SYDNEY// 1201AM May 6, 2014: Australian coal export projects are economically unviable and lack financial justification for development, according to a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).

As Chinese coal demand growth continues to slow, attention is focusing on India as the next potential big growth market. This groundbreaking new report uses in-depth financial modelling to evaluate the prospect of India as the next big coal import market, with results demonstrating the fundamental financial problems facing the Indian coal-fired power generation industry.

“Evidence is mounting that coal mining in Australia is entering structural not cyclical decline. This report is a wake up call to investors and industry, questioning the economic basis for an increasing number of proposed coal projects in Australia,” Tim Buckley, Director of Energy Finance Studies, Australasia for IEEFA said.

“Detailed financial modelling has exposed Galilee basin coal as essentially unusable – the two biggest thermal coalmine projects in Australian history are fundamentally unprofitable and commercially unviable.

“The financial justification for Galilee Basin coal is based on flawed economic assumptions, including a reliance on the increasingly uncertain prospect of India being able to continue to finance and economically justify building imported coal-fired power stations,” Mr Buckley said.

The report contributes to mounting industry unease about the financial viability of Australian export coal. In September 2011 Gina Rinehart sold most of her coal assets in Queensland’s Galilee Basin to Indian company, GVK.

“The industry’s economic models are flawed, the world’s poor won’t be helped, and the demand that is used to justify ruining Australia’s natural wonders is an illusion. Savvy operators are increasingly avoiding the Galilee,” Mr Buckley said.

“The report found that imported coal would need to be priced at double the wholesale price of India’s electricity, which categorically discredits the nonsense arguments that it might alleviate India’s energy poverty.

“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.

“The cost of electricity generation from solar in India has fallen 65% in the last 3 years alone and these double-digit declines are forecast to continue.

“A key difference between coal fired power generation and renewable energy is the issue of inflation: fossil fuels are inflationary while renewables are deflationary.

“The financial modelling 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 equates to 4% pa in Rupee terms because it requires purchasing this US$ denominated fuel.

“India’s perilous economic and financial situation create 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,” Mr Buckley said.

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 trends in global renewable energy and as a result questions the viability of the Galilee developments.

Tim has produced detailed reports on both GVK and Adani.

Mr Buckley is available for interview. Copies of the report can be found at the IEEFA website or IEEFA Briefing Note_IndianElectricityCoalPricing_2 May 2014

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