When Xi Jinping spoke at the UN General Assembly in September, he realised one of the dearest-held dreams of climate activists. “No more new-build coal power projects abroad,” said the Chinese president, as he drew to a close an era that has seen the country spend tens of billions on coal power through its Belt and Road Initiative, the largest infrastructure initiative in history.
Xi’s announcement is significant not only because China’s 54GW international coal pipeline is equivalent to the entire electricity production capacity of Poland. Private investors will be reluctant to fund coal projects in developing countries without backing from the Chinese Government, which often played the role of “keystone” partner, says Leo Roberts from think tank E3G.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe new strategy is first and foremost an acknowledgment that it is now a “terrible decision to build a new coal power station in most of the world because you are unlikely to make your money back”, says Roberts.
Renewables are now cheaper than coal in 77% of markets, and 27% of the global coal fleet is unprofitable, according to Carbon Tracker, a think tank. The global pipeline of proposed coal power plants has collapsed by 76% since the Paris Agreement was signed in 2015, says E3G. Four times more coal capacity was cancelled than entered operation between 2016 and July 2021. The ongoing energy crisis has probably heightened these trends since.
President Xi’s speech failed to account for the fact that 224GW of the world’s 425GW of incomplete coal power plants is situated in China and India, according to data from GlobalData. There is a general belief this domestic pipeline could now “decline quite rapidly”, says Roberts, a view supported by the fact that certain provinces in China and India have said they will no longer build coal. However, given the lack of national policy to make this happen, it remains unclear whether that decline will be rapid enough for the world to decarbonise by 2050.
False hopes have previously arisen around China’s domestic coal policy, after the country’s coal consumption fell for three consecutive years between 2014 and 2016. Consumption has risen every year since then, however.
In Europe, Greg McNevin from campaigning group Europe Beyond Coal adds that, even as it becomes increasingly clear that coal no longer makes economic sense, there is a “disconnect” between reality and the way that politicians are planning to phase out coal, “which is getting starker with each day passing”.
“Germany’s 2038 coal phase-out adopted last year is already antiquated and being outpaced by reality,” McNevin says. “Poland [where coal provides 75% of power] says it will close its hard coal mines in 2049, but it is very hard to see that happening that late since the industry is already bankrupt.”
He adds that a transition that fails to plan effectively for the wind-down of existing industry could see coal workers not getting the support they need, as well as money being wasted bailing out fossil fuel companies to keep the power going.
While Western financiers may become increasingly reluctant to back international coal investments without support from public finance institutions, it will nonetheless take time for them to extricate themselves from the global coal pipeline.
“Contrary to the UK’s ambitions for COP26, coal is not yet dead,” says Areeba Hamid from pressure group the Bank on Our Future network. “Gaping loopholes in banks’ coal policies mean the institutions are still free to bankroll their coal clients.”
According to the Rainforest Action Network, in the five years since the Paris Agreement, 60 banks including Citi and Barclays provided a total of $119.5bn to the world’s 30 largest coal mining companies; and $212.2bn to the top 30 coal power producers, through corporate lending and underwriting. In 2020, banks’ financing of coal mining was 25% more than in 2016.
Modelling from the Intergovernmental Panel on Climate Change is unequivocal: rich OECD nations must completely phase out coal by 2031 to reach net zero by 2050, with the rest of the world doing so by 2037. This means any new coal plants currently under construction (178GW, says GlobalData) or brought online in recent years (373GW since 2015) must be closed long before the standard 40-year lifetime.
“The conversation in coal has moved to accelerated retirements,” says Roberts. “Countries in the OECD tend to have older fleets, which are easier to close, but it can be harder to justify [early] closures in the Global South”.
In the US, states like Colorado, Montana and New Mexico, which have introduced ratepayer-backed “securitised” bonds, offer an example of how coal plants can be closed early without utilities being left out of pocket. Securitisation is a financing tool that sees rates paid by electricity customers include tariffs that are directed towards coal plant investors, which allows those investors to still receive a return on their investment even as the coal plant is closed early.
With financing options more limited in emerging markets, initiatives like the Accelerating Coal Transition Fund (ACTF) will be important to facilitate early closures. ACTF is an investment vehicle designed to support the phase-out of coal in developing countries, which the G7 pledged $2bn towards in June 2021. Given the extent of coal’s reach, significantly greater funds will be needed to support developing countries in their energy transition.
The Asian Development Bank (ADB) has also announced a plan to speed up the retirement of coal-fired power plants in South East Asia in the run-up to COP26. In partnership with insurer Prudential and other financial companies, ADB’s plan is to build public-private funding vehicles to buy up coal plants and retire them within 15 years.
Elsewhere, the US, UK, France and Germany are in the midst of negotiations with South Africa over financing arrangements for Eskom, which generates more than 90% of South Africa’s power from a fleet of 15 coal plants. The utility has previously revealed plans to transition to renewable energy and cleaner gas-fired generation – but a debt burden of R402bn ($28bn) is preventing it from making these a reality. A spokesman for the French environment ministry confirmed to Bloomberg that discussions are ongoing.
“The energy transition is happening, but money is going to be needed for many poorer countries to finance that transition,” says Roberts. “Market forces mean that coal is essentially killing itself – but it still needs help to ensure this happens fast enough for us to keep on track for [only] 1.5 degrees of warming.”
This article originally appeared on Energy Monitor.
