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IEEFA Asia: More Evidence of Stark Change in Seaborne Thermal Coal Markets

May 30, 2017
Tim Buckley

Word out today that Taiwan has attracted $60 billion in foreign capital commitments to renewable-energy projects adds to the fast-gathering momentum around the electricity sector transition taking deep root across Asia.

An excerpt from the article posted this afternoon by Nikkei Asia Review:

Global renewable energy companies are rushing to set up offshore wind farms in Taiwan, seeing a promising business opportunity on an island offering one of the most suitable locations for such facilities in Asia.

Investment applications filed with the government so far reached around 1.8 trillion Taiwan dollars ($59.5 billion), more than triple the quota set by Taipei. Denmark’s Dong Energy, Australia’s Macquarie and Canada’s Northland Power were among those joining the foray.

The Taiwan Strait is said to be uniquely suited for wind power generation. On Penghu Island, roughly 50km west of Taiwan’s main island, blistering winds are constantly slamming the hilltop on the coast. “Here, it always feels like a typhoon, but winds are a lot weaker now than in the wintertime,” explained a Taiwanese official.

The news is consistent with recent policy and political change in Japan, South Korea and Taiwan—“JKT” in industry parlance—that will drive further structural decline in global seaborne coal markets (and not incidentally, profoundly affect Australia’s coal industry, since those three countries are three of Australia’s key coal-export markets).

The facts of the matter sharply contradict  growth projections from such governmental bodies as Australia’s Office of the Chief Economist (OCE)). The OCE has JKT thermal coal imports somehow growing at 8.7 percent—or triple the global rate of growth—to 2022.

SUCH PROJECTIONS SEEM TO STEM FUNDAMENTALLY FROM A FANTASY that precludes the reality of the electricity-generation transition gaining pace globally, and especially in Asia.

As a result of the election of President Moon Jae-In in South Korea, economic stagnation in Japan, and far-reaching policies driving renewable energy in Taiwan, we at IEEFA see collective JKT imports declining by up to 2 percent annually.

This equates to a cumulative decline of up to 26Mt by 2022, consistent with the unexpected 2016 2 percent decline for Taiwan and 4 percent decline for Japan.

Australia’s coal industry isn’t the only huge exporter to be affected the JKT events.

While Indonesian coal exports to Taiwan have been negligible, Japan and Korea hold second and fourth place as top export destinations for Indonesian coal.

For seaborne thermal coal imports, JKT account for a combined 301-million-tonne-per-annum (Mtpa) market, 29% of the 2016 global total. And it dominates Australia’s coal-export industry, accounting for 142Mtpa, or 70 percent, of Australia’s export total.  China is a distant fourth at 15 percent and India accounts for just 3 percent.

The OCE’s forecast of 46Mt or 2.5 percent total growth in global thermal coal imports to 1,062Mt over the six years to 2022 is optimistic, in our view, especially in the face of the clear policy headwinds evident in the top two coal import markets globally i.e. China and India.

Even with a surge in Chinese coal market this year, forecasts are for contraction in China after its 2013 imports peak due to ongoing policy initiatives to restrict coal imports. India targets a virtual cessation of thermal coal imports, with record low solar tariffs suggesting this is achievable.

IN ONLY A FEW WEEKS TIME THIS SPRING, major Asian economies have made notable strides in electricity-generation thinking—and action—that would’ve been unconceivable as recently as a couple of years ago.

This month alone has seen Taiwan update its new eight-year green energy development plan and has the country now expecting a fourfold expansion in renewables, to 20 percent of its electricity portfolio, and a one-third decline in reliance on coal-fired power generation, from 45 percent to just 30 percent by 2025. Taiwan’s initiatives include constructing 4.2GW of onshore and offshore wind farms, with the first 1.5GW awarded to Copenhagen Infrastructure Partners earlier this month.

As Moon Jae-in has risen to power, his policies have been placed immediately into action.  The new South Korean national electricity plan includes the immediate temporary suspension of licenses for eight end-of-life import coal-fired power plants. Speculation is arising too that work will be suspended on partially constructed new coal-fired power plants, undermining KRW13 Trillion (US$12bn) of investment proposals by SK Gas, POSCO Energy and Samsung C&T.

April  saw Japan raise its cumulative installed renewable energy capacity to over 100GW, a near doubling since the Fukushima disaster in 2011. Adding to its long-established 50GW of hydro-electricity capacity, Japan now has more than 45GW of cumulative installed solar, with onshore wind and waste-to-energy making up the balance. Its latest progress on this front was the commencement this month of the 258MW Okayama solar plant in Okayama, Japan’s largest solar project to date.

Combined with the cumulative 12 percent decline in electricity demand since 2010, renewables and energy efficiency are transforming the Japanese electricity grid. IEEFA sees a continuation of this trend coupled with possible nuclear restarts that will see Japan’s thermal power generation decline 2-3 percent annually in the coming decade.

Actual trends in Japan’s electricity sector are now at odds with the official open-ended government plan to add 23GW of new coal-fired power capacity—a plan that seems increasingly outdated and largely redundant. The cancellation this past January of the 1,200MW Ako coal plant conversion by Kansai Electric and the March  announcement by TonenGeneral to cancel a 1,000MW coal plant are likely the first of many over the coming year or two.

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


IEEFA Asia: South Korea’s Policy Shift Stands to Have an Out-Size Impact on Indonesian Coal Companies

IEEFA Asia: India’s Electricity-Sector Transformation Is Happening Now

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


Tim Buckley

Former Director Energy Finance Studies, Australasia, Tim Buckley has 25 years of financial markets experience, specializing in equity valuation, including as a top-rated analyst and as co-founder and managing director of Arkx Investment Management.

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