Wind, Sun to Strand $60 Billion of Coal Assets in Southeast Asia

(Bloomberg) -- Keep pouring money into coal-fired plants and it won’t be just the fuel that’s getting burned.

As much as $60 billion of coal power assets may be stranded in the next decade across Vietnam, Indonesia and the Philippines, according to a new study by Carbon Tracker, which cited tighter environmental policies and competition from cheaper renewable energy. That analysis is aimed to caution those contemplating new coal plants.

“This is a warning shot to those investors who are standing at the ledge,” said Matt Gray, the head of power and utilities analysis at the London-based not-for-profit think tank, adding it’s easier to stop a new project than shut an existing one. “We think it’s a mistake and may result in costly impairments.”

Wind, Sun to Strand $60 Billion of Coal Assets in Southeast Asia

The findings underscore how quickly advances in renewable energy are changing the power landscape. New wind and solar plants may become cheaper than coal in those countries, which are planning a combined $120 billion in coal investments, by the end of next decade. The analysis is also part of a growing type of advocacy that, instead of focusing on the dire outcomes of climate change, targets investors and financial institutions by forecasting economic risks.

Carbon Tracker has been funded by several groups and charities, including Bloomberg Philanthropies.

New coal plants require billions of dollars in upfront investments that will be paid back over years of selling electricity to homes and businesses. They helped fuel industrial revolutions in Europe and the U.S., and supply the vast majority of electricity in China.

Fastest Growing

And now they’ll be powering Southeast Asia’s economic expansion. Coal is the fastest-growing energy source in the region through 2040, according to the International Energy Agency. That’s due to abundant resources in places like Indonesia, relatively low costs and government policies that prioritize access to reliable and affordable electricity over decarbonization.

Falling renewable costs could unsettle that outlook, according to Gray. New solar plants may become less costly than operating existing coal projects by 2027 in Vietnam, 2028 in Indonesia and 2029 in the Philippines. As more of that cheaper solar and wind generation is added in those countries, coal plants will go idle more often and struggle to generate revenue needed to repay their loans, Gray said.

Companies are already heeding the warning signs, according to Wood Mackenzie Ltd. Beyond the plants already under construction in Malaysia and Vietnam that will boost the region’s coal capacity from about 40 gigawatts to 70 gigawatts when they’re completed, only a handful will be built, coal analyst Pralabh Bhargava said by phone.

‘Better Options’

“There are a lot of plants in the planning stage, but many of them won’t get built because there are better options in the future,” Bhargava said. He estimates renewables capacity will rise to about 100 gigawatts in Southeast Asia in 20 years from 8 gigawatts currently.

Vietnam, Indonesia and the Philippines have signed the 2015 Paris climate agreement, which calls for governments to limit carbon emissions. To help fulfill their commitments, the countries may pass regulations supporting renewable energy or requiring expensive pollution controls on fossil fuel plants, Gray said, accelerating the shift away from coal.

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

©2018 Bloomberg L.P.