Solar, gas futures bright, while export coal may peak in 2020: Goldman Sachs

Goldman Sachs has predicted the eventual decline of king coal, according to an article in the Courier-Mail. Thermal coal, currently the dominant fuel source for electricity generation in the world, thanks mainly to its abundance and cheapness, will decline in attractiveness as an investment as time goes on, with seaborne trade peaking around 2020. Meanwhile, solar power and gas are likely to increase in attractiveness, according to the article.

This doubtless comes as welcome news in investors and believers in solar power as well as gas proponents. It also corroborates predictions voiced in numerous other reports (including McKinsley) that solar power will be an economically viable energy generation technology within the decade, even without subsidisation. Taxes, production costs, and environmental regulations are cited as the reasons for coal’s expected decline.

Due to global overproduction, coal prices have dropped significantly, bringing the marginal cost of production close to the cost of seaborne coal. This suggests that “most thermal coal growth projects will struggle to earn positive returns for their owners”. Referring to conversations it has had with equipment manufacturer Alstom, Goldman Sachs said that new regulations imposed could potentially tip the cost advantage away from coal towards alternative technologies.

Coal is likely to retain its cost lead in relation to other means of energy generation for the next few years, but a number of investors are already moving capital away from large coal projects. One example given was the ‘megamine’ complex in Queensland’s Galilee Basin, where India’s GVK Group was said to be seeking a minority stakeholder for its Alpha coal project. Coal demand in India and China is expected to remain high.

Although solar photovoltaic (PV) technology has expanded in leaps and bounds around the globe in recent years, it still remains a small sliver of global energy generation capacity and production. Even so, a number of reports have pointed out how solar PV could potentially play a much larger role in Australia’s and the world’s energy mix, and widespread uptake of the technology in Australia is already credited with playing an important role in reducing electricity demand.

With the help of government incentives, residential solar power has already achieved widespread popularity and adoption, and commercial solar power is becoming increasingly common. Utility-scale solar power is also set to see significant growth, with a number of medium- to large-scale projects already under development or deployed.

© 2013 Solar Choice Pty Ltd 

James Martin II