ASIAELEC: Asia’s coal proposals could threaten Paris goals

Up to 92% of the coal-fired power plants on the drawing board in Asia and Africa could be uneconomic and could waste up to $150bn of private and public investment.

A recent report from Carbon Tracker into the coal plans of five major Asian economies – China, Japan, India, Vietnam and Indonesia – warned that coal plans at they stand could prevent these countries, and the world as a whole, meeting the Paris Agreement climate change goals.

The five countries account for 80% of global new coal power investment, with plans in place for 600 units and an estimated 300 GW of capacity.

“These last bastions of coal power are swimming against the tide, when renewables offer a cheaper solution that supports global climate targets. Investors should steer clear of new coal projects, many of which are likely to generate negative returns from the outset,” Catharina Hillenbrand von der Neyen, the author of the report, said.

The report said that around 70% of the global coal fleet relies to some degree on policy support and would likely be unprofitable in the absence of market distortions.

Coal is increasingly unviable both financially and environmentally and is ceasing to make sense as an option for investors and governments.

Asia’s policies contrast with firm plans in Europe and the US to wind down coal. The UK this week confirmed that it would cease all coal generation by 2024.

Capacity

Drilling down into the plans of each Asian country, China is by far the biggest backer of coal.

Indeed, the five Asian countries operate nearly three quarters of the current global coal fleet, with 55% in China and 12% in India.

Beijing’s 1,100 GW of coal plants could be expanded by another 187 GW, with new capacity replacing older plants as well as expanding the current fleet.

Around 27% of China’s existing capacity is already unprofitable and another 30% is close to breakeven, generating a nominal profit of no more than $5 per MWh, the report found.

India has 250 GW of operating coal capacity and a pipeline of 60 GW. New renewables can already generate energy at a lower cost than 84% of operating coal and will outcompete everywhere by 2024. It has a target of 450 GW of renewables by 2030 – more than five times its 2020 capacity – which would meet 60% of energy demand.

Japan has 45 GW of coal capacity with 9 GW in the pipeline. Renewables are already cheaper than new coal and will be cheaper than existing coal by 2022, despite being hampered by lack of land, capacity market payments favouring fossil fuels, and grid constraints. The government has committed to no longer supporting foreign coal projects.

Vietnam has 24 GW of operational coal power, with a further 24 GW in the pipeline. New renewables will outcompete existing coal units in Vietnam by 2022.

Indonesia is heavily reliant on thermal power, with 45 GW of coal and 24 GW of new coal planned. New renewables will outcompete existing coal by 2024.

Costs

Carbon Tracker said in its report that continued investment in coal is grossly uneconomic, and could mean that $150bn of planned investment would in fact fund stranded assets, which means power plants that can never hope to make a return on investment, never mind make a profit.

This adds to the $220bn of operating coal plants are deemed at risk of becoming stranded if the world meets the Paris climate targets.

Globally, new renewables beats 77% of operating coal in terms of levelised cost of energy (LCOE), and this will rise to 98% by 2026 and 99% by 2030.

Carbon Brief compared the LCOE of new renewables to the long-run marginal cost (LRMC) of existing coal units, while taking into account current pollution regulations and climate policies.

In China, Carbon Tracker report said that solar and wind is cheaper than 85% of the country’s existing coal power stations, rising to 100% by 2024

In India, renewables will undercut coal by 2024, while the date for Japan and Vietnam is 2022.

Put simply, the trump card for renewables is that investments in new renewables beat investments in new coal in all major markets in terms of the LCOE.

Meanwhile, the report named 10 Asian power generators as accounting for 40% of existing coal plants.

The report’s findings chime with a recent report from the International Renewable Energy Association (IRENA), which found that two thirds of new renewable capacity proved to be cheaper than new fossil fuel-fired power generation in 2020, with 162 GW, or 62% of the total, of new green capacity undercutting coal or gas.

IRENA said that falling renewables costs meant that up to 800 GW of coal capacity could be replaced by renewables, saving $32bn per year and reducing CO2 emission by up to 3bn tonnes per year (tpy).

IRENA director-general Francesco La Camera said: “Today, renewables are the cheapest source of power.”

Post-COVID

“Coal no longer makes sense financially or environmentally. Governments should now create a level playing field which allows renewables to grow at least cost, using post-COVID stimulus spending as an opportunity to lay the foundations for a sustainable energy system,” said von der Neyen.

The report also called on governments, especially in Asia, to avoid the temptation to switch from coal to LNG as a transition fuel.

Even though the Chinese government, among others in Asia, is promoting cleaner coal, using more efficient generating technology, emissions scrubbers and carbon capture and storage (CCUS), the report dismissed clean coal on cost grounds.

Such clean coal is a risky bet, as these coal plants are highly unlikely to generate a return above their cost of capital over the project lifetime.

A mix of carbon pricing, lower cost renewables continuing to displace fossil fuels, and tight carbon budgets in the wake of net-zero announcements leave limited potential for coal to make a profit.

Coal is a risky and expensive proposition for government and investors, and the cost of carbon is pricing coal out of the market.