Some $71b of Japanese coal assets at risk from cheaper renewables

As much as $71 billion of 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 analyse the economics of new and existing coal plants in Japan.

It found that Japan’s planned and existing coal capacity could be jeopardised by low utilisation 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.

Japan’s industry ministry declined to comment on the report. “We don’t comment on each report, but Japan plans to reduce inefficient coal-fired power plants as much as possible while enhancing development of carbon capture, utilisation and storage technology,” Katsushi Takehiro, director of the coal division at the Ministry of Economy, Trade and Industry, told Reuters.

The ministry did not see coal-fired power plants becoming stranded assets by 2030 or 2050, he added.

In a long-term emission reduction strategy adopted in June, Japan said it aims to cut its dependency on coal-fired power generation to the “lowest possible levels”, but stopped short of giving a specific target.

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 a 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 per cent in 2016, from 80 per cent 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 per cent of coal plants in operation were likely unprofitable last year and at least 72 per cent could be unprofitable by 2040.

Meanwhile a key Japanese economic index fell in August and the government on Monday downgraded its view to “worsening”, indicating the export-reliant economy might face slipping into recession.

Concerns have risen as the US-China trade dispute and slowing external demand dent Japan’s economic recovery.

The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, slipped a preliminary 0.4 point in August from the previous month, the Cabinet Office said on Monday.

The separate index for leading economic indicators, a gauge of the economy a few months ahead that’s compiled using data such as job offers and consumer sentiment, dropped 2.0 points from July, the Cabinet Office said.

The last time the government gave a “worsening” assessment was for April data.

The downgrade could add to speculation the government will hike spending, as Prime Minister Shinzo Abe on Friday said he was ready to take “all possible steps” if risks to the economy intensified following a sales tax hike and rising global uncertainty.

Reuters