Oxford study warns of stranded assets risk in Japan’s coal strategy

A new report produced by Oxford university’s Smith School of Enterprise and the Environment is highlighting the danger to Japan of its government backing a massive coal-fired power expansion drive.

However the IEA Clean Coal Centre has told Power Engineering International that Japan is merely behaving in a sensible fashion given its natural resources, using modern clean coal facilities to maintain its energy security, while reducing emissions.

The study asserts that the government plan to build 49 new coal-fired power plants and 28 GW of additional capacity country will eventually lead to more than $60bn of “stranded” assets, as world momentum continues to militate against the viability of fossil fuels.
Shinzo Abe
Shinzo Abe, the Japanese prime minister, has been urged not to pursue the coal path as a response to a nuclear phase-out post-Fukushima.

In all three scenarios forecast in the report, Japan’s power companies faced combined writedowns or devaluations of at least $50bn.

All but one of Japan’s nuclear reactors, which previously met 29 per cent of the energy demand, remain shut down, with shortfall met by growing reliance on oil, gas and coal.

Ben Caldecott, the report’s main author, said current plans cannot be economically justified, and would exceed the capacity required to replace the retiring fleet by 191 per cent.

The resulting overcapacity, combined with stiffening competition from solar and other renewable sources, creates a risk that assets amounting to about 25 per cent of power companies’ market capitalisation could become “stranded” ࢀ” subject to premature writedowns or conversion to liabilities.

Mr Caldecott said the coal plan ignored the risk of disruption to incumbent utilities. Renewables deployment has risen from 10 per cent of global capacity to 15 per cent in the past five years, while the costs of onshore wind and solar have fallen by 39 per cent and 41 per cent respectively over the same period.

Japan’s plans, Caldecott said, make the assumption that the country’s power sector will remain static and “safe” for thermal coal assets ࢀ” an assumption that runs counter to the evidence from elsewhere in the G20.

The report, which will be presented in Tokyo on Thursday to senior Japanese officials, corporate lobbyists and business leaders.

Debo Adams, Studies Manager at the IEA Clean Coal Centre provided Power Engineering International with some context as to why the Japanese government is pursuing its present coal strategy. She emphasized that the new facilities being proposed were modern cleaner coal plants than was previously the case.

“Post Fukushima, Japan is unlikely to restart its nuclear power fleet. As a result there is a major capacity shortfall arising and Japan is making the decision to introduce additional HELE (High efficiency, low emission) coal power plants to address the shortfall. HELE units emit 20-25 % less CO2/MW than the average existing power station and up to 40 % less than the oldest technologies that are still in place in other countries.”

“Further, for each unit of electricity generated, they consume less fuel and emit fewer local pollutants and typically incorporate modern SO2, NOX and particulate control systems.”

Ms Adams said the country is simply making ‘sensible preparations’ to secure a national power system that is best suited to the country’s needs.

“Japan does not have great natural energy resources, but is a world leader in HELE and clean coal technologies. Many other countries remain committed to using coal for power generation. It is beneficial to these countries and to all if they have access to Japan’s CCT. For example, if all new power units (under construction or planned) were ultrasupercritical, then the estimated annual reduction of CO2 emissions would be 2 billion tonnes ” equivalent to India’s current annual emissions.”

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