Coal producers say the future is bright, pointing to high prices and fat profits, while renewable energy believers say the fossil brigade is living on borrowed time.

Who’s an investor to believe?

The government’s latest Resources and Energy Quarterly report, released on Monday, forecasts exports of thermal coal — the kind used in power stations — will dip 1 per cent a year to 2020.

Exports of metallurgical or coking coal — the higher quality stuff used to make steel — will tick up 4.2 per cent each year but prices will drop.

“If you talk about coal as ‘dying’, over a 20-year period you’re talking about 4 per cent per annum volume declines,” says Tim Buckley, a director at the Institute for Energy Economics and Financial Analysis.

“Coal companies are making hay now. The sun is shining, but the declines are looming.”

Mr Buckley says coal prices — not volumes — are thriving right now because of supply constraints.

Financial markets are wary of putting money into a “sunset industry”, and as a result there isn’t quite enough coal to go around.

This has led to a couple of sterling IPOs in Australia, with Bowen Coking Coal (ASX:BCB) last year and Bounty Mining (ASX:B2Y) making successful debuts, and share price appreciations in the triple digits for the likes of New Century Resources (ASX:NCZ), Kangaroo Resources (ASX:KRL), Stanmore Coal (ASX:SMR) and Whitehaven Coal (ASX:WHC).

>> Scroll down for a list of ASX stocks with coal exposure, courtesy of leading ASX data provider MakCorp

But the good times are unlikely to last long.

The Resources and Energy Quarterly points to metallurgical coal prices dropping by 3.7 per cent a year to 2020 and thermal coal rising by 1 per cent a year.

“The metallurgical coal spot price is forecast to decline from an average of $US193 a tonne in 2018 to $US148 a tonne in 2020, with the impacts of improved supply combined with weakening demand from China expected to outweigh growing demand from India,” the report said.

“The spot price [for thermal coal] is forecast to remain well supported over the next few months, as a result of a relatively tight market.

“However, with most of the contributing factors expected to be temporary, the price is forecast to decline from late 2018, to average US$74 a tonne in 2020 as import demand growth slows relative to supply. Both China and India are expected to increase domestic thermal coal output.”

Investment banks like Morgan Stanley are also ringing in the decline, forecasting price declines next year and saying poor long-term demand prospects is keeping investment away.

Beaten on price

Even as politicians such as former PM Tony Abbott and Queensland Liberal backbencher George Christensen call for greater support for the coal industry, the resource could be becoming economically unsustainable.

“Renewable energy is dirt cheap and getting cheaper and cheaper,” said Mr Buckley, who points to the rapid decline in prices for equipment versus the increase in costs for coal plants.

Bloomberg New Energy Finance analyst Leonard Quong says solar panel prices dropped only 10 per cent last year, which was lower than expected because US buyers were stockpiling ahead of expected tariffs.

This year they expect prices to fall by as much as 30 per cent, as a 20 gigawatts (GW) oversupply in China of solar panels looks for a home.

As a result, Australian Renewable Energy Agency chief financial officer Ian Kay says large scale solar energy farms can now be built in the $50s per megawatt hour.

(A megawatt hour or MWh is 1000 kilowatts of electricity used for an hour — or enough to power about 330 homes per hour).

Compare that to the high cost of retrofitting aging coal plants or building new high efficiency, low emission (HELE) coal-fired power plants, and the economics don’t stack up, says Mr Buckley.

He says the Muja AB plant in Queensland cost $308 million to retrofit before it was shuttered a couple of years later, while AGL flat out refused to spend the money on the Liddle Power Station.

In 2017, AGL said fixing Liddle up would cost $106/MWh. Replacing it with renewables, gas and energy storage would cost $83/MWh, or $1.36 billion in total.

There are currently no plans for new coal-fired power stations in Australia, but they could be feasible under the Coalition’s energy market framework the National Energy Guarantee (NEG). The NEG may not penalise coal as a fuel source so from an emissions point of view, coal would be on an equal footing with renewables.

There is 13.3 GW of renewable energy capacity in the national energy market, according to the Australian Energy Market Operator. There is 22.9 GW coal power capacity.

