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A new analysis from independent financial think tank Carbon Tracker has concluded that it would be cheaper to build new solar PV and onshore wind capacity in Indonesia, Vietnam, and the Philippines by the end of the next decade rather than continue operating existing coal-fired power plants.

Carbon Tracker published three new country briefings on Monday outlining how meeting the climate goals set out in the Paris Agreement could affect the role of coal-fired power plants in Indonesia, Vietnam, and the Philippines. Specifically, according to Carbon Tracker, the slow advance of government policy, market liberalization, and renewable technology advances across the three countries could end up costing coal power plant owners up to $60 billion in stranded assets.

As a result, the cost of building solar PV and onshore wind will be cheaper than operating existing coal plants by some time late in the next decade, depending on the country and technology.

The countries of Southeast Asia have often been held up as countries in need of continued coal-fired power generation to support increasing economy and population growth. Between 2010 and 2017, coal generation increased by 72% in Vietnam, in excess of 50% in the Philippines, and 53% in Indonesia. Earlier this year, London-based financial services giant HSBC revealed that it would cease financing all new coal-fired power plants around the world with three exceptions — Bangladesh, Indonesia, and Vietnam.

For these countries, the logic was sound — follow in the footsteps of those countries which have come before; use fossil fuels as a means to provide cheap power while the economy and population grows and then look to transition in the future. However, due to the rapidly declining costs of renewable energy technologies such as solar and wind, both onshore and offshore, the average coal unit in these three countries is expected to be retired after only 15 years, rather than the more traditional 40 years that was common for countries which have come before.

As a result, the financial equation simply doesn’t add up any more, and with the declining costs of renewables, there is no need for these countries to bother with the traditional coal-fired power step.

“Given that power sector investments have multi-decade time horizons, investors and policymakers need to act now to minimise stranded assets and avoid high-cost energy lock-in,” said Matt Gray, head of power and utilities at Carbon Tracker.

The companies at most risk from the potential of their coal assets turning into stranded assets include PT PLN Persero in Indonesia which stands to risk $15 billion, San Miguel Corporation in the Philippines which stands to risk $3.3 billion, and EVN in Vietnam which stands to risk $6.1 billion.

Stranded Risk Summary Table – Refer to Individual Country Briefs for Full Breakdown

According to Carbon Tracker’s Matt Gray, Vietnam has $40 billion worth of coal capacity currently under construction and in planning, the Philippines has $30 billion, and Indonesia boasts $50 billion.

“As consumers and tax-payers continue to demand the lowest cost options, this analysis exposes not only the viability of new investments in coal power but the long-term role of the existing fleet,” explained Matt Gray. “Thanks to the dramatic fall in the cost of renewable energy, phasing-out coal power by 2040 will likely prove to be the lowest cost option for these South East Asian nations. Policymakers should act now, to avoid stranded coal assets as the rapid pace of the energy transition becomes increasingly apparent to investors.”

As mentioned earlier, Carbon Tracker expects that the cost of building solar PV and onshore wind will be cheaper than operating existing coal plants by some time late in the next decade, depending on the country and technology. More specifically, then, Carbon Tracker expects it would be cheaper to build new solar PV than operate existing coal plants in Indonesia as early as 2028.

The Cost of New Renewables versus the Capacity-Weighted Operating Cost of Coal under Different Fuel Prices in Indonesia

Operating coal cost is capacity-weighted and based on long-run marginal cost, which includes fuel, variable O&M and fixed O&M. Coal is sourced domestically from the Kalimantan and Sumatra regions. The low range assumes $24/t for lignite, $38/t for sub-bituminous and $52/t for bituminous coal. The high range assumes $35/t for lignite, $55/t for sub-bituminous and $75/t for bituminous coal. Calorific values assumed at 3,713 kcal/kg, 4,897 kcal/kg and 5,316 kcal/kg respectively

For the Philippines, Carbon Tracker expects that it will be cheaper to build new solar PV than operate existing coal-fired power plants by as early as 2029.

The Cost of New Renewables versus the Capacity-Weighted Operating Cost of Coal under Different Fuel Prices

Operating coal cost is capacity-weighted and based on long-run marginal cost, which includes fuel, variable O&M and fixed O&M. Operating coal cost is capacity-weighted and based on long-run marginal cost, which includes fuel, variable O&M and fixed O&M. Coal is mostly sourced from Indonesia. The low range assumes $25/t for lignite, $40/t for sub-bituminous and $55/t for bituminous coal. The high range assumes $45/t for lignite, $60/t for subbituminous and $90/t for bituminous coal. Calorific values assumed at 3,713 kcal/kg, 4,897 kcal/kg and 5,316 kcal/kg, respectively

Finally, Carbon Tracker expects that the cost of building new solar PV will be cheaper than operating existing coal plants by 2027, and the cost of building new onshore wind will be cheaper by 2028.

