A report has emerged stating that governments and investors hedging their bets on coal projects are at risk of losing as much as USD $600 billion (AU $1.02 trillion) in the wake of tumbling costs for renewable energy.
The report comes courtesy of non-profit financial think-tank Carbon Tracker who writes that “coal developers risk wasting more than $600 billion because it is already cheaper to generate electricity from new renewables than from new coal plants in all major markets.”
Analysts found that 60% of global coal-fired power plants are currently generating electricity at a rate higher than their renewable counterparts, forecasting that by 2030, “it will be cheaper to build new wind and solar capacity than continue operating coal in all markets.”
As it stands, there is 499 gigawatts of new coal power currently planned or under construction, at a cost of $638 billion. Carbon Tracker is warning that investors and governments alike are at risk of ever recouping the cost of construction, considering the average plant takes 15-20 years to cover their costs, and in the face of falling electricity production costs, they may never recoup the initial investment.
Earlier this month, Sir Christopher Hohn, billionaire hedge fund manager and co-founder of the Children’s Investment Fund Foundation (CIFF) made a public statement urging major financial institutions in the EU, UK and worldwide to reconsider their financing of coal. Hohn even threatened to sue HSBC, Standard Chartered and Barclays if hey continued to finance new coal-fired projects.
“Coal is the single largest source of greenhouse gas emissions globally and the risks of its continued use in the power sector are not being adequately addressed by regulators and the financial system,” he said.
Matt Gray, Carbon Tracker’s co-head of power and utilities said that considering “renewables are outperforming coal around the world and proposed coal investments risk becoming stranded assets which could lock in high-cost coal power for decades. The market is driving the low-carbon energy transition but governments aren’t listening. It makes economic sense for governments to cancel new coal projects immediately and progressively phase out existing plants,” he said.
Broken down into regions, the report states that China is at risk of losing $158 billion, with its 100GW of coal power in construction and a further 106GW planned. China already has 982GW of coal power and 71% of that coal-fired electricity production currently costs more than building new renewables.
In terms of India, $80 billion is at risk, with 37GW of coal-powered plants currently under construction and a further 29GW planned. The country has 222GW of coal-fired electricity production as of today, which just over half - 51% - said to cost more than the current price of producing renewable power.
The EU, with its 7.6GW of coal-powered plants planned, is at risk of hemorrhaging $16 billion thanks to projects in Poland and the Czech Republic. 96% of its 149GW current operating coal capacity costs more than the equivalent renewable-powered production.
In terms of the USA, no new coal-fired plants are planned, however, of its current 254GW coal capacity, nearly half - 47% - cost more than their renewable counterparts. Southeast Asia has 78GW of coal plants planned or under construction at a reported cost of $124 billion, which it stands to lose by 2030 when it’s projected that renewables will outperform them on cost.
Sriya Sundaresan, co-head of power and utilities and co-author, said: “Investors should be wary of relying on continued government support for coal when a phase-out will save their voters billions and make their economies more competitive.”
Authors of the report concluded that “failure to take these steps will exacerbate stranded asset risk and could result in overcapacity. This, in turn, will suppress power prices, create a negative investment signal for renewable energy and ultimately stifle the transition to a low carbon economy.”
Their methodology included comparing the leveled cost of onshore wind and utility-scale solar PV with the cost of coal and the long-run marginal cost of coal, as well as assessing the cost of running each coal plant, sourcing the cost of wind and solar deployment and maintenance as well as leveraging their own ‘Global Coal Power Economics Model’ (GPEM) which tracks 95% of coal plants operating, under construction or planned, which is updated every quarter.