IEEFA Asia: Moon Jae-In’s Ascension in Seoul Is Another Blow to Asia’s Coal Industry

Moon Jae-In’s election yesterday as president of South Korea holds potentially significant ramifications for global seaborne thermal coal markets.

South Korea is Asia’s fourth-largest economy and the fourth-largest importer of coal globally, accounting for over 10 percent of world thermal coal import demand.

As the only remaining growth market of significant size, it has long been identified by the coal industry as a key source of ongoing viability—and Moon’s ascension may well snuff out a bright spot in the bleak overall outlook for seaborne coal used for electricity generation.

Among Moon’s election promises:

• Idling old coal-fired plants during April and May (when fine dust levels tend to peak).
• Permanently closing 10 aged coal-fired plants earlier than scheduled.
• Reassessing plans to construct nine new coal-fired plants.
• Increasing South Korea’s commitment to renewable energy to 20 percent by 2030.

South Korean energy policy under Moon is of a piece with changes already well under way in China and India, which collectively purchase over 40 percent of all global seaborne coal. Our view at IEEFA is that recent policy shifts in both those markets will all but eliminate thermal coal imports demand. Moon’s policies stand to further dampen demand.

And they build on previous South Korean policies that include a 2015 national emissions-trading scheme that aims to reduce greenhouse-gas pollution and a 25 percent coal tax increase imposed just last month.

By our lights, South Korea will halve its long-term growth rate for thermal coal imports should President Moon follow through with his election promises.

Additional effects would include a blow to the viability of greenfield thermal coal developments in Australia, including to the Korean-owned mine proposals in Bylong and at Wallarah II. Moon’s policies will also call into question the strategic merit of expansions like those envisioned at Whitehaven’s Vickery and Shenhua’s much-delayed Watermark mine developments. They will have an effect as well on the controversial and heavily-subsidized Adani Carmichael proposal in Queensland.

THE CUMULATIVE EFFECT OF THE ENERGY POLICY CHANGE IN SOUTH KOREA alongside shifts in other key coal import markets will be felt in all Asian export markets.

Notwithstanding the recently improved traded price of thermal coal, Indonesia’s major coal miners remain in financial distress and as such are extremely exposed to any sustained decrease in Asian import demand.

Granted, Indonesia’s primary markets are China and India, but any reduction in demand from the key North Asian markets will hurt pricing at a time when exporters are banking heavily on new growth.

South Korea currently maintains more than 50 coal-fired power plants, producing around 40 percent of the country’s electricity (nuclear provides 30 percent, LNG 25 percent, oil 3 percent and renewables just 2 percent). Under pre-Moon policies 20 new coal-fired plants were to have been built by 2022 (in addition to 11 new nuclear reactors).

To be sure, Moon’s policies are not exactly revolutionary. In fact, they are entirely consistent with the technology-driven energy market transformation that is taking place globally—and in Asia in particular.

IEEFA sees Japanese thermal electricity generation falling 2 to 3 percent annually over the next decade, for example. We know that China’s coal consumption peaked in 2013 and we note that Taiwan has recently committed to a major realignment toward renewable energy and energy efficiency, including a “20 percent renewables by 2025” target. Vietnam is pursuing a similar shift.

Most strikingly, India continues to reiterate its commitment to a target of zero thermal coal imports by 2020.  Solar-cost trends in India are especially striking (the latest reported solar tariff came in a Rs2.62/kWh, down 40 percent off previous records just 16 months ago) makes the country’s energy policy goals increasingly cost effective and achievable.

As governments all across Asia seek to rejigger their energy economies toward cheaper, domestic renewable energy, it should come as no surprise that South Korea is embracing the trend.

Tim Buckley is IEEFA director of energy finance studies, Australasia.

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