The Cost of New Renewables versus the Capacity-Weighted Operating Cost of Coal under Different Fuel Prices

All of this highlights a need to shift business-as-usual policies for the governments of Indonesia, Vietnam, and the Philippines, and finance institutions supporting the development of these countries. As mentioned earlier, HSBC intends to keep open financing for new coal-fired power plants in both Indonesia and Vietnam (as well as Bangladesh). HSBC put in place its own boundaries on this policy — limiting how long it will allow these countries to remain exceptions to the rule, and ensuring that any support for new plants will be assessed on a case-by-case basis, and only where a carbon-intensity target is met and independent analysis discovered that there is no reasonable alternative in meeting the country’s energy needs.

“Vietnam, Indonesia and the Philippines have all signed the Paris Agreement which favours the decarbonisation of the power sector, which puts coal at odds with future climate regulation, further integration of renewables and the installation of costly pollution technologies to coal plants,” said Sebastian Ljungwaldh, an energy analyst with Carbon Tracker, when reached for comment. “Financiers of coal-fired power are increasingly turning away from coal on the grounds of climate and air pollution, but should be aware of these growing downside financial risks as coal plants struggle to generate enough revenue to recoup initial investments.”

A transition of this magnitude for countries who are also trying to continue growing their economy is not necessarily something they will be able to do on their own, and without the support of other countries and financing institutions. I asked Sebastian Ljungwaldh what was needed to support these countries if they intend to transition away from coal sooner rather than later.

“The regulatory and market setting is markedly different across the three countries in this study and requires one to look on an individual basis,” Ljungwaldh explained. “Indonesia, Vietnam and the Philippines all have long-term and ambitious renewable targets and this report highlights the closing gap between the cost of building new renewables and the cost of operating coal plants.

“Broadly speaking, reforms to the domestic electricity market, further regulatory incentives supporting the role of renewables and increasing the role of financial institutions to direct and/or facilitate private capital flows to renewable projects would speed this transition away from coal even sooner. In the case of Indonesia for example, further investment in its grid infrastructure would allow for the increasing role of renewables as would the provision of financial guarantees for the off-take of power, which is a cause of concern for IPPs currently.”

SINGAPORE – To push more environment-friendly alternatives into the energy mix of economies in the region, a clean energy financing roadmap has been cast during the 36th ASEAN Ministers on Energy Meeting (AMEM) here.

The crafting of the proposed financing framework had been done in collaboration with the International Energy Agency (IEA), a global energy think tank headquartered in Paris.

In an exclusive interview, IEA Executive Fatih Birol said “clean energy financing is showing some good signs in terms of solar power – and still very big in terms of other clean energy technologies.”

He added that such facility is also building up “for natural gas, especially those coming from the United States and Australia; and in this very region many countries are building energy infrastructure such as the Philippines in order to import LNG (liquefied natural gas), which is very good in terms of diversifying energy sources.”

The IEA in particular had drawn up a toolkit on energy investments and financing for ASEAN – it takes the form of an online repository of resources that may be accessed by member-states. Such includes financial tools and templates for legal documents relating to energy infrastructure investments.

Singapore Trade and Industry Minister Chan Chun Sing noted that they have been working closely with the IEA “on energy investment and infrastructure financing to ensure that there is adequate infrastructure to support the region’s growing energy demand, and to make ASEAN an attractive hub for infrastructure development projects.”

In a paper released during the AMEM meeting, it was stipulated that “to enhance regional capabilities in attracting investments and developing sustainable financing models, Singapore and the IEA have co-developed a Capacity Building Roadmap on energy investments and financing for ASEAN.”

The framework will then be shared to Singapore’s peers in the ASEAN region so they could collaboratively mobilize project funding to required energy investments in the region.

“ASEAN’s energy demand is expected to increase by almost two-thirds from 2018 to 2040 as its population grows in tandem with rapid industrialization. At least US$2.7 trillion of cumulative investment would be needed to meet this energy demand and to improve energy access within the region,” the joint Singapore-IEA paper said.

The investment framework for clean energy, it was emphasized, can be optimized “through enhancing expertise in developing conducive regulatory environments and planning for allocation of capital across technologies.”

The paper similarly stipulated the need “to upgrade skills required to assess the financial sustainability of domestic power generation systems, and to mitigate vulnerabilities on investments for power sector.”

At the same time, ASEAN-countries need to be oriented on how to “enhance competency in project financial tools to better assess investment options, financing requirements and project risks.”

It has been similarly propounded that the energy sectors of the region be able to “develop mechanisms and business models for project de-risking and bankability.”

To this end, it was emphasized that there must be a platform “to deepen public-private engagement, including with financial institutions, which could also serve to equip policymakers with knowledge of new and emerging business models to de-risk projects.”