Best kept underground: Allianz’s shunning of coal may have irreversibly tightened the noose for the coal industry

FOSSIL FUELS: 20GW of stressed assets face potential liquidation; Allianz stops coal insurance; Asian coal riding high; Costa Rica to phase out fossil fuels

RBI refuses to dilute diktat, 20GW of coal-fired stressed assets may be liquidated

The RBI has refused to dilute its February directive on the financial sectors’ resolution of bad loans, potentially pushing nearly 20GW of India’s coal-fired stressed assets – with an accumulated debt of nearly $26 billion (Rs. 1.8 lakh crores) – closer to liquidation. Their colossal debt – perhaps reflective of thermal power’s (slowly) growing isolation in India – has accumulated due to the lack of guaranteed power purchase agreements (PPAs) by DISCOMS, uncompetitive tariffs when compared to renewables and chronic coal supply shortages.

The prospect of massive monetary losses has forced the country’s top lenders – including SBI – to try and float an Asset Management Company (AMC) to turn around the assets’ accumulated debt within RBI’s stipulated timeframe of 180 days, failing which, the assets will be turned over to the National Company Law Tribunal (NCLT) for liquidation. About 8-10GW of these assets are reported to be already beyond any scope of a turnaround.

Allianz to stop insuring coal, but investment in fossil fuels still robust

Europe’s biggest insurance firm Allianz will immediately stop insuring all coalmines and coal-fired power plants, as well as not renew insurance for projects currently under its coverage. The announcement is part of the group’s larger objective of completely divesting from coal by 2040, and it will instead re-invest its finances in renewables. However, its counterpart Munich Re has been hesitant to make a similar commitment, even though Allianz’s decision is (partly) being mirrored by Japanese insurance firms Dai-ichi and Nippon Life Insurance.

Additionally, financing for fossil fuel projects remains strong, with the world’s top multinational development banks – including World Bank, European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB) and Asian Development Bank (ADB) – having invested several billion dollars in fossil fuel projects, despite their growing investments in clean energy. Also, a bulk of their investments is in developing countries – which are most vulnerable to climate change.

Asia’s coal industry riding high despite future concerns

Coal miners and traders displayed remarkable optimism over the future of coal at the Coaltrans Asia meet in Indonesia, backed by strengthening demand not just from China and India – Asia’s two largest coal consumers – but also from Pakistan and Vietnam. The traders were especially upbeat on the back of coal prices breaching $101/ton in May so far – an 11% gain over the $98/ton price in March 2018.

However the long-term future of coal does remain in doubt over growing social backlash against coal’s carbon footprint (particularly in Australia, one of Asia’s largest suppliers) and the likelihood of supply shortages from Indonesia and South Africa. Such shortage – unless stymied by growing US coal exports – could push up prices for imported coal and render operations at several thermal power stations financially unviable, especially when compared to ever cheaper power from renewables and natural gas.

Costa Rica to fully ban fossil fuels by 2021

The Central American nation of Costa Rica has announced that it will fully ban the use of fossil fuels within its confines by 2021. The country already generates more than 99% of its electricity from renewables alone, but about 70% of its energy demand for heating and automotive fuels comes from oil.

The automotive sector is alone responsible for about 48% of Costa Rica’s carbon emissions. However the country’s president has promised to fully remove gasoline and diesel from the country’s transport system by 2021 by promoting electric mobility. Costa Rica’s plan is even more ambitious than announcements made by HawaiiCape Verde (Africa) and 48 members of the Climate Vulnerable Forum that plan to generate 100% of their electricity from renewables alone, latest by 2050.

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