Tim Buckley, Institute for Energy Economics and Financial Analysis
In recent months there have been definite signs of better understanding of the importance of immediate action to deal with the global threat of climate change
Over the last decade Japan has consistently been in the top 3 nations exporting coal fired power engineering and technology capacity. But in recent months there have been definite signs of better understanding of the importance of immediate action to deal with the global threat of climate change. There are signs of a strategic pivot, recognising both the stranded asset risks in thermal coal mining and power generation. Early first steps, but these are always the hardest. The economic case and zero emissions investment opportunities are clear once the legacy inertia and incumbent thinking is put aside. The signs are promising.
Even today Japan is in the top three financiers of new coal fired power plant development globally, behind only China and South Korea. Marubeni Corp is the second largest developer of new coal fired power plants globally outside of China and India, behind only KEPCO.
The Global Coal Plant Tracker database details that even today Japan is financing more that 10 gigawatts (GW) of new coal fired power plants, including the Thai Binh Coal plant, the Van Phong I Coal Plant in Vietnam, the Toyo-Thai Coal Plant in Myanmar and Both Matabari and Cirebon Coal Plants in Indonesia. Japan’s Export Credit Agency’s (ECA) Japan Bank of International Cooperation (JBIC), Japan International Cooporation Agency (JICA) and Nippon Export and Investment Insurance are key enablers through their provision of capital subsidies, credit and insurance, all generally tied to the use of expensive Japanese technology and engineering, procurement and construction (EPC) firms.
However, in September 2018 Prime Minister Shinzo Abe penned an oped in the Financial Times titled “Join Japan and act now to save our planet”. Unprecedented extreme weather events continue to rock Japan’s economy, killing more than 200 citizens in the same month as extreme heatwaves killed 160 Japanese citizens. Citing the UN IPCC report, Abe called for urgent global action and reduced reliance on fossil fuels. Abe also encouraged Japan’s Government Pension Investment Fund to step up its environmental, social and governance (ESG) efforts to overcome environmental challenges. Empty rhetoric, I hear the Australian government respond.
It is unlikely to be a coincidence that the day before Marubeni Corp announced an immediate exit from any new coal power plant development globally, plus an intent to double its global investment in renewables. Acknowledging the collapsing cost of renewables, in December 2018 Marubeni’s Masumi Kakinoki, Chief Executive Officer (CEO) of the company’s electricity generation business committed to add 1 GW of clean energy over the next five years as it halves its coal-fired generation by 2030.
In October 2018 Mitsui & Co CEO Tatsuo Yasunaga announced: “We’ve made it clear that we won’t invest in new thermal coal mining projects.” A month later Mitsui sold its last remaining dedicated thermal coal mine, a 10% stake in Bengalla to New Hope Corp.And in December 2018 Mitsubishi Corp announced it was selling its two remaining thermal coal mines in Australia, a 10% stake in Ulan was sold to Glencore, while a 31% stake in Clermont was sold to a joint venture of Glencore and Sumitomo Corp.
Highlighted by this acquisition, Sumitomo is the last of the big four Japanese trading houses to acknowledge the structural headwinds and stranded asset risks of thermal coal.
IEEFA would also note that SoftBank of Japan has been spearheading Japan’s pivot into renewable energy across the Asian region. Having initiated Japan’s commitment to a 30GW national investment in solar post TEPCO’s Fukushima nuclear disaster, in June 2018 SoftBank again made global headlines with its pledge to invest up to US$100bn in Indian renewable energy infrastructure, doubling down on its 2015 commitment to work with Foxconn of Taiwan and Bhati Enterprises of India to collectively invest US$20bn by 2022. Softbank’s SB Energy India has been one of the most aggressive investors in supporting India’s 20-30GW of renewable energy tenders over 2018, with project commitments approaching US$3bn won to-date, including a 250MW hybrid wind-solar project in November 2018 at a near record low levelised cost of energy of US$30 per megawatt hour.
While these corporate actions are noteworthy, the moves in the Japanese financial sector are likewise indicative of a shift. Bloomberg NEF reported that Japan’s Mitsubishi Financial, Mizuho Financial and Sumitomo Mitsui Financial are all in the top 10 financiers of renewable energy in emerging markets in the decade to 2017.
BNEF also reported that JICA is the fifth largest renewable energy foreign investor in clean energy in the same period. Japan’s public and private financial institutions are key enablers across the Asian energy system. As they reassess stranded asset risks in fossil fuels and acknowledge the growing economic logic of ever-cheaper renewables, IEEFA would expect their investment flows to respond accordingly.
IEEFA optimistically notes JICA last month committed US$260m to fund the construction of the 1GW Turga pumped hydro storage project in West Bengal State in India, JICA’s largest single investment in India in 2018. Delivering peaking supply is a critical enabler for India’s renewable energy transition.
Japan is grappling with its domestic energy security pressures, highlighted in the extreme by the Fukushima disaster. The lack of land and high capital cost of deploying renewables in the domestic market has been a serious impediment to Japanese corporate leaders understanding the magnitude of energy market disruption in countries as diverse as China and India, Australia and Chile. Japanese leaders are however starting to recognise the size of investment opportunity involved in the world investing up to US$1 trillion annually over the coming two decades in zero emissions renewables and the associated grid infrastructure technologies, particularly in light of the convergence of the transportation sector with the rapid uptake of electric vehicles. The risks for Japan are high, as are the opportunities.
DISCLAIMER: The views expressed are solely of the author and ETEnergyworld.com does not necessarily subscribe to it. ETEnergyworld.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.
About Tim Buckley
Tim Buckley is Director of Energy Finance Studies, Australasia at IEEFA. He has 25 years of financial markets experience, specializing in equity valuation, including as an analyst and as co-founder and managing director of Arkx Investment Management.