Report: coalmines at ‘high risk’ of utility death spiral

Report: coalmines at ‘high risk’ of utility death spiral


New analysis shows Australian, Chinese and United States coal-fired power stations are the most vulnerable to environmental dangers as coal loses market share to wind and solar.

The new Oxford University report says Australia’s coalmines and coal-fired power generators are exposed to a high level of environment-related investment risks.

Latrobe-Valley-Coal-mine-brown-coalAAP Newsagency says the report, Stranded Assets and Thermal Coal, examines the world’s top-20 thermal coal miners for their exposure to risks as global coal demand slows and the resource comes under pressure from community opposition.

Supported by Norges Bank Investment Management, the firm in charge of managing Norway’s US$1.15 trillion sovereign wealth fund, the study aims to help investors accurately assess the risks facing coal companies.

It ranks Australia as a “high risk” exporter because of the low forecast growth in global coal consumption and low coal prices.

China-coal-burning-power-plantThe International Energy Agency (IEA) has said global coal consumption will grow at just 0.8 per cent a year until 2020 – a dramatic slowdown from 4.2 per cent a year over the past decade.

Compiled by Oxford’s Smith School of Enterprise and the Environment, the Stranded Assets report also finds coal mines in Australia are threatened by emerging environmental regulation and by protests and community activism.

“Protests against coal assets create a reputational risk for the associated companies,” the report says.

india-top-court-cancels-coal-licencesCommunity opposition also threatens coalmines in India, a potential major export market for Australia.

The report also concludes Australian coal-fired power plants face a “utility death spiral” of falling profitability and value because of declining electricity demand and the growth and projected cost-competitiveness of renewable alternatives.

Australia’s “dispersed populations, plentiful sun and falling electricity demand spells the perfect storm” for conventional power companies, it says.

coal-wind-energy-genericWith Australia’s annual electricity demand growth forecast at a modest two per cent, the report said, there was more potential for renewable energy to displace coal in power generation than there was in high-growth markets such as India.

“Utilities exposed to the utility death spiral and related market forces face losses of profitability, lower credit ratings and falling share prices,” the report said.

Ben Caldecott Stranded assets program director Oxford UniversityReport author Ben Caldecott said it documented environmental risk faced by coal companies and would help investors, civil society and managers compare companies’ environmental performance.

“It is important to understand the differences in order to manage risk, to prompt engagements with company management or to decide whether to divest,” Mr Caldecott said.

AAP reports the peak Australian mining body, the Minerals Council of Australia, criticised the report, with MCA coal executive director Greg Evans saying he “strongly disagrees” with its finding that Australian coal faces an uncertain future.

ACCI-greg-evans“Coal demand in the Asian region remains strong and this compares very differently to the situation in Europe,” Mr Evans said.

Mr Evans said Asian demand for Australian coal would continue to grow, “albeit more slowly”, as coal remained responsible for a quarter of the expected doubling in energy generation in China by 2040.

“The IEA expects Australia’s coal exports to grow by 37 percent by 2040 and to again become the worlds largest coal exporter by 2017,” he said.