The first inflection point is already well under way in Europe, the US and India, where new investments in coal capacity have ground to a halt mostly because of fierce competition from wind, solar and, in the case of the US, natural gas.
The second and third inflection points also appear imminent in both Europe and the US. Because of higher carbon and coal prices, onshore wind auctions in Germany this summer were lower than operating coal plants. Moreover, earlier this year, median bids for wind plus storage in Colorado were US$21 per megawatt-hour – lower than the running cost of all coal plants currently in operation throughout that US state.
This dynamic will soon drive similar photovoltaic (PV) cost reductions in the thermal coal industry’s last major growth markets: Southeast Asia.
Until now, Southeast Asia has remained stubbornly resistant to these trends. Resistance is due to the nascent nature of renewable energy in the region, but this looks set to change as governments introduce effective policies and changes to market structures to drive down the cost of renewable energy and as foreign investors become more comfortable with deploying capital.
Standard Chartered, RBS (Royal Bank of Scotland), Marubeni and Nippon Life have announced their withdrawals from coal in the region, leaving institutions like HSBC and MUFG (Mitsubishi UFJ Financial Group) that still fund Southeast Asian coal exposed. Analysts at Citi note an 80% reduction in coal financing since 2010 and an increasing challenge attracting cash for new projects, which is likely to drive up coal prices, resulting in higher bills for consumers.
For instance, compared with operating existing coal plants, by 2027 it will be cheaper to build new solar PV in Indonesia and Vietnam, and new onshore wind in Vietnam by 2028.
Indonesia, Vietnam and the Philippines currently plan to spend a total of $120 billion on new coal investments. As electricity consumers and taxpayers continue to demand the lowest-cost options, Carbon Tracker analysis exposes not only the economic viability of new investments in coal power, but the long-term future of the existing fleet.
Given that power-sector investments have multi-decade time horizons, without decisive action from investors and policymakers, this paradigm shift in power generation economics could result in asset stranding. Carbon Tracker found that coal-power investors in Vietnam, Indonesia and the Philippines risk losing up to $60 billion in a scenario where the temperature goal in the Paris Agreement is met.
Global trends in renewable energy should serve as a warning to investors and policymakers in Southeast Asia. They need to act now to minimize stranded assets and avoid high-cost energy lock-in.
