Japan risks $71b of stranded power assets over coal push

The country still has 11GW of under-construction coal capacity.

Japan could wound up with $71b of stranded coal power assets as renewables become cheaper in the country and if the direction of policies turn stagnant, according to a report by thinktank Carbon Tracker, Future Initiatives at The University of Tokyo, and CDP. This is if under-construction and operating coal capacity is forced to shut down in a manner consistent with the temperature goal in the Paris Agreement.

Japan is still investing heavily in coal power. It has over 11GW of under-construction, permitted or pre-permitted coal capacity as of 20 September 2019, which translates to an overnight capital cost of $29b.

“There is a growing expectation that coal will face fierce competition from renewable energy in the future, calling into question not only new investment decisions but the long-term viability of the operating fleet,” the report said.

The country’s policies are also moving away from support of coal power. The recent Strategic Energy Plan (SEP) stated for the first time in the history of Japan’s energy policy that renewables should become the main source of power and efforts should be made to decarbonise the energy sector by 2050.

The report’s finance models utilised a breakeven scenario analysis to understand how key variables, such as electricity tariff, coal price or capacity factor, could compromise project viability.

“Our analysis shows that building coal power today equals high-cost power and fiscal liabilities tomorrow. Japan’s planned and operating coal capacity is partially protected by regulations that give coal generators an unfair advantage in the marketplace,” the report said, adding that these regulations are sheltering high-cost coal from significant cost declines in renewable energy.