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IEEFA Update: One More Strike Against Adani’s Plans in Australia—India’s Two Largest Import-Coal Plants are in Severe Financial Distress

January 03, 2018
Tim Buckley and Simon Nicholas

New developments in both the political and energy scene in India are increasing the possibility that Adani would be unable to export coal to India if it builds its proposed Carmichael mine in Australia’s Galilee Basin.

India’s two largest import-coal power plants – Adani Power’s 4.6 GW Mundra plant and Tata Power’s own 4.0 GW Mundra plant — are both struggling financially, losing money with every unit of electricity produced.  Remarkably, management at both companies put the equity of these two power plants up for sale at just 1 rupee (1.6 U.S. cents) each back in May 2017, but nothing has progressed on this proposal since then.

We would speculate that the ruling BJP government in Gujarat, where both plants are located and play a critical supply role for the state, did not want to be seen to be bailing out two Indian billionaires going into a crucial state election.  Prime Minister Narendra Modi’s BJP won re-election in the Gujarat State election in December 2017, albeit with a reduced majority. Now that the election is over, the proposed state bailout of the two Mundra import coal power plants is likely to be back on the agenda.

With the Government of India gearing up to hold a record high 45 GW of renewable energy tenders over the new financial year starting April 2018 (30 GW of solar, 10 GW of onshore wind and 5 GW of offshore wind), the Indian electricity sector transformation is set to accelerate, with clear new commitments from the Indian government. The energy program is being expedited thanks to the expanding global capital flows into the Indian renewables infrastructure sector.

Yet another 500MW solar low priced auction was finalized in December 2017.  Last month also saw the continuation of wind tariffs hitting successive new record lows, as was seen with the Gujarat government’s 500MW auction taking wind down another 8% on the previous record low set in May 2017. This price matches Indian solar at just Rs2.43/kWh or US$38/MWh – 20% below the cost of existing domestic thermal power generation in India. Further expansion of domestic coal mining capacity is likewise setting up 2018 as another year of declining thermal coal imports into India.

To IEEFA, all of these new developments make Adani’s Carmichael coal mine proposal of zero strategic value to India, and the proposition to import coal into India is now clearly commercially unviable. IEEFA would view any sale of these two financially stressed plants as a potentially important win for the state and consumers. Post any acquisition, the Gujarat government could access lower cost domestic coal linkages not available to private power companies, replacing the reliance on expensive imported coal. Any sale to the government would thus accelerate the phase out of thermal coal imports for India overall.  This yet again confirms the Carmichael proposal is a stranded asset absent massive government subsidies.

Tim Buckley is IEEFA’s director of energy finance studies, Australasia. Simon Nicholas is an IEEFA energy finance analyst.


IEEFA Australia: More Wheels Fall Off the Adani Mega-Mine Train

IEEFA India: Peak Coal Demand in 10 Years

IEEFA Asia: Price Increase Highlights Growing Risk to Coal-Import Economies

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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Simon Nicholas

Simon Nicholas is IEEFA’s Lead Energy Finance Analyst for Bangladesh, Pakistan and the global steel sector as well as Asian seaborne thermal and coking coal markets.

Simon’s focus is on the energy transition, the long-term outlooks for coal and steel as well as the need for emerging nations to establish financially sustainable power systems to support their development.

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