I

ndia'€™s energy transformation is gathering momentum and the impacts will be felt far beyond its borders. With current cuts continuing, and coal imports likely to be reduced to zero by 2021, the biggest effect will be on Indonesia, which currently supplies 80 percent of India'€™s foreign thermal coal.

The report '€” India'€™s Electricity Sector Transformation '€” states the Indian Government is on track to achieve its goals of doubling domestic coal production, modernizing the electricity grid and installing 175 gigawatts (GW) of renewable energy.

The economic reality is that rapid changes in the electricity sector have already made imported coal more expensive than any other electricity options, according to a new report released today by the Institute for Energy Economics and Financial Analysis (IEEFA) and Indian energy analysis firm, Equatorials.

 In July 2015, two Indian states awarded tenders to solar projects that will supply electricity for a lower cost than imported coal-fired power generation. The tariffs agreed for solar were around 1 rupee/kWh cheaper than electricity from imported thermal coal and fixed for 25 years, as opposed to coal prices, which are likely to fluctuate.

The installation of 175 GW of renewable energy '€” equivalent to more than three times the current electricity capacity of Indonesia '€” is one of a number of key policy initiatives that will enable India'€™s rapid transformation. India is replicating Germany and China'€™s systematic electricity sector transformation, with the added advantage that the price of solar electricity has dropped by 80 percent in five years.

The country has opened the gates to a wave of multi-billion dollar investments in its renewable energy sector. In July alone, there have been eight major deals, with the single biggest international endorsement being SoftBanks'€™ US$20 billion, 20 GW solar joint venture.

Energy Minister Piyush Goyal has made it clear that India'€™s reliance on thermal coal imports is not sustainable for the economy, rate payers nor commercially viable for the coal-fired power plants involved. Goyal in May 2015 said: '€œWe are confident that in the next year or two, we will be able to stop imports of thermal coal.'€

 While many commodity forecasters have assumed Indian coal imports will continue to grow, IEEFA forecasts a peak in Indian thermal coal imports in 2015, with a rapid approximately 20 percent per annum decline thereafter.

China'€™s rapid reduction in coal imports has had a dramatic effect on Indonesia exporters. China'€™s imports have declined 38 percent year-on-year in the first six months of 2015. Shipments from Indonesian miners fell 49 percent, the most of China'€™s five largest suppliers.

For many, the end of the decade-long double-digit growth of the super-cycle is hard to envisage. But this year'€™s collapse is the stark new reality and will only be compounded as India implements the same reforms.

Indian imports of Indonesian coal were 139 millions tons in 2014/15, up 17 percent in 2013/14, which at 119 million tons were up 42 percent year-on-year from 102 million tons in 2012/13.

In the last 18 months, India'€™s coal imports from Indonesia have been running at 10 to 12 million tons per month. The latest monthly data we have showed in April 2015, coal imports from Indonesia to India were down 2 percent to 11.6 million tons after a 0.2 percent fall in March 2015. Coal imports from Indonesia to India look to have peaked in
November 2014.

The profound transformation announced in 2014 by the Indian government is gaining momentum. While most financial commentators have questioned India'€™s capacity to deliver, all sign are pointing towards success.

With India stopping the importation of Indonesian coal, the seaborne thermal coal market has entered a state of structural decline, heightening the risk of permanent stranded assets.

These systemic changes must prompt a strategic rethink for Indonesia. As China and India demonstrate, a transformation to renewable energy is inevitable. Indonesia is at a crossroads and today has the opportunity to adopt an energy plan that looks toward a future predicated on lower-emission technologies.