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10 October 2019

Japan’s consumers will foot the bill for $bns in stranded coal assets

Some $71 Billion of Japanese assets will be left stranded as renewables undercut coal costs, with consumers left to pick up the pieces if policy isn’t changed imminently.

A report from the University of Tokyo, Carbon Tracker and the Carbon Disclosure Project, entitled ‘Land of the Rising Sun and Offshore Wind’, has identified that $29 Billion of these assets lie in the 11 GW worth of projects currently in construction and $42 Billion in others which are likely to become redundant before their costs are fully paid out.

It is estimated that 42% of current coal-fired plants are unprofitable, with this predicted to rise to 72% by 2040. But despite this, coal remains a big part of Japan’s plan for the future.

Financial models forecast the cost of renewables in Japan to fall below new coal plants from 2022, and existing coal plants from 2025, with offshore wind leading the effort, followed closely by solar PV and potentially onshore wind, but not if the price of land has anything to do with it. These are not trends which the Japanese government will be able to ignore forever.

Coal projects alongside mothballed nuclear facilities have so far been protected by the Japanese government as a source of energy within Baseload power market initiatives launched in July this year. The relative high costs of these projects are currently being propagated into consumer energy bills, although sneaky changes in policy to subsidise coal could see this happen through rises in taxes or public debt instead.

The other alternative in this situation, may only be detrimental to investors: Refusing to subsidise OR support the baseload. Without their current unfair advantage in the marketplace, coal assets will sit stranded as wind and solar take over. But this may simply be the cost of going carbon free. If that’s what Japan decides to do.

To meet the globally agreed goal of limiting climate change to 2°, this approach is almost unquestionably mandatory. The report also detailed a two-point policy recommendation to limit the inferred financial damage. Most drastically, this included the immediate reduction of capacity under construction and the rapid development of a retirement schedule for existing coal-fired plants. As a ‘least-cost’ solution, the research collaborators estimated that up to $29 Billion in stranded assets may be saved if renewables are accelerated through this period through a shift to non-discriminatory regulations.

While this seems the obvious choice, Japan will likely remain conflicted. Since Fukishima, nuclear is a no-go, and current public opinion towards land use has so far stunted the development of on-land renewables. We’ve previously predicted that floating wind will eventually take the lead, but this is new technology and Japan isn’t likely to throw caution to the wind and turn away from coal in a hurry. However, the Japanese consumers might look more favourably on a floating solar farm down the road, once they realise that they’re paying through the nose for the government’s addiction to coal.