Countries in the Asia-Pacific region account for 76% of the world’s thermal coal power generation, and many of these plants will need to retire early to meet global emissions targets.
But according to a new analysis, it’s possible to phase these coal plants out and transition to renewable energy while investors still make money.
The study, done by Australian, Singaporean and Chinese researchers, is published in Energy Policy.
“There is a drive and interest from a number of different investors like the Asian Development Bank, but also private sector investors, to finance the early retirement coal fired power plants,” lead author Professor Christoph Nedopil Wang, director of Griffith University’s Asia Institute, tells Cosmos.
Nedopil and colleagues looked specifically at 6 Chinese-sponsored coal-fired power plants in Vietnam and Pakistan.
“With investors wanting to invest in, and ideally also providing lower cost financing for, green projects, refinancing of these coal fired power plants becomes possible at a lower cost,” says Nedopil.
The researchers modelled the future performance of these stations under a variety of financing and geoeconomic scenarios.
“That brought us to the conclusion that, depending on the age of the coal-fired power plant, we can retire these plants earlier than currently envisaged, while reducing the financing cost and therefore increasing enterprise value,” says Nedopil.
The plants could be retired between 3 and 13 years earlier than planned, while still preserving or increasing profits for investors.
Younger plants were the most promising cases.
“These coal-fired power plants have a lot of debt on their balance sheet – at the beginning, 75% debt. On this debt, the owners of the coal fired power plant, of course, have to pay interest rates. And if the interest of the debt portion is very, very high, most of the free cash flows will go to service the debt, and particularly the interest rate,” says Nedopil.
“The young coal-fired power plants have this interesting window of opportunity for providing cheaper refinancing and therefore lowering interest rates.”
While the findings relate to 6 specific plants, Nedopil says they’d apply in plenty of other countries.
“It’s true for many different countries, particularly the ones that have young power plants. So it’s not as true for Australian coal-fired power plants, for example, that are typically older and where the debt portion on the balance sheet is much lower.
“Refinancing would still be possible and interesting for older coal-fired power plants, but you’d have to use a slightly different mechanism to retire them early.”
Nedopil says that Chinese stakeholders have taken interest in the team’s coal phase-out research.
“China is the largest sponsor of coal fired power plants in Asia – not just in China, but also in non-Chinese Asian countries,” he says.
But in 2021, President Xi Jinping announced that China would no longer be financing new overseas coal-fired power stations, and the country has rapidly increased its interest in renewables.
“I think there’s a momentum that even 5 years ago we didn’t think would have been possible,” says Nedopil.
“Now, putting that all into practice, and seeing real examples around this, I think will be very interesting. We’re still in the pilot phase. We have one or two early retirements of coal-fired power plants, for example, in the Philippines.
“But the scaling of this will be very tricky.”
Nedopil adds that replacing coal with renewables in Asian countries will not be a simple task.
“From a technical perspective, there’s growing electricity demand. And you can’t just put a wind farm or solar farm exactly where the coal-fired power plant is, because the conditions are not right.”
Then there’s employment: coal is a big employer in the region.
“Reducing the dependency on these jobs must also carefully be considered,” says Nedopil.
Fortunately, he says renewables are already a bigger employer across Asia than fossil fuels.
“This is quite a substantial developments over the last 5 years as well, that the green energy sector has already surpassed the brown energy sector in terms of employment.”