Banks Shunning Coal Financing Bodes Badly for New Plants in Asia
Half of planned projects in Indonesia, Vietnam still unfunded.
(Bloomberg) -- Lenders backing away from coal financing have tipped the scales against the dirtiest fossil fuel in Southeast Asia, raising the prospect that many new power plants will never be built, according to BloombergNEF.
About half of the proposed 41 gigawatts of coal-fired capacity in Indonesia and Vietnam haven’t secured funding, and plans by banks in Japan, South Korea and Singapore to exit the sector increase the risk they never will, BNEF said in a report Tuesday. The two Southeast Asian countries have the largest pipeline of coal-fired projects globally after China and India.
The research highlights the pivotal role financial institutions play in the fight against climate change. In recent years, Asian banks have joined their European and American counterparts in recognizing the need to transition away from coal. Factors driving the move include cheaper renewable energy, and increasing risks of stranded assets and environmental costs.
Last year “marked the biggest exodus of Asian financial institutions from new thermal coal investments,” said BNEF analyst Allen Tom Abraham in Singapore. This affects “the viability for many new coal power projects in Southeast Asia, since it would be difficult to find experienced investors and cheap capital to build these projects.”
Regional banks including DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and Mitsubishi UFJ Financial Group are among those that announced plans last year to stop funding new coal power projects. Some Japanese and South Korean lenders said they would stop lending to low-efficiency plants.
It isn’t the end of the fossil fuel in the region seen as one of the last bastions of new coal power plants. About 20 gigawatts in the pipeline in Indonesia and Vietnam have achieved financial close, with $38 billion in capital committed to build these projects.
Southeast Asian governments wanting to add coal power to deliver cheap and reliable electricity to their people will have to reduce project risks through guarantees against default from debtors and long-term offtake agreements to entice investors.
There are still lenders that haven’t committed to phasing out coal financing. China could fill the void left by other investors who pulled out, especially given the slowdown in new coal power projects domestically, according to Abraham. China mines and burns half of the world’s supply.
To contact the reporter on this story: Dan Murtaugh in Singapore at dmurtaugh@bloomberg.net
To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Jasmine Ng, Jason Rogers
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