Big News from Asia: Japan inches away from coal
As first climate concerns, and now increasingly economics, drive the power generation choices of more and more countries towards renewables and natural gas, and away from coal, Asia has become the outlier. Asia today accounts for half of the world’s coal consumption, and more than ¾ of all new coal-fired generation capacity is being built in the region. Japan is a big factor in this. Japan is the world’s largest importer of coal, accounting for about 20% of global coal imports, and Japanese companies and banks are the largest players in the coal-fired power business in many countries across Asia and Africa.
A new announcement in September, by Marubeni, may signal a significant change in direction. Marubeni, one of the world’s largest installers, owners and operators of coal-fired power plants, announced that it would no longer support new coal-fired generation. The announcement, framed in terms of climate risks to the corporation’s business and shareholders, states that Marubeni will begin the process of pulling out of coal-fired power generation with a target to halve its coal-fired power capacity by 2030.
Marubeni is large enough for this to have a major impact on its own. Marubeni currently owns about 12 Gigawatts of electricity generation capacity, of which about 11 GW running on fossil fuels, mainly coal. 95% of this capacity is outside of Japan. The new policy announcement immediately puts at risk a number of high-visibility coal projects under design or construction in Emerging Markets. These include the proposed 300 MW Morupule B project in Botswana, the 1.2 GW Thabametsi power plant in South Africa, the also 1.2 GW Nghi Son 2 project in Vietnam, and the 400 MW Pagbilao extension project in the Philippines, and possibly the 1 GW planned expansion of the Cirebon project in Indonesia. These projects represent capital costs of close to $10 billion in aggregate.
Beyond Marubeni, one can expect this move to have wider repercussions. Mitsui and Sumitomo, two of Marubeni’s big rivals, and themselves major players in the global coal market, have not gone as far as Marubeni but have both made announcements of plans to sharply raise the share of renewable energy in their business, and reduce their coal portfolios. Even the Foreign Ministry of Japan earlier this year began to criticize the country’s support for coal-generation around the world. This was followed by a report from an energy task force report stating that the country’s competitiveness was being harmed by its approach to energy.
Beyond operation, construction and sponsorship, the few lower-income countries still looking for external support in building additional coal-based electricity capacity also rely heavily on Japanese financing. Most international financial institutions have ceased supporting new coal plants, and Japanese financiers are one of the biggest remaining sources of support. In May and July of this year, two major life insurance companies, Dai-Ichi Life Insurance and Nippon Life Insurance, became the first two Japanese financial institutions to announce they would no longer finance new coal generation capacity. Leading Japanese bank Sumitomo has signaled it is reviewing its related policies, and a move by one of the big Japanese banks would be highly likely to be followed by others.
Marubeni is only one company, but its announcement is an indicator of wider movements across the spectrum of players in Japan’s energy business. These movements are a big deal for countries still planning on building new coal plants. Reduced Japanese involvement will make new coal-fired generation more expensive, more difficult to finance, and less likely to be implemented. That’s a big deal.