Isn’t IEA’s Fossil Fuel projections too optimistic

International Energy Agency (IEA) is the world’s premier source of global energy trends and forecasts. Its predictions and estimates are universally used by policy makers, company CEOs and investors to make plans regarding the future trajectory of energy demand and prices. However the institute has been failing to live up to its billings in the last 2-3 years making overly optimistic forecasts for fossil fuels, which are falling behind renewable energy with the costs of solar and wind declining and concerns over climate change growing. Solar energy costs have fallen drastically in the last couple of years, making it competitive with coal and gas .With improving technology solar energy is going to become much cheaper than coal and gas in most parts of the world by 2020. This coupled with its green character means that no new coal or gas plants may be installed after 7-8 years. However IEA is saying that India will keep growing its coal imports, even after solar becomes much cheaper. This dumb forecast is going to cost billions of dollars for companies and investors who make bets based on IEA forecasts.

Note IEA has been criticized by various analysts for making these foolish forecasts making unreasonable assumptions. While IEA acknowledges that solar and wind will become cheaper than fossil fuels in the future, it is way too far ahead in terms of years. It does not take an Einstein to say that solar and wind will be cheaper much earlier than what IEA is saying (2025 for wind and 2030 for solar energy).

Countries which depend on coal and gas exports will face a tough time just as oil exporters are facing currently. Australia which is planning to build massive coal mines and infrastructure may face massive wealth destruction as many assets become stranded. Global concerns over climate change are making people wary of fossil fuels especially coal. Prices have crashed to below $40/ton for coal and I don’t think it will recover significantly. The Aussies are already worried as India’s energy minister plans to completely stop thermal coal imports, by raising domestic production. The Aussies will have no place to ship their coal, as China is reducing its coal demand and the West is shutting the thermal power plants altogether.

IEA is still run by lobbies which are funded by the fossil fuel industry that prevents it from writing the truth that fossil fuels are in terminal decline now. The solar technology revolution has completely changed the energy paradigm and all fossil fuels will get decimated over time. Even crude oil which does not compete directly with solar energy will face pressure, as the penetration of EV technologies grows in the transport sector.

The IEA is forecasting the world’s seaborne thermal coal market will reach 1.06 billion tonnes by 2020, a reduction from its previous forecast, but still above many other analysts. It assumes India will increase its thermal coal imports to 204 million tonnes by the end of the decade, representing an increase of 73 million tonnes from 2014.

India’s Minister for Energy, Piyush Goyal?, has said India should be able to end thermal coal imports by 2017.

A win by US-based solar major SunEdison of a $US500 million, 500-megawatt solar auction in the southern Indian state of Andhra Pradesh in November shocked the market with its pricing of 4.63 rupees per kilowatt-hour (US7.1¢/kWh), 10 per cent below the previous record low set three months earlier.

That pricing was regarded by many as irrational and as an aggressive chase for market share in the fast-growing market, until the award of a 350 MW contract in December to a consortium led by Japanese telecommunications company SoftBank at the same price.

The contracts should act as a warning to Australian coal exporters not to rely on IEA forecasts, Mr Buckley said.

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