Cambodia’s embrace of new coal power projects is making the Southeast Asian state “less attractive” to international brands producing in the country.
In a letter addressed to the Cambodian government and seen by the Nikkei Asian Review, several major companies expressed concern about the country’s plans to nearly triple the amount of power it generates from coal in coming years.
The planned surge follows years of drought which have exposed limits to the hydropower on which the country relies.But the move has drawn concern from prominent brands including clothing giants H&M, Adidas, Puma and Gap, as well as U.S. bicycle manufacturer Specialized and Cambodian-Thai concrete firm Chip Mong Insee.
In the letter — set to be delivered to authorities this month — the companies warned that Cambodia’s pursuit of new fossil-fuel power projects, instead of embracing renewables like solar and wind, clashed with their corporate targets to reduce carbon emissions.
“Electricity decisions made today will lock Cambodia into a future that appears to be the opposite of global and regional trends and less attractive to our industry,” the letter read.
“Countries that today prioritize [renewable energy] and a green future will avoid wasting money on outdated technologies that will soon be obsolete and expensive,” it added.
The coal concerns come as Cambodia prepares to lose some vital European Union trade privileges on Aug. 12 over what Brussels has called “systematic” human rights violations.
In an email to Nikkei, H&M said that, amid the confluence of such environmental and economic issues, it was re-evaluating its future production strategy in the country.
The company — which wants to reduce greenhouse gas emissions in its garment production by 59% of 2017 levels before 2030 — added that “countries who see coal as a viable energy source for the future will lose out.”
“How [countries] respond in terms of environmental and social protections and promotion will impact sourcing attractiveness for brands moving forward,” it said. “The global sourcing landscape of pre-COVID-19 will undoubtedly not be the same in the future.”
A spokesman from Cambodia’s Ministry for Mines and Energy did not respond to a request to comment.
Competition in the low-cost garment segment, where Cambodia sits, is fierce. COVID-19, moreover, has slammed Asia’s apparel sector, opening up manufacturing capacity in the region and giving buyers who remain more leeway to shift production locations.
The brands’ letter pointed to “various regional free trade agreements” that provided attractive trade alternatives to Cambodia amid “differing national commitments to renewable energy.”
Vietnam, where solar installation has skyrocketed from 100 megawatts in 2016 to 4.5 GW last year, was highlighted as an “impressive” example in the region. Hanoi has committed to generating 21% of its energy from renewables by 2030, while also looking to remove 15 GW of coal generation.
Cambodia, which generates about three-quarters of its energy and imports the rest from neighbors, has not set a renewable energy target.
Its domestic generation — mostly split between coal (44%) and hydro (45%) — took a hit in 2019 as drought starved the country’s hydro dams amid a surge in demand, leading to widespread blackouts.
Following this, a slew of proposed projects emerged. While these include some solar, with plans to have 410 MW spread across eight solar projects by 2022, the lion’s share is coal.
Cambodia now has at least four coal plants in the pipeline that would add 1.7GW of electricity by 2024, an amount almost triple the 640MW currently generated by coal in the country.
Its government has also signed a deal to purchase 2.4GW from two coal-fired plants in Laos that would service Cambodia exclusively.
These plans would see Cambodia’s energy mix split 80/20 in favor of fossil fuels over renewables by 2030. The country currently records about 50% of renewables in its energy mix — mostly hydro, which raises its own ecological concerns.
Solar contributes less than 2% of Cambodia’s power.
Experts fear the country is locking itself into outmoded and inflexible technology with projects that avoid a public tender process.
“Cambodia is at a pivotal time for their electricity planning and has so much to gain to support the economy from clean energy,” said Bridget McIntosh, Country Director of EnergyLab Cambodia.
“While the region is moving away from coal, Cambodia’s current scenario — with so much coal — will lock in an old technology that is proven to be more expensive and not flexible. Using a competitive bidding process for new energy supply and peak demand will help Cambodia reduce it’s overall electricity prices.”
Courtney Weatherby, a Southeast Asia research analyst at the Stimson Center, an independent U.S. policy think tank, said Cambodia’s direction, if left unchanged, would likely result in costly “stranded assets” that continue to drain public resources for years to come.
“The coal plants that are not projected to come online for at least five to eight years from now, generally speaking, are already starting to look non competitive now,” she said.
“In five to eight years, there’s a very strong economic argument that they will be stranded assets and there will have been a lot of investment in projects that are no longer competitive.”