JAKARTA (TheInsiderStories) – Coal power generation in Asia will decline if annual growth in power demand slows to below 2 – 3 percent on average in the region over the next 10 years, said Moody’s Investor Services. Advances in disruptive technologies for renewable energy will increase the risk that coal power’ dispatch volume will decline Asia’ slowing energy demand growth will impact the producers the hardest as governments tighten environmental standards and introduce policies that favor renewable energy.
“For coal power producers, tariff schemes to compensate for lower dispatch volumes or strategies to diversify their energy mix away from coal power are increasingly important,” says Mic Kang, a Moody’s VP and senior credit officer in an official statement.
Coal-fired power producers are also facing increasing competition from their renewable energy counterparts, which have made technological advances to improve efficiency and costs. If the levelized cost of energy for new wind and solar power plants, both with battery storage, in China and India declines annually by a high single digit to mid-teen percentage from first half 2020 to 2025 – 2030, these alternatives will likely be just as cost competitive as coal power by 2025 – 2030.
Rated coal power producers in China (A1 stable) and Korea (Aa2 stable) face a higher risk of losing their cost-competitiveness due to the absence of consistent cost pass-throughs, while producers operating with consistent regulated tariffs or power purchase agreements in India (Baa3 negative), Indonesia (Baa2 stable) and Vietnam (Ba3 negative) are less exposed.
Additionally, financing capacity for Asia’ coal power producers will continue to fall as funding markets for debt issuers become greener and investors lose appetite for coal power assets amid volume risk and uncertainty over the recovery of demand. But most rated coal power producers, particularly state-owned ones, should be able to withstand the pressure in the foreseeable future.
In October, senior economic minister, Airlangga Hartarto, reported the absorption of coal for domestic market obligation (DMO) only reach 141 million tons (MT) of coal in 2020 caused of the pandemic. The amount representing 90.9 percent of this year’ target of 155 MT of coal.
While, the Indonesian Coal Mining Association have a different projection, the domestic coal absorption will be around 125 MT of coal or only 77.42 percent of 2020′ target. As reported, the government is targeting 70 percent of coal for DMO is allocated for power plants.
Then 10.6 percent for processing and refining needs, 9.4 percent for cement industry, textile and paper factories allocated 6.54 MT of coal and for fertilizer factories of 1.73 MT of coal. State-owned power producer, PT Perusahaan Listrik Negara, as the largest coal absorber in the country, revealed that the existence of large-scale social implementation in several regions has resulted a low electricity load and reducing the coal consumption.
Hartarto also reported, the coal price had decreased from US$66.89 a MT of coal in February to $49.2 MT of coal in September or down 35.95 percent compared to last year. In addition, coal export, which is targeted to reach 359 MT of coal by the end of 2020, until October only reached 58.81 percent or 232.3 MT of coal.
While, the ministry of energy and mineral resources (MEMR) emphasized that the COVID-19 outbreak has also resulted in a decline of coal price, global demand, limited access and mobility. As the impact, the realization of national coal production also fell to 362 MT of coal from a year ago reached 409 MT of coal.
Currently, the reference of coal price for direct sales for delivery of Free on Board sales at $49.42 a MT of coal. The benchmark level slightly decreased by 1.83 percent compared to the August worth of $50.34 per MT of coal. When compared with the the same month in 2019, the price amounting to $65.79 a MT of coal and experienced a significant decreased of 24.88 percent.
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