Why build 600 new unprofitable coal plants? | Environment| All topics from climate change to conservation | DW | 30.06.2021
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Why build 600 new unprofitable coal plants?

Governments in Asia are planning 600 new coal plants that could lose investors $150 billion and derail efforts to limit temperature rise in line with climate targets, according to a new report. But why?

Smoke spews from smokestacks, power lines in the foreground

An existing coal power plant in Shanxi Province, China: Hundreds of similar new plants are on the drawing board

In Asia, coal power is still king — despite the fact that renewables are getting ever cheaper. 

China, India, Indonesia, Japan and Vietnam have signed up to build 80% of the world's planned new coal plants, according to a new report from the London-based financial think tank Carbon Tracker.

But researchers say the coal plants are not only financially and environmentally unviable; they'll also endanger the Paris climate goals that these countries have  ratified. 

As the rest of the world phases out coal power, and many existing plants become stranded assets, the big question is: Why build 600 new unprofitable coal-fired power plants?

Motivation for coal is nonfinancial

A closer look at the sums confirms that they don't add up. 

The same five Asian countries already operate around 75% of the current global coal fleet — 55% is in China, and 12% in India. The report warns that around 27% of this existing capacity is already unprofitable, and another 30% are only just breaking even.

Coal-fired power plant in Chhattisgarh, India

New coal-fired power plants to India, like this one in Chhattisgarh, are among the 75% of the world's coal plants located in just five Asian countries

Meanwhile, new renewables could replace around 80% of the world's coal-fired plants and immediately save money, say the report's authors. They predict that by 2026, nearly 100% of global coal capacity will be more expensive to run than building and operating new renewables.

"It's getting displaced in the marketplace by something that's cheaper to run, which leads to stranding," said Catharina Hillenbrand Von Der Neyen, Carbon Tracker's Head of Power and Utilities, of the financial viability of coal.

If the world decarbonizes in line with the Paris climate targets, $220 billion (€185 billion) of global operating coal plants are deemed at risk of becoming stranded assets. 

This is partly due to growing competition from renewables, which is causing a decline in coal plant usage, and hence profitability.

New coal plants destined to fail

If coal is "uneconomic and uncompetitive you would not pursue it," said Hillenbrand Von Der Neyen. "Unless you have another reason that is nonfinancial."

Watch video 07:04

Explainer: The history of coal

This could include "security of supply perceptions," she said. Sometimes it's "incumbency," whereby an existing government wants to retain established economic structures. 

For Li Shuo, Beijing-based policy adviser with Greenpeace East Asia, China's plan to build 187 gigawatts of new coal plants is also linked to the perception that they will generate GDP and jobs, and importantly aid the pandemic recovery. 

"They are also seen as a temporary COVID economic recovery measure by local governments," he said.

But Shuo believes the new plants are destined for failure. 

"China already has more plants than it can possibly use," he said. "The result is every plant will lose money in the medium to long run."

The only hope he says is a sudden policy shift to ban new coal projects — as was the case across Europe.  

"Doing so is not only good for the environment, but ultimately will enhance China's economic competitiveness."

A large installation of floating solar panels

Cheaper than coal: One of the world's largest floating solar energy plants, with a capacity of 40 MW, in Huainan city, China

Hope for a policy shift to renewables

If the planned new coal capacity is not part of a rational business model, especially for investors, there is some hope that market forces and a pressure to adhere to climate goals could inspire a policy shift.

Bangladesh set the tone for such a turnaround, when it announced this week that it was canceling 10 of 18 planned new coal-fired power plants. Economics and climate were the driving factors, according to government officials.  

"There is a concern globally about coal and we have to adhere to that," Mohammad Hossain of the Bangladesh energy ministry told Reuters. "The government is committed to reduce carbon emissions."

This move reflects a recent "rethinking on coal in Asia,” said Shuo, adding there are "signs of a shrinking appetite for China to invest in coal along the Belt and Road" — a reference to the new Silk Road infrastructure project. "We hope this will become the norm."

Such a policy shift might resolve the apparent contradiction between China's coal buildup and its recent commitment to decarbonization by 2060.

In the end, taxpayers will have to bear much of the cost of the money-losing new plants, according to the report. Of the $150 billion that Carbon Tracker estimates says could be lost, consumers and taxpayers will foot the bill in countries where coal power is subsidized and propped up with public money. 

Paris targets hang on Asia

Financially unviable coal plants across Asia might appear illogical. However, if only a small proportion are built and operated, it will put the Paris target of 1.5 degrees Celsius (2.7 degrees Fahrenheit) of warming at risk. 

"Pretty much all" of the planned coal plants that make up 80% of new capacity globally would have to be canceled to meet the target, according to Hillenbrand Von Der Neyen.

"Progress for climate and alignment with Paris now really hangs on Asia," she said. 

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