Researchers: $71 Billion of Japan’s Coal Assets at Risk

Research from the University of Tokyo, along with that of two other groups, shows Japan’s coal-fired power plant fleet is at economic risk as the country adds more generation from renewable energy resources such as solar and wind.

The report, called “Land of the Rising Sun and Offshore Wind,” released Oct. 6 and based on research from the university’s Institute for Future Initiatives, along with analytics groups Carbon Tracker and the Carbon Disclosure Project, analyzed the economics of existing and planned coal plants in Japan. It noted that as much as $71 billion of the country’s coal assets would be at risk if the country pursues more renewable power to meet the goals of the 2015 Paris climate deal. The report said offshore wind projects could provide power more cheaply than coal as soon as 2022, with solar photovoltaic (PV) more economic by 2023, and onshore wind less costly than coal by 2025.

Japan’s energy industry ministry did not immediately comment on the report, though Katsushi Takehiro, director of the coal division at Japan’s Ministry of Economy, Trade, and Industry, told Reuters news service, “We don’t comment on each report, but Japan plans to reduce inefficient coal-fired power plants as much as possible while enhancing development of carbon capture, utilization and storage technology.”

Japanese officials earlier this year said the country would need to rely more on nuclear power and renewables to cut its carbon emissions. A government energy plan published last year said the country would continue to rely on coal-generation as a baseload power source.

Riley Adams, a senior financial analyst with Google who is affiliated with the group Young and the Invested, told POWER that the future of coal-fired power in Japan is similar to what’s happening in the U.S. “Many generators in competitive American markets have seen a dramatic reduction in margins in their business due to this decline in average market price,” Adams said. “With time, some generators have faced exigent financial circumstances and sought alternative means for growing their business. Hearing that Japan’s coal generators face profitability concerns provides little surprise, as a result. In Japan, the continued decline of average market prices will further place coal assets at risk.”

Groups Research Energy Financials

Carbon Tracker is a UK-based group that researches the impact of climate change on financial markets. The Carbon Disclosure Project, also based in the UK, is a group that helps businesses determine the environmental impact and financial risk associated with their business practices. The Institute for Future Initiatives at the University of Tokyo was established earlier this year as part of the school’s effort to promote sustainable development.

Government officials in Japan have thrown support behind renewable power resources, particularly after the country joined the Paris global climate agreement. Officials want the country to be carbon-neutral by the middle of this century. The government also is looking at renewables to replace lost nuclear generation after the country shut down its reactor fleet following the Fukushima disaster in 2011. About 50 reactors were operating at that time; only nine reactors, at five power plants, have been restarted.

Japan has been heavily dependent on imports of coal and natural gas since Fukushima, which has resulted in rising energy costs. The International Energy Agency has reported that Japan’s carbon emissions from power generation have risen about 25% after Fukushima. Government data shows that Japan had about 43 GW of installed coal-fired generation capacity at the end of March.

Risk of Stranded Assets

The researchers looked at how Japan’s coal-fired generation capacity, both in-service and planned, would be impacted by the Paris agreement’s goal of limiting temperature rise to less than 2C this century. “In our below 2°C scenario, where planned, under-construction and operating coal capacity is forced to shut down in a manner consistent with the temperature goal in the Paris Agreement, stranded asset risk from capital investments and reduced operating cashflows could amount to US $71bn [billion],” the report says. “Of this US$71bn, US$29bn could be avoided if the Japanese government immediately reconsiders the development of planned and under construction capacity.”

Takehiro told Reuters that the ministry did not see coal-fired power plants becoming stranded assets by 2030 or 2050. Various reports have said Japan plans to build between 12 GW and 13 GW of new coal-fired generation capacity over the next 10 years. The report released Sunday says, “The nation currently has over 11 GW of under-construction, permitted or pre-permitted coal capacity as of September 20, 2019.” It also says that “Crucially, the LCOE [levelized cost of energy] of offshore wind and utility-scale solar PV could be cheaper than the long-run marginal cost (LRMC) of existing coal plants by 2025 and 2027 for onshore wind.

“Our analysis shows that building coal power today equals high-cost power and fiscal liabilities tomorrow,” the report says. “Japan’s planned and operating coal capacity is partially protected by regulations that give coal generators an unfair advantage in the marketplace.”

Carbon Tracker research previously showed that 42% of coal-fired plants globally were “likely unprofitable” in 2018, and that figure could hit 72% by 2040.

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