G7 decision to cast shadow on Indian coal block auctions

The G7 decision to stop financing international coal power projects will raise questions about the investment risk related to coal auctions and put pressure on the government to stop increasing coal capacity, find experts.

The Group of Seven (G7) nations in their recent meeting agreed to stop financing international coal power projects by the end of this year. This decision can have serious implications on India's coal auctions and efforts to increase capacity.

"The G7 statement reinforces that the era of coal expansion is over - India will not secure any overseas assistance for new coal projects (mines or power plants) and will face increasing pressure to stop increasing its coal capacity and begin planning for an eventual phase-out," said Ashish Fernandes, lead analyst at Climate Risk Horizon.

"The global trend in coal divestment or exclusion policies means that new coal plants in India are also increasingly unbankable, even if they were to get power purchase agreements to underpin commerciality at face value," said Tim Buckley, director, energy finance studies-South Asia, Institute for Energy Economics and Financial Analysis.

G7 financial support comes from Export Credit Agencies of these countries and direct financial institutions.

"The first round of private coal deposit auctions was lauded by the Indian government as likely to attract significant domestic and global investor interest from the likes of Rio Tinto, BHP and Peabody. But the government of India failed to understand the implications of the recent global moves," he said.

Rio Tinto sold its last coal mine in 2018, having started to exit in 2014. BHP's last two thermal coal mines got zero interest in the market. Peabody is not interested in investing in Indian coal as its core US market volumes collapsed 30 per cent in 2020 and it is headed to its second bankruptcy. There were zero international bids in the first round of coal auctions, and the second round will garner a similar interest from offshore, said Buckley.

"Given that renewable energy now enjoys a significant cost advantage over coal, continued investment in the coal sector poses a serious investment risk in a cashstrapped economy. Indian government entities such as NTPC and PFC are still building and planning new coal projects that will not be competitive with renewables and risk locking the economy into a high cost, high pollution energy pathway," said Fernanades.