The dramatic rise in the international spot price of thermal coal over the past 12 months may have put a smile on the faces of a handful of chief executives of Australian and Indonesian coal exporters, but for importing nations including Vietnam, Thailand, South Korea, Japan and the Philippines, it risks putting a multibillion-dollar dent in current accounts.

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Since the beginning of 2016, the price of internationally traded thermal coal, based on the Newcastle benchmark, has doubled from around US$50 a ton to just under $100 a ton now.

Vietnam faces huge additional bill

To take the case of Vietnam, as it stood in 2016, the country imported a net 12 million metric tons of coal, up 131% from just 5.2 million tons in 2015.

But if the International Energy Agency (IEA) Mid-Term Outlook 2017 is to be believed, this will increase to 35 million tons per annum (Mtpa) of imports by 2021.

As such, at current market prices, Vietnam faces a $3.5 billion bill every year by 2021, up from $800 million in 2016.

Compared with projections based on 2016 numbers, Vietnam will in fact end up spending an extra $1.27 billion every year on importing foreign coal by 2021.

With 35 million metric tons of imports also forecast per year for the Philippines, it too faces a current-account deficit increased by a similar amount.

While even a generous analyst would describe the IEA’s traditionally overinflated forward coal growth projections as bullish, it does go to highlight the fiscal risk inherent in expanding domestic coal power plants fleets reliant on imports.

What’s more, the inflationary nature of imported coal is dangerous for rapidly growing economies such as Vietnam.

Record low solar price in India

India has already recognized this fact, with Coal Minister Piyush Goyal repeatedly pledging to end coal imports.

Instead, India has moved to ramp up dramatically the development of domestic renewable energy. The result has been a swath of record-breaking deals for solar, which remarkably is now cheaper than even the abundant domestic coal.

On the back of a doubling of renewable-energy installation activity in 2016-17, India’s solar and wind tariffs have both fallen by nearly 50% since the start of 2016 to set record-low wholesale electricity tariffs of as little as $38 per megawatt-hour. With price reductions consistently hitting 10% per year over the last five to 10 years, renewable energy is, in stark contrast to coal, deflationary.

South Korea is also wising up. As the world’s fourth-largest importer of coal, it is particularly sensitive to both coal-power pollution and price fluctuations. With the IEA forecasting 102Mtpa of imports by 2021, a doubling of the coal price would result in an additional $5 billion of expenditure per year.

This has sharpened minds in Seoul, and the recently elected government has taken steps this year to cancel proposed new power stations fueled by imported coal and to close highly polluting, end-of-life coal plants. Instead, it has embarked on an ambitious renewable-energy expansion with the target for a tenfold increase to 40-60 gigawatts of wind and solar infrastructure investments by 2030. This is smart policy.

Coal fire-sale

Ironically, even as South Korea and its large neighbor China move to phase down reliance on coal, their domestic coal-plant manufacturers remain hungry for external markets as their own decline.

This is in effect a fire-sale, with China, Japan and South Korea seizing a final opportunity to offload old technology produced by domestic manufacturers before it becomes completely obsolete and politically unacceptable.

But lured by cheap finance subsidized by the export credit agencies of China, Japan and South Korea, some Southeast Asian countries are coming to the table.

Only last week, the government of Vietnam penned a $2.5 billion deal for the Nghi Son II coal power plant, largely funded and constructed by Japan and South Korea. What’s more, significant coal pipelines remain in other nations including the Philippines, Indonesia, Bangladesh, Pakistan and to a lesser extent Thailand.

These countries clearly need new power-generation capacity, but locking themselves into 40-year-life power plants fueled by imported coal is a path to inflation, current-account pressures, pollution and expensive, inflexible electricity supplies.

For countries experiencing significant sustained economic growth, diversifying the electricity-sector generation base to incorporate more alternative sources of domestic supply, namely renewable-energy infrastructure, is imperative.

Meanwhile, as evidenced by the burgeoning global green bond market, international capital is increasingly available for countries willing to set a clear policy direction to transition to clean energy.

Embracing this is the shrewd way to lock in deflationary energy-sector support for more sustainable economic growth.