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  • March 17, 2014

    See Disclosure Appendix of this report for important Disclosures and Analyst Certifications

    March 17, 2014

    See Disclosure Appendix of this report for important Disclosures and Analyst Certifications

    Asian Coal, Power and Renewables

    Michael W. Parker • Senior Analyst • +852-2918-5747 • michael.parker@bernstein.com

    Flora Chang • Research Associate • +852-2918-5737 • flora.chang@bernstein.com

    Less, Less, Less: The Beginning of the End of Coal

    Prepared for

    Institute for Energy Economics and Financial Analysis

    and

    New York University Institute for Policy Integrity

    mailto:michael.parker@bernstein.com mailto:flora.chang@bernstein.com

  • Asian Coal, Power and Renewables 2 2

    Asian Coal, Power and Renewables

    Asian Coal, Power and Renewables Contact Information

    Michael Parker is Vice President and Senior Research Analyst

    covering the Asian Coal, Power and Renewables sectors for

    Sanford C. Bernstein in Hong Kong.

    Prior to joining Bernstein, Michael was a Director of Corporate

    Development for renewable energy company, First Solar in

    New York where his responsibilities included managing

    corporate transactions and market forecasting.

    Michael previously worked for PricewaterhouseCoopers in San

    Francisco and in Wellington advising on various infrastructure

    projects and investments in both the telecom and power sector

    in the US and Asia-Pacific.

    Michael holds an MBA from New York University and a law

    degree and Bachelor of Commerce from the University of

    Otago, New Zealand. He is a barrister and solicitor of the High

    Court of New Zealand.

    Michael Parker, Senior Analyst

    Tel: +852 2918 5747

    Fax: +852 2918 5757

    E-mail: michael.parker@bernstein.com

    Flora Chang, Senior Research Associate

    Tel: +852 2918 5737

    Fax: +852 2918 5757

    E-mail: flora.chang@bernstein.com

    mailto:michael.parker@bernstein.com mailto:michael.parker@bernstein.com mailto:michael.parker@bernstein.com

  • Asian Coal, Power and Renewables 3 3

     File:

    \\ac03hkg0202\deptss\HKG_SSRES\Asi

    an Utilities\ Market Data\_PPT

    Exhibits\Trade Flow

    Asian Coal – The Appalachian Butterfly Effect

    Source: Wiki commons, SX Coal, Public Press, EIA, BREE, RBCT, Bernstein analysis and estimates

    Major Seaborne Coal Exporters Supplying Asia – 2012

     Chinese coal prices didn't fall 25% over the course of 2012 because of the US and South Africa combining to export an incremental 11M tons of coal to a 4B ton Chinese coal market. Coal prices fell primarily because

    Chinese coal production and transportation capacity growth outstripped Chinese demand growth.

    Australia

    Russia

    Mongolia

    China

    ~288MT

    South Africa

    Indonesia

    N. Korea

    Vietnam

    USA

    Canada

    8MT

    20MT

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    22MT

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    118MT14MT

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    //ac03hkg0202/deptss/HKG_SSRES/Asian Utilities/Market Data/_PPT Exhibits/Global Coal Trade Map.pptx

  • Asian Coal, Power and Renewables 4 4

    Chinese Power – Turn on the Lights, the Party’s Over

     China's "power multiplier" over the business cycle since 2007 is ~1x GDP growth. The power multiplier (power production growth divided by real GDP growth or the amount of electricity required by produce a unit of GDP) was

    1.4x from 2003 to 2006, but falling.

    Source: NBS, CEIC, Bernstein estimates and analysis

    China: Power Production Share

    December 2012 – November 2013 China: Power Intensity 1998-2013

    Source : NBS, CEIC, Bernstein estimates and analysis

    Thermal 80.7%

    Hydro 14.7%

    Nuclear 2.0%

    Wind 2.3%

    Others 0.2%

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    //ac03hkg0202/deptss/HKG_SSRES/Asian Utilities/Market Data/China Power/8 Energy - Power.xlsx //ac03hkg0202/deptss/HKG_SSRES/Asian Utilities/Research Calls/2012/Asian Coal and Power - Monthly Monitor/120327 The Juice.xlsx

  • Asian Coal, Power and Renewables 5 5

     File:

    \\ac03hkg0202\deptss\HKG_SSRES\

    Asian Utilities\Market Data\China

    Coal\China Coal Price Central.xlsx

     Tab: SX Coal

    Chinese Coal – No Diamonds, Plenty of Rough

    Qinhuangdao 5,500kcal/kg Spot Coal Price – 2007-2014current

    Source: SX Coal, Bernstein analysis

     Coal prices have declined to RMB530/ton. Coal prices have fallen ~37% since November 2011 when the price touched RMB855/ton. We are in the longest sustained period of price falling since at least 2006 and there

    are few signs that this trend is likely to change any time soon.

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    //ac03hkg0202/deptss/HKG_SSRES/Asian Utilities/Market Data/China Coal/China Coal Price Central.xlsx

  • Asian Coal, Power and Renewables 6 6

     File:

    \\ac03hkg0202\deptss\HKG_SSRES\

    China Monthly Macro\Exhibits\7 Energy -

    Coal.xlsx

     Tab: FAI and Rail

    Chinese Coal – No Diamonds, Plenty of Rough

     No insurmountable economies of scale. There are some economies of scale, but – in part as a result of the 2008 Shanxi industry consolidation - there are also multiple scaled operators.

     No lack of investment. Investment in the coal mining fixed assets in 2011 was up 30% Y/Y. And in 2010, coal mining fixed asset investment increased 24.8%. But in 2012, it was up just 8%, while in 2013, it decreased 0.4%.

    Source: CEIC, NBS, Bernstein analysis

    Chinese Coal Mining Fixed Asset Investment 2006 –2013

    117 145 196

    261 321

    428 465

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    //ac03hkg0202/deptss/HKG_SSRES/Asian Utilities/Market Data/China Coal/7 Energy - Coal.xlsx

  • Asian Coal, Power and Renewables 7 7

     File:

    \\ac03hkg0202\deptss\HKG_SSRES\

    Asian Utilities\Models\Industry

    Model\Global Power Multiplier Model.xlsx

     Tab: Summary

    Chinese Coal – Ditching the Bridge & Tunnel Crowd

    10-year Power Multipliers – Selection of 25 Developed and Developing Nations

    Source: World Bank, IEA, Bernstein analysis

     Looking at a sample of 25 countries in terms of power intensity over the last ten years, at least five trends are clear.

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