https://www.pv-magazine.com/2019/10/07/solar-and-wind-make-coal-unprofitable-in-japan/
Solar and wind make coal unprofitable in Japan
Recent investments into 11 GW of new coal generation capacity may result
in reduced operating cashflows of $71 billion. That will occur,
according to a report from the Carbon Tracker Institute, because solar
and wind will become cheaper than coal in Japan by 2025 at the latest,
despite high renewable energy costs at present.
October 7, 2019 Emiliano Bellini
Even in Japan, where the price of solar and wind energy is taking longer
to fall than in other mature PV markets, the relentless retreat of
renewables costs will undershoot new investment in coal by 2025 at the
latest.
That is the main conclusion of the Land of the Rising Sun and Offshore
Wind study published by financial thinktank the Carbon Tracker
Initiative with the University of Tokyo. The authors of the report claim
the Strategic Energy Plan and Long-term Strategy for Decarbonization
policies recently approved by the government lay the ground for an
increasingly important role for renewables – which could mean grim news
for the coal industry.
The report lists 21 new coal power projects with a combined generation
capacity of 11 GW which are being planned, developed or built in Japan
and warns several may be doomed to close prematurely and become stranded
assets if the Japanese government is serious about its new
decarbonization targets.
Wasted money
The paper’s authors developed a project finance model for each of the
coal facilities which they said demonstrated, across three scenarios of
differing lengths of time, how assets may soon become unprofitable and
how, in a worst-case scenario for fossil fuel, they could suffer reduced
cashflows totaling $71 billion. Some $29 billion of that could be
avoided if the Japanese government reconsiders investment for new coal
plants, say the authors of the report. The study also highlighted, 42%
of the global coal fleet was likely to have become unprofitable in 2018
and that percentage could rise to around 72% in 2040.
The authors predict the levelized cost of energy (LCOE) generated by PV
could be cheaper than new coal facilities by 2023. Offshore is expected
to have reached that point by 2022 with onshore wind achieving the feat
by 2025.
The researchers also predicted the LCOE of solar and offshore wind will
be lower than the long-run marginal cost of existing coal plants – which
have lower expenses than newly-planned investments – by 2025. “Our
analysis shows that building coal power today equals high-cost power and
fiscal liabilities tomorrow,” stated the report. “Japan’s planned and
operating coal capacity is partially protected by regulations that give
coal generators an unfair advantage in the marketplace.”
Bad market design
The study claims the design of Japan’s baseload power market, which also
includes the costs of mothballed nuclear facilities, may protect coal
asset owners from future carbon price exposure. The dispatch mechanism
of that kind of market, which is similar to that adopted in France,
prioritizes nuclear over solar and wind. That is a situation which may
lead to the further curtailment of renewables, according to the study.
“Without policy reform, the Japanese consumer may not be receiving the
lowest-cost power possible,” stated the report.
The paper also suggests a retirement schedule based on the long-run
marginal cost of every coal unit under development or construction
should be defined now, enabling abandonment of the projects likely to
incur the highest costs over their projected lifetime, to protect energy
consumers.
The study recognizes Japan has renewable energy costs that are among the
highest in the world but concludes the coal era in the country is coming
to an end nevertheless. The first four solar energy auctions held by the
Japanese government saw the price of electricity generated by large
scale PV projects fall from an average of ¥19.6/kWh ($0.18) to ¥12.98 in
the latest tender.
Japan had cumulative solar generation capacity of 55.5 GW at the end of
last year, according to the latest statistics published by the
International Renewable Energy Agency, including 6 GW of facilities
added in 2018. A recent report by Tokyo-based research firm RTS Corp,
stated the country could reach 150 GW by 2030.
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