This post was co-authored with Noah Lerner
Global coal use remains one of the greatest threats to the health of our planet. But despite government commitments under the Paris Climate Agreement to work towards a 1.5 degree Celsius temperature goal, governments are still using taxpayer dollars to support the build-out of new coal power plants overseas. As of June 2018, there were roughly 58 gigawatts (GW) of proposed overseas coal power stations that are likely to receive public financing from government financial institutions.
The vast majority of these 58 GW of proposed projects with confirmed or likely public financing are being backed by Chinese, Japanese, and Korean public financial institutions. These public financial institutions, including export credit agencies, like Export-Import Bank of China and Japan Bank for International Cooperation, and development banks, like Korea Development Bank, are providing low-cost loans, guarantees and other subsidized forms of financing to promote the overseas business expansion of domestic companies. There are also proposed coal power projects that are slated to receive public financing from government-backed multilateral institutions, like the Asian Development Bank or the African Development Bank.
Halfway through 2018, only one major coal power project has reached financial close with support from government financing. In Zimbabwe, China’s Sinohydro Corporation received 998 million USD in financing from the Export-Import Bank of China to build a 690 megawatt expansion of the Hwange Coal Power Station.
Overview of Pending Projects with Likely Public Financing
Of the 58 GW of proposed overseas coal power projects that we have identified, about 27 GW are already in negotiations with government financial institutions, and an additional 31 GW have a high potential to receive public financing, given the recent track record of Chinese, Korean, and Japanese power companies in securing public financing from their respective domestic public financial institutions. (A full list of these proposed overseas coal power projects is here.)
The highest concentration of projects is in Vietnam. For instance, a consortium of Japanese and Korean power companies secured over 200 million USD of financing from the Export-Import Bank of Korea and over 500 million USD of financing from the Japan Bank for International Cooperation to build the Nghi Son 2 Coal-Fired Power Plant, a 1200 megawatt project using super-critical technology. Japan’s Nippon Export Investment and Insurance is considering insurance for the project. Local and regional civil society groups have long opposed this project, citing climate and air pollution health concerns, faulty environmental impact assessments, and the fact that Japan is breaking its promise to support only ultra-super critical technology coal projects. (See our overview of coal power projects that secured public financing in 2017 in this earlier blog.)
Southeast Asia, South Asia, and Sub-Saharan Africa have the largest pipeline of projects with potential public financing.
Risky Projects, Expensive Delays, Stranded Assets
These plans for new coal projects fly in the face of clear scientific evidence that unabated coal power must be phased out by the middle of the century if the world is to have any chance of meeting the 2 degree and 1.5 degree Celsius temperature goals under the Paris Agreement. Given an average operating lifetime of around 30 years, in addition to the often lengthy process needed for plants to get permitted and constructed, most of these proposed projects can be expected to become stranded assets.
The financial risk of these proposed coal power projects is exacerbated by the fact that many countries are already facing overcapacity in the power sector. A recent study by the Green Innovation and Development Centre (Green ID), a Vietnamese NGO, showed that Vietnam can avoid costly overcapacity and protect the environment by canceling all coal projects planned for operation after 2020, and by retiring 30 GW of coal power by 2030, replacing them with increased energy efficiency and renewable energy.
Many of the proposed coal power projects are facing intense local opposition from civil society, contributing to significant reputational risk for the project developers and financers. In Kenya, activists took to the streets in Nairobi to protest the proposed 1050 MW Lamu project backed by General Electric, China Huadian and other international companies, which would be built right next to the Lamu UNESCO world heritage site. The project has already secured financing from ICBC and is seeking public financing from the African Development Bank (AfDB). Four United States Senators recently wrote a letter to AfDB asking them to not finance the project, citing environmental impacts and questionable economics.
In Indonesia, the proposed 1000 MW Cirebon 3 coal power project, backed by a Japanese and Korean consortium, is still awaiting the finalization of public financing from the Export- Import Bank of Korea and the Japan Bank for International Cooperation, despite the Indonesian Energy Minister’s statement last year that the island of Java would not build any new coal power projects. The island’s Java-Bali power network’s electricity reserve margin has already reached 32%. Meanwhile, the 1000 MW Cirebon 2 project, which in 2017 received over 1 billion USD in financing from Japanese and Korean public financial institutions, is moving ahead with construction, even though its environmental permit was revoked before being controversially reissued. In May 2018, over 170 civil society organizations called on Japanese financial institutions to drop their financing for the project.
One project not moving forward this year is an expansion of the Morupule B coal-fired power plant in Botswana, as the Botswana government, Japan’s Marubeni Corp and South Korea’s Posco Energy could not agree on terms. This is not surprising, since the construction of existing units at Morupule B was two-and-a-half times over budget. Competition from renewables is also a factor, as a recent bid for a 100MW solar power joint venture project in Botswana received 166 responses from global companies.
A Cleaner Way Forward
It is time for governments to stop using taxpayer dollars to subsidize dirty coal power plants. Renewable energy alternatives are already cost-competitive with coal power projects in an increasing number of countries and regions—and that’s without even factoring in the environmental and health costs associated with coal.
And costs for solar keep getting lower. According to Bloomberg New Energy Finance, recent reductions in China’s solar subsidy policies will reduce solar module prices as much as 34% by the end of 2018. This is an excellent opportunity to support global integration of renewable energy, by utilizing these cheaper modules in overseas markets.
Elsewhere, the changing economics of coal and renewable energy are becoming increasingly apparent. In Vietnam, over 300 MW of solar PV will be built on the same land that had originally been reserved for the now canceled Than Bac Lieu coal power station, which Japan Bank of International Cooperation had previously considered financing. There are further plans to build an additional 150 MW of solar PV and 200 MW of wind power on this same site. If these projects come to fruition, then this is a truly inspiring sign for other developing economies that perhaps the tide is finally turning.
As Ms. Nguy Thi Khanh, GreenID’s Executive Director and the First Goldman Prize winner in Vietnam, said: “The decisions we take in the next year on our energy system will have implications not just for today but for the next generations… We are calling on the government to seize the opportunity to harness Vietnam’s plentiful clean energy resources to power our country, create jobs, drive investment and ensure a safe, healthy future.” Here’s hoping that governments, in rapidly growing developing economies as well as those providing financing for overseas development, are paying attention to the energy transition, and ready to adopt the same clean energy vision for their citizens.
The associated list of pending coal projects is available here.