$71 billion in Japanese coal assets at risk from cheaper renewables

Japanese utilities turn away from coal plans amid a green energy boom. (Reuters/File)
Updated 06 October 2019

$71 billion in Japanese coal assets at risk from cheaper renewables

  • Offshore wind and large-scale solar PV could be cheaper than the long-run marginal cost of existing coal plants by 2025 and 2027 for onshore wind, the report says

LONDON: As much as $71 billion in Japanese coal assets could be at risk as the economic viability of plants is undermined by cheaper renewable energy, research by the University of Tokyo, Carbon Tracker and the Carbon Disclosure Project showed on Sunday.

The report, called Land of the Rising Sun and Offshore Wind, used project financial models to analyze the economics of new and existing coal plants in Japan.

It found that Japan’s planned and existing coal capacity could be jeopardized by low utilization rates and cheaper renewable energy, namely onshore and offshore wind and large-scale solar photovoltaics (PV). Offshore wind, solar PV and onshore wind could be cheaper than new coal plants by 2022, 2023 and 2025 respectively.

Added to that, offshore wind and large-scale solar PV could be cheaper than the long-run marginal cost of existing coal plants by 2025 and 2027 for onshore wind, the report said.

To meet a globally agreed goal of limiting temperature rise to below 2 degrees Celsius this century, planned and operational coal capacity would need to be shut down and Japanese consumers could face $71 billion in higher power prices as the cost of stranded coal assets is passed on.

Of this amount, $29 billion could be avoided if the Japanese government reconsidered the development of planned and under construction capacity straight away, according to the report.

Coal generation

Coal-fired power generation is a major contributor to carbon dioxide and other pollutants that contribute to global warming, which is causing heat waves, rising sea levels, droughts and other extreme weather events.

The Japanese government has said renewables should be the main source of power and the country should aim to be carbon-neutral as soon as possible after 2050, to meet the Paris global climate agreement.

However, the Fukushima nuclear plant disaster in 2011 and shutdown of Japan’s reactors increased its fossil fuel import dependence to nearly 95 percent in 2016, from 80 percent in 2010, and resulted in carbon emissions from power generation rising by a quarter, according to the International Energy Agency.

According to a Reuters survey, Japan plans to build nearly 12.6 gigawatts (GW) of new coal capacity in the next decade.

Japan’s coal generation capacity totalled around 43 GW at the end of March and is expected to reach 52 GW in 2023, according the country’s grid monitor.

Globally, previous research by Carbon Tracker has calculated that 42 percent of coal plants in operation were likely unprofitable last year and at least 72 percent could be unprofitable by 2040.


Saudi central bank ready for any Aramco-related liquidity squeeze

Updated 26 min 4 sec ago

Saudi central bank ready for any Aramco-related liquidity squeeze

  • Aramco’s long-awaited listing on the Saudi Arabian stock exchange is due on Wednesday
  • The central bank has set up a team to closely monitor all indicators in the banking system during the IPO

RIYADH: Saudi Arabia’s central bank is ready for any liquidity squeeze from Saudi Aramco’s initial public offering (IPO) and is closely monitoring local banks, its governor said, after heavy demand for loans to buy the stock.
Aramco’s long-awaited listing on the Saudi Arabian stock exchange is due on Wednesday, completing the largest IPO on record and raising $25.6 billion from retail and institutional buyers who took on debt to back their orders.
“We don’t rule out that there might be squeeze of liquidity later on, that’s why I am ready and stand ready to intervene,” Ahmed Al-Kholifey told Reuters.
Saudis had clamoured to own part of the “crown jewel” of the world’s top oil exporter in the lead up to its IPO, with Aramco’s institutional tranche 6.2 times oversubscribed, while more than 5 million individuals subscribed to a retail tranche.
The Aramco IPO is the centerpiece of the Saudi crown prince’s plans to diversify the economy away from a reliance on oil, as the money will be reinvested by the Saudi Public Investment Fund (PIF) to promote growth in other sectors.
During the IPO process, the loan-to-deposit ratio (LDR) at some banks had exceeded a 90% “soft guideline” set by the regulator, but the ratio improved after the allocation process ended, Kholifey said in an interview.
“So far no bank has come to ask for liquidity from the central bank. We are ready to intervene in case there is a squeeze of liquidity but most of the indicators right now are not worrying,” Kholifey added.
MONITORING TEAM
The central bank has set up a team specifically to closely monitor all indicators in the banking system during the IPO process, and it held meetings on a daily basis.
“I don’t think in the near future they will settle, we have to keep monitoring the situation until we see things are normal, especially the LDR,” he said.
Saudi corporates snapped up the biggest percentage of allocations to the Aramco IPO at 37.5% and Saudi government institutions were allocated 13.2% of the institutional tranche, the latest figures issued by the deal’s lead bank showed.
Kholifey said that less than 2% of retail subscriptions were leveraged, and most of the bank financing went to high-net-worth individuals and institutional buyers.
He expects most of the IPO proceeds to be invested locally by the PIF, given that most of subscription were internal.
Riyadh scaled back its original IPO plans, scrapping an international roadshow to focus on marketing Aramco to Saudi investors and Gulf Arab allies. It has remained silent on when or where it might list Aramco stock abroad.