An independent financial think tank “Carbon Tracker” in collaboration with the University of Tokyo Institute for Future Initiatives and CDP released the new report which title is “The financial risks and economic viability of coal power in Japan“, on October 7th.
This report shows Japan’s proposed and existing coal capacity could become stranded due to lower utilization rates and tariff prices caused by low cost renewable energies.
Head of Power & Utilities at Carbon Tracker and co-author of the report, Matt Gray, said: “There’s a technology revolution coursing through the world’s power markets. This revolution is coming to Japan, which means the government urgently needs to reconsider its pro-coal stance.”
In depth financial analysis
Using three models (Project finance model, Relative economics model, Stranded assets model), comparative financial analysis on proposed and existing coal power plants in Japan was carried out. If the capacity factor goes below 48% or the tariff is lower than US$72/MWh, then projects could become unviable. For context, the capacity factor averaged 73%, while the tariff price (based on the Japan Electric Power Exchange) was US$87/MWh in 2018.
Based on a comparison of the levelized cost of energy (LCOE) analysis, onshore wind, offshore wind and utility-scale solar photovoltaics (PV) could be cheaper than coal by 2025, 2022 and 2023, respectively. Moreover, the long-run marginal cost (LRMC) of coal could be higher than offshore wind and solar PV by 2025 and onshore wind by 2027.
Japanese policy must re-align with the Paris Agreement
The report explores the implications of Japanese government intends to meet the Paris Agreement with efforts under the Long-term Strategy for Decarbonization adopted at a Cabinet meeting and submitted to the UNFCCC in June 2019. It mentions that Japan’s coal capacity is forced to shut-down by 2030 in the below 2-degree scenario. If not, stranded asset risk from capital investments and reduced operating cash flows could amount to US$71 bn. Of this US$71bn, US$29bn could be avoided if the Japanese government immediately reconsiders the development of planned and under construction capacity.
The report concluded accelerating carbonization is obviously good things for investors, consumers and also whole part of economy. In the context of global movement being away from coal, it is important Japan is going to stop any projects under planning and constructing, and to map out a practical plan to retire existing coal fired power plants soon.