Coal assets stranded in Southeast Asia

Coal is now more expensive than renewable energy – and while this is good news for the climate, it’s bad news for developing countries who have invested in coal. Renato Redentor Constantino looks at how Japan and Korea are divesting, and the IMF’s opinion on stranded assets.

A barge from Samarinda coal mine on the Mahakam river, Indonesia

A barge transports coal on the Mahakam river, Indonesia: the country is subsidizing coal, despite its risks (Photo by Andrew Taylor/WDM, CC BY 2.0)

Countries in Southeast Asia who have invested in coal are finding themselves high and dry.

Because of competition from renewable energy, the Philippines is facing at least $21 billion in stranded coal plant assets, representing all new proposals in the pipeline. The figure represents over a fourth of the country’s national budget.

In Indonesia, 133 trillion Indonesian Rupiah is projected to be spent in 2021 to subsidize its thermal coal sector expansion, but the allocation can only delay, not prevent, what is taking place globally.

But it appears that the international development community is finally addressing the financial risks of investing in coal. Key commentary from officials attending the annual International Monetary Fund and World Bank meetings held in Bali shows that the demise of coal power in Southeast Asia is on its way.

“Coal projects… could also become stranded assets in the future”

On stage with World Bank CEO Jim Kim, IMF chief Christine Lagarde was asked about the looming crisis linked to unrecoverable coal investments in Southeast Asia.

The question to Lagarde was pointed: is the IMF going to look into the impact of stranding coal power assets on Southeast Asia’s economic stability? And did she think the region’s central banks could afford to downplay stranding coal power assets and energy transition risks?

Lagarde was initially evasive in her response, dwelling mostly on the importance of eliminating fossil fuel subsidies. But she eventually said she did not answer the question right away because she did not know the numbers. Pressed again whether the IMF would look into stranding coal—the subprime asset of the future—Lagarde’s answer, captured on video, was clear, “Yes! Absolutely. Yes!”

The IMF chief’s response is welcome and many hope she will follow through. The energy transition is already well underway and it is best for the region’s financial regulators to come to terms with new and rapidly changing realities in the power sector.

Currency fluctuations, regulatory environments that take into account techno-economic change, and the massive and still growing risks associated with the ongoing global energy transition are together hastening the demise of coal power in Southeast Asia today.

Lagarde did well to speak with clarity. The V20 Group of Finance Ministers of Vulnerable Countries echoed the concern, stating in their October 14 ministerial communiqué their intention to “promote International Financial Institution responses to ensure macroeconomic stability addressing energy transition risks and opportunities and the stranding of carbon intensive investments.”

During the meetings in Bali, Philippe Le Houèrou, CEO of the International Finance Corporation (IFC), published a statement indicating the importance of helping to green portfolios and reduce “exposure to coal projects, which are not only bad for the environment but could also become stranded assets in the future.” IFC is the private sector arm of the World Bank Group.

Le Houèrou said the IFC wants “to develop a green equity investment approach to working with financial intermediaries that formally commit upfront to reduce or, in some cases, exit all coal investments over a defined period.”

IFC’s public affairs head, Aaron Shane Rosenberg, who was also in Bali, demonstrated welcome candor when he was asked about challenges they expected to face regarding unrecoverable stranded coal investments. In an emailed response, Rosenberg said IFC is working with companies to help them identify stranded assets.

“We are only at the very beginning of being able to do this ourselves. We are working to better identify all of the risks… in our own carbon pricing analysis,” said Rosenberg. He added IFC has already started discussing with clients their ability to identify and disclose their own carbon risks as well.

Coal phaseouts in Japan and Korea

Earlier, Marubeni Corporation, the biggest player in Japan’s power generation business, which has also been actively involved in the construction of coal plants across Asia, announced it was moving away from coal.

In a statement that sent shockwaves across Southeast Asia, Marubeni said it “recognizes that climate change is a major issue shared by all of humanity. It is a problem that threatens the co-existence of the global environment and society, a problem that has an enormous effect on Marubeni’s business and its shareholders, and a problem that Marubeni believes must be dealt with swiftly.”

As a result, Marubeni said it will cut its coal-fired power net generation capacity of approximately 3GW in half by 2030. In addition, Marubeni made a commitment not to enter into any new coal-fired power generation business unless under exceptional circumstances. Marubeni’s total electricity business amounts to 13,620 MW. It has plants in Indonesia, the Philippines and Vietnam, among other countries.

In addition, coal is losing ground in South Korea. South Chungcheong, a province home to half of South Korea’s coal power generation, recently joined the Powering Past Coal Alliance, becoming its first member in Asia. The province has 30 units of coal-fired plants representing 18 GW and is home to the second and third largest coal-fired plants in the world. South Chungcheong announced it will close 14 coal power units by 2026, and some of them will be transformed into environmentally-friendly power plants.

South Chungcheong’s announcement was on October 2. Two days later, South Korea’s two state-run occupational pension funds said they will halt further investments in coal power plans while increasing their renewable energy portfolios. The South Korea’s Government Employees Pension Service (GEPS) and the Teachers’ Pension (TP) both “announced the plan in line with the Moon Jae-in administration’s initiative for a low-carbon economy.”

In a statement read in a joint press conference in Seoul, the institutions said they “will no longer take part in the financing of any coal plant development projects here and abroad.” According to the Yonhap News Agency, GEPS and TP are “the two biggest public pension funds in South Korea after the state-run National Pension Service”, overseeing together over US$20 billion as of the end of 2017.

While Japan and Korea are moving away from coal, the World Bank and IMF are just beginning to talk about the dangers of stranded assets. Vulnerable countries risk losing billions by investing in coal rather than renewables, and will need responses from international financial institutions as soon as possible.

Renato Redentor Constantino is the executive director of the climate and energy policy group Institute for Climate and Sustainable Cities. He is an international climate policy analyst and climate finance expert with over two decades of experience in the field, and has been engaged in the UN climate negotiations since 2001. He was senior advisor to the Philippine presidency of the Climate Vulnerable Forum (CVF) and the Vulnerable 20 Group of Finance Ministers, and has been an advisor to the Philippine delegation to the UNFCCC for several years. He is currently a member of the CVF Advisory Group and board member of the People’s Survival Fund, the Philippines’ first legislated adaptation funding mechanism.


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