Why build 600 new unprofitable coal plants?
Governments in Asia are planning 600 new coal plants that could lose investors $150 billion and derail efforts to limit temperature rise in line with climate targets, according to a new report. But why?
In Asia, coal power is still king — although renewables are getting ever cheaper, China, India, Indonesia, Japan, and Vietnam have signed up to build 80 percent of the world's planned new coal plants, according to a new report from the London-based financial think tank Carbon Tracker.
But researchers say the coal plants are not only financially and environmentally unviable; they'll also endanger the Paris climate goals that these countries have ratified.
As the rest of the world phases out coal power, and many existing plants become stranded assets, the big question is: Why build 600 new unprofitable coal-fired power plants?
Motivation for coal is nonfinancial
A closer look at the sums confirms that they don't add up.
The same five Asian countries already operate around 75 percent of the current global coal fleet — 55 percent is in China and 12 percent in India. The report warns that around 27 percent of this existing capacity is already unprofitable, and another 30 percent are only just breaking even.
Meanwhile, new renewables could replace around 80 percent of the world's coal-fired plants and immediately save money, say the report's authors. They predict that by 2026, nearly 100 percent of global coal capacity will be more expensive to run than building and operating new renewables.
"It's getting displaced in the marketplace by something that's cheaper to run, which leads to stranding," said Catharina Hillenbrand Von Der Neyen, Carbon Tracker's Head of Power and Utilities, of the financial viability of coal.
If the world decarbonises in line with the Paris climate targets, $220 billion (€185 billion) of global operating coal plants are deemed at risk of becoming stranded assets.
This is partly due to growing competition from renewables, which is causing a decline in coal plant usage, and hence profitability.
New coal plants destined to fail
If coal is "uneconomic and uncompetitive you would not pursue it," said Hillenbrand Von Der Neyen. "Unless you have another reason that is nonfinancial."
This could include "security of supply perceptions," she said. Sometimes it's "incumbency," whereby an existing government wants to retain established economic structures.
For Li Shuo, Beijing-based policy adviser with Greenpeace East Asia, China's plan to build 187 gigawatts of new coal plants is also linked to the perception that they will generate GDP and jobs, and importantly aid the pandemic recovery.
"They are also seen as a temporary COVID economic recovery measure by local governments," he said.
But Shuo believes the new plants are destined for failure.
"China already has more plants than it can possibly use," he said. "The result is every plant will lose money in the medium to long run."
The only hope he says is a sudden policy shift to ban new coal projects — as was the case across Europe.
"Doing so is not only good for the environment but ultimately will enhance China's economic competitiveness."
Hope for a policy shift to renewables
If the planned new coal capacity is not part of a rational business model, especially for investors, there is some hope that market forces and pressure to adhere to climate goals could inspire a policy shift.
Bangladesh set the tone for such a turnaround when it announced this week that it was cancelling 10 of 18 planned new coal-fired power plants. Economics and climate were the driving factors, according to government officials.
"There is a concern globally about coal and we have to adhere to that," Mohammad Hossain of the Bangladesh energy ministry told Reuters. "The government is committed to reduce carbon emissions."
This move reflects a recent "rethinking on coal in Asia,” said Shuo, adding there are "signs of a shrinking appetite for China to invest in coal along the Belt and Road" — a reference to the new Silk Road infrastructure project. "We hope this will become the norm."
Such a policy shift might resolve the apparent contradiction between China's coal buildup and its recent commitment to decarbonisation by 2060.
In the end, taxpayers will have to bear much of the cost of the money-losing new plants, according to the report. Of the $150 billion that Carbon Tracker estimates says could be lost, consumers and taxpayers will foot the bill in countries where coal power is subsidised and propped up with public money.
Paris targets hang on Asia
Financially unviable coal plants across Asia might appear illogical. However, if only a small proportion is built and operated, it will put the Paris target of 1.5 degrees Celsius (2.7 degrees Fahrenheit) of warming at risk.
"Pretty much all" of the planned coal plants that make up 80 percent of new capacity globally would have to be cancelled to meet the target, according to Hillenbrand Von Der Neyen.
"Progress for climate and alignment with Paris now really hangs on Asia," she said.
(This article by author Stuart Braun was originally published on Deutsche Welle.)
Edited by Suman Singh
![[Weekly funding roundup Nov 16-22] Zepto effect boosts VC inflow to 2nd highest for 2024](https://images.yourstory.com/cs/2/220356402d6d11e9aa979329348d4c3e/funding-roundup-LEAD-1667575602969.png?mode=crop&crop=faces&ar=1%3A1&format=auto&w=1920&q=75)
