A $110 billion of coal plants owned by listed Asian utilities could become uneconomic as the world takes action to meet climate targets, and more than half the risk is concentrated in 10 companies, finds a new report from the financial think-tank Carbon Tracker released on Thursday.
Mumbai is the exchange with the greatest risk of asset stranding with $59 billion of coal assets at risk, followed by the Tokyo exchange with $22 billion at risk. Kuala Lumpur, Manila and Seoul each have around $6 billion at risk.
Carbon Tracker Power Analyst Lorenzo Sani said: “This report is a warning to investors: if you invest in listed companies which own coal plants, there’s a significant risk you may not recoup your investment or achieve the return you expected.
Risk is highly concentrated in a few companies. NTPC, India’s largest power utility whose main shareholder is the Indian government, is the single most exposed company with $19 billion of assets at risk — 96 per cent of its market capitalisation.
Just 10 Asian companies account for $65 billion of stranded asset risk.
Six are Indian, including four of the top five. After NTPC, Adani is the company most exposed with $12 billion of risk, nearly double its market capitalisation.
Two are Japanese, including J-Power, with $4 billion at risk, 1.5 times the company’s market capitalisation.
South Korea’s largest utility KEPCO is exposed to $6 billion of risk. Malaysian electric power utility TNB is exposed to $4 billion of risk, a year’s operating earnings.
UN Secretary General, Antonio Guterres has called phasing out coal from energy generation the single most important step to get in line with the 1.5-degree goal of the Paris Agreement, urging OECD countries to phase out coal by 2030 and non-OECD countries by 2040.
Exchanges across Asia face stranded asset risk if listed coal utilities close plants early. Hong Kong has $3.4 billion at risk and Singapore $1.6 billion despite having little or no domestic coal capacity.
Jakarta has $2 billion, Bangkok $1 billion, and Shanghai and Shenzhen with $0.8 billion.
The report warns investors should learn the lessons from the energy transition in Europe, where most coal plants are no longer economically viable. They face increasing competition from cheap renewables, growing carbon taxes, and closures are being driven by the market and government policy.
The report ‘Taking Stock of Coal Risks’, finds that worldwide $220 billion of investment in coal plants could be stranded if the world takes action to achieve the temperature goals set out in the Paris Agreement.
This includes $110 billion in listed Asian companies, $11 billion in companies listed on either the New York, European or Sydney exchanges, and another $100 billion in unlisted companies, including those with publicly traded debt.
The report warns investors that listed companies still planning to build new coal capacity are making a very risky bet.
The end of coal — the single biggest contributor to climate change — is in sight thanks to the UK securing a 190-strong coalition of countries and organisations at the UN climate negotiations (COP26), with countries such as Poland, Vietnam, Egypt, Chile and Morocco announcing clear commitments to phase out coal power.
Wednesday’s commitments, brought together through UK-led efforts, including the new ‘Global Coal to Clean Power Transition Statement’, encompass developed and developing countries, major coal users and climate vulnerable countries.
This includes 18 countries committing for the first time to phase out and not build or invest in new coal power, including Poland, Vietnam, and Chile, marking a milestone moment at COP26 in the global clean energy transition.
This statement commits nations across the world to: end all investment in new coal power generation domestically and internationally; rapidly scale up deployment of clean power generation; phase out coal power in economies in the 2030s for major economies and 2040s for the rest of the world; and make a just transition away from coal power in a way that benefits workers and communities.
This is on top of China, Japan and Korea, the three largest public financiers of coal, committing to end overseas finance for coal generation by the end of 2021, announced in 2020 during the UK’s incoming COP26 Presidency.
Agreements at the G7, G20 and OECD to end public international coal finance send a strong signal that the world economy is shifting to renewables. This could end over 40GW of coal across 20 countries, equivalent to over half of the UK’s electricity generating capacity.
Business and Energy Secretary, Kwasi Kwarteng said: “Today marks a milestone moment in our global efforts to tackle climate change as nations from all corners of the world unite in Glasgow to declare that coal has no part to play in our future power generation.”
“Spearheaded by the UK’s COP26 Presidency, today’s ambitious commitments made by our international partners demonstrate that the end of coal is in sight. The world is moving in the right direction, standing ready to seal coal’s fate and embrace the environmental and economic benefits of building a future that is powered by clean energy.”
To meet the goals of the Paris Agreement to limit global temperature rises to 1.5 degrees, the global transition to clean power needs to progress four to six times faster than at present.
With coal being the single largest contributor to climate change, phasing it out and delivering a rapid, inclusive transition to clean energy is essential if we are to keep 1.5 degrees alive.
Twenty-eight new members on Wednesday signed up to the world’s largest alliance on phasing out coal, the Powering Past Coal Alliance (PPCA) launched and co-chaired by the UK.
Chile, Singapore and Durban joined over 150 countries, sub-nationals and businesses, including finance partners NatWest, Lloyds Banking, HSBC and Export Development Canada. This accounts for more than $17 trillion assets now committed to PPCA coal phase-out goals.
There has also been a 76 percent cut in the number of new coal plants planned over the last six years which means the cancellation of 1,000GW of new coal plants since the Paris Agreement, roughly equivalent to around 10 times the UK’s total peak generating capacity.
Responding to the UK government securing coalition with commitments to phase out coal power, Jonathan Sims, Carbon Tracker Senior Analyst, told IANS: “Fresh country pledges to end the construction of new coal plants, which is vital if long-term climate goals are to be achievable, send a strong signal that coal is out for the count.”