Wedoany.com Report-Oct 14, Adding new coal plants and retrofitting existing ones are a larger risk to the transition.
Younger coal plants in the Association of Southeast Asian Nations (ASEAN) region could be profitably retired by 2040 — the deadline under a United Nations global roadmap to reach climate targets — under the right policy conditions.
In 16 years, the average age of existing coal plants in the region will have been 28 years, beyond the average lifetime of many power purchase agreements, (PPA) and not far from the global average retirement age of 36, according to Global Energy Monitor.
“The larger risks to a coal-to-clean transition in the ASEAN region are adding new coal plants and extending the lifetime of existing plants through costly retrofits,” it said in a report released in August.
Asian Power sought insights from industry experts on how plant operators can meet the criteria for a profitable transition to renewable energy.
A plant owner may argue there are losses from the early termination of a PPA that was designed for 25-30 years, but a payment could be made tied to the remaining value of the plant that satisfies the owner. This could actually work in the owner's favour as the energy system becomes more clean and the demand for power from old coal plants decreases.
If you sell the plant now, you are guaranteed a return versus the uncertainty of the future, particularly after the PPA contract ends. Even better if that sale is used to fund more renewables and the income from that.
We see this in the US in some cases, where a few coal plants have closed already because they cannot compete with cheaper renewable power, or their output is reduced and they are marginally profitable with an uncertain future. There are also mechanisms to offset lost potential profits through market mechanisms such as carbon credit sales.
Before 20 years, a coal plant could lose a lot by shutting down — they would be on the hook for outstanding debt and they would lose the future value of all annual profits for the duration of the PPA contract. So they wouldn’t be able to repay the debt to the bank or the equity to the owner/investor, unless an alternative financing arrangement is made.
Right now, just 16% of the region's coal plants would be under 20 by 2040, but any new coal plants risk increasing this percentage and the potential for stranded assets.
We're getting there, but there's still work to be done. In Malaysia, for example, the Prime Minister announced in 2021 they will not build any new coal plants in 2024. Just a few months ago, they said they're going to halve their coal fleet by 2035 and phase out coal power by 2044.
What we've seen with countries like the UK is when a country commits to phasing out coal, and they're clear about it, then the policy landscape is clear, and a lot of times, those coal retirements that are planned actually accelerate, and so things might speed up. So just by saying 2044 makes 2040 possible.
In the Philippines, there's a very big grassroots movement against coal that is kind of pushing the country towards phasing out coal. And the central government has limited new coal plant permits in the country, although there have been some exceptions.
And then you look at Indonesia and Vietnam, which both have these economic transition partnerships. So the intention is there; the problem is they're still proposing new coal plants in both countries, and the proposals are just not in line with the emission goals in the JETP (Just Energy Transition Partnership).
So we would argue that in order to bring the ambition in line with the JETP, those proposals should be cancelled.
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