Report: Investments in Coal Risky, Billions in Assets Could Be Stranded

A study from a London-based group focused on financial aspects of the energy industry said up to $60 billion of coal-fired power generation assets may be stranded in Southeast Asia in the next 10 years. The study released this week by Carbon Tracker said renewable energy resources and more-stringent environmental policies make investments in new coal generation “a mistake.”

The study was released on the heels of a report last week from the Institute for Energy Economics and Financial Analysis (IEEFA), a Cleveland, Ohio-based clean energy group, that said the U.S. will retire 15.4 GW of coal capacity in 2018, which it said represents 44 coal-fired generation units at 22 power plants. The group said another 21.4 GW of coal generation will close by 2024.

The IEEFA report said the U.S. is still operating 246 GW of coal generation capacity, with announced retirements from 2018 through 2024 (Figure 1) representing about 15% of that total. It said coal plants in at least 14 states are scheduled to close over the next few years, including units in Ohio, Pennsylvania, Florida, Indiana, Minnesota, Missouri, Kansas, Kentucky, Maryland, Tennessee, Texas, Virginia, West Virginia, and Wisconsin, according to IEEFA.

‘A Warning Shot’ For Coal Investors

Matt Gray, the head of power and utilities analysis at London-based Carbon Tracker, a not-for-profit energy think tank, told Bloomberg on October 28 that, “This is a warning shot to those investors who are standing at the ledge” about new investments in coal generation. “We think it’s a mistake and may result in costly impairments.”

The International Energy Agency (IEA) earlier this year said global investments in coal-fired power generation fell by 33% in 2017, from more than $90 billion USD to about $60 billion USD, although coal remains the largest source of electricity generation worldwide, at about 37%.

The IEA said U.S. coal generation dropped by 33 terawatt hours (TWh) last year, with a 22-TWh decline in the European Union. Most of the drop is attributed to increased generation from natural gas and renewables.

China, India, and Southeast Asia continue to have increased generation from coal, mostly due to increased demand for power in those nations—although investments in gas-fired and renewable generation are increasing there while coal investments are dropping.

The IEA said the capacity of new coal-fired power plants that received final investment decisions last year declined to just more than 30 GW, the lowest level in more than 15 years, and a level just 35% of that in 2015. Most of the drop was registered in India, China, and Southeast Asia.

The IEA, in fact, in a May 2018 report said it is likely investments in new coal-fired power assets peaked in 2015, with future investment shifting toward supercritical and ultra-supercritical coal technologies. The agency said the generation capacity of existing subcritical plants fell in 2017, with plant retirements exceeded capacity additions by more than 20 GW.

$130 Billion in Planned Investments in Southeast Asia

Carbon Tracker, which is funded by a variety of groups studying the impacts of climate change, said there about $130 billion in coal investments planned in Vietnam, Indonesia, and the Philippines in the next 10 years. The IEA said coal will be the fastest-growing energy source in the region through 2040, in part due to abundant coal resources, particularly in Indonesia, which translates into lower energy costs. Regional government policies also support lower-cost electricity over climate initiatives.

Gray noted that falling costs for renewable power could change that outlook. Carbon Tracker said new solar plants and wind farms could undercut existing coal projects by 2027 in Vietnam, 2028 in Indonesia, and 2029 in the Philippines, which could change government thinking.

In addition, Vietnam, Indonesia and the Philippines signed the 2015 Paris climate agreement that calls for governments to limit carbon emissions. If those countries remain committed—President Donald Trump pulled the U.S. out of the agreement and his administration supports the coal industry—their governments could increase their support for renewable generation sources.

“Renewable generation will continue to get built and cannibalize demand,” Gray told Bloomberg. “That will cause capacity factors of coal plants to decline to the point they become unprofitable to continue to operate.”

Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).