of renewable energy in 2014 and its broader impacts.

According to the briefing, global installs of solar capacity in 2014 rose more than 20 percent to a record 46-48 gigawatts (GW) – equivalent to around 16 million homes. New global wind installs grew 40 percent to 46 GW, led by China and America.

“Globally, 2014 was the year of the renewable energy installation juggernaut,” said Tim Buckley, Director of Energy Finance Studies, Australasia, for IEEFA. “With the notable exception of Australia where policy uncertainty served as an effective hand-brake, wherever you look around the globe, be it China, India, Europe or the US, the trend of a rapidly expanding renewable energy industry is the same. 2015 will inevitably see this gather pace.”

As the briefing states, the 12% increase in value of global renewable investments in 2014 belies a 30% growth in global volume compared to 2013.

“The deflationary nature of renewables is driving the kind of transition rarely seen in industry,” said Buckley. “The reality is that in terms of solar installations alone, we are likely to see a 5-10% reduction in price annually over the next decade. The impact of this on the electricity market cannot be overstated.”

The effects of renewable growth are being felt most keenly in the global coal sector, particularly in the structural decline of seaborne thermal coal.

Findings in the briefing include:

  • India cannot afford imported coal and their Energy Minister is planning for a possible halt to thermal coal imports within 2-3 years. This makes it a straight commercial decision for India to aggressively expand renewables investment.
  • Consistent with IEEFA’s view that China’s coal demand will permanently peak by 2016, China’s coal demand actually declined by 2.1 percent year-on-year in 2014. China coal imports fell 11% in 2014.
  • Demand for U.S. coal increased by 0.8 percent in 2014, but total U.S. coal exports fell 20 percent. U.S. thermal coal consumption in 2014 was down 18 percent from the 2008 peak.
  • Germany’s electricity demand fell a preliminary 3.8 percent in 2014, and electricity generated from coal declined by 4.7 percent.

“Coal companies’ underperformance against the global equity market is unprecedented,” said Buckley. “A more than 50 percent decline in coal prices has seen most listed coal companies globally lose 80-90 percent of their equity market value in the last four years. While the sun will undoubtedly rise for renewable energy in 2015, for coal, there remains a lot further to fall.”

Tim Buckley is the Director of Energy Finance Studies, Australasia for the Institute for Energy Economics and Financial Analysis. He has 25 years of financial markets experience, including 17 years with Citigroup culminating in his role as Managing Director and Head of Australasian Equity Research.

Mr Buckley has spent the past five years investigating the trends in global renewable energy and as a result questions viability of the Galilee developments.

Tim has produced detailed reports on Lanco Infratech, GVK and Adani, plus the Indian electricity sector.