>> Here’s list of ASX stocks with coal exposure, courtesy of leading ASX data provider MakCorp.

Prices current at June 27. Scroll or swipe for full table. Click headings to sort.

ASX code Company One-year price change Price Jun 27 (intraday) Market Cap
NCZ NEW CENTURY RESO 5.82051282051 1.33 670.3M
DRG DRAIG RESOURCES 2.66666666667 0.165 65.8M
KRL KANGAROO RESOURC 2.47368421053 0.066 230.1M
DHR DARK HORSE RESOU 2 0.018 34.6M
NCR NUCOAL RESOURCES 2 0.015 11.5M
SMR STANMORE COAL 1.65151515152 0.875 217.8M
AUH AUSTCHINA HOLDIN 1.5 0.005 4.5M
REY REY RESOURCES 1.5 0.3 63.7M
AJM ALTURA MINING 1.46153846154 0.32 555.1M
AXE ARCHER EXPLORATI 1.38636363636 0.105 19.6M
WKT WALKABOUT RESOUR 1.37704918033 0.145 37.6M
WHC WHITEHAVEN COAL 1.04779411765 5.57 5.7B
VKA VIKING MINES 1 0.026 9.1M
NHC NEW HOPE CORP 0.986577181208 2.96 2.5B
MMI METRO MINING 0.703703703704 0.23 297.2M
AHQ ALLEGIANCE COAL 0.68 0.042 19.5M
JAL JAMESON RESOURCE 0.529411764706 0.13 30.8M
BHP BHP BILLITON 0.500225733634 33.23 165.5B
TER TERRACOM 0.444444444444 0.39 139.8M
RIO RIO TINTO 0.406201816001 82.08 129.0B
AKM ASPIRE MINING 0.4 0.021 55.6M
EQE EQUUS MINING 0.347826086957 0.031 22.6M
PAK PACIFIC AMERICAN 0.133333333333 0.051 8.3M
ATM ANEKA TAMBAN-CDI 0.111111111111 0.7 --
B2Y BOUNTY MINING (listed Jun 2018) 0.0857142857143 0.38 133.3M
AQC AUSTRALIAN PACIF 0.05 0.63 35.4M
PEC PERPETUAL RESOUR 0 0.02 4.8M
TPO TIAN POH RESOURC -0.010989010989 0.09 --
ADD ADAVALE RESOURCE -0.0769230769231 0.012 965.3k
TIG TIGERS REALM COA -0.0833333333333 0.044 77.0M
PDZ PRAIRIE MINING -0.0980392156863 0.46 101.9M
MRV MORETON RESOURCE -0.1 0.009 25.0M
ACB A-CAP RESOURCES -0.122807017544 0.05 47.9M
WLC WOLLONGONG COAL -0.125 0.007 65.6M
CKA COKAL -0.128205128205 0.034 25.0M
RES RESOURCE GENERAT -0.163636363636 0.046 26.7M
SRZ STELLAR RESOURCE -0.166666666667 0.015 5.7M
LNY LANEWAY RESOURCE -0.25 0.003 8.4M
MEY MARENICA ENERGY -0.25 0.105 6.0M
YAL YANCOAL AUSTRALI -0.314720812183 0.135 6.2B
DGR DGR GLOBAL -0.357142857143 0.09 55.2M
NAE NEW AGE EXPLORAT -0.4 0.006 3.4M
BCB BOWEN COKING COA -0.5 0.015 7.0M
RMT RMA ENERGY -0.5 0.001 2.1M
PNL PARINGA RESOURCE -0.514925373134 0.195 86.3M
IEC INTRA ENERGY COR -0.533333333333 0.007 3.1M
ATU ATRUM COAL -0.567010309278 0.084 29.1M
MCM MC MINING -0.594444444444 0.365 51.4M
WPG WPG RESOURCES -0.673913043478 0.015 13.6M
AFR AFRICAN ENERGY -0.68 0.024 15.0M
NSL NSL CONSOLIDATED -0.7 0.009 35.8M
AJC ACACIA COAL -0.75 0.001 1.6M
GPP GREENPOWER ENERG -0.833333333333 0.004 5.8M