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Expansion Of Japan’s Coal Fleet Could Strand $56 Billion

A new report has found that Japan’s planned expansion of its coal-fired generating plants could strand anywhere from $76 billion to $56 billion worth of assets.

Specifically, despite increasing global focus on renewable energy development, Japan is still planning a massive expansion to its fleet of coal-fired generating plants, in which 49 planned coal-fired plants comprising 28 GW are now in various stages of planning (though only four plants combining to total 1.9 GW are currently under construction). Continuing along this path will not only harm the country’s environmental image and hinder any carbon emission targets, but will also end up costing billions of dollars in stranded assets.

The new report from the Sustainable Finance Programme at the University of Oxford’s Smith School of Enterprise and the Environment examined the potential impact of stranded coal assets in Japan by creating three scenarios — where coal-fired power stations are stranded over 5-year, 10-year, and 15-year time frames; specifically, where coal-fired power stations become stranded assets by 2021, 2026, and 2031. The authors of the report “selected these three periods to reflect the different speeds and scales at which the risk factors identified in this report could realistically materialise.”

The results of the report are astonishing: In the 5-year scenario, where coal-fired power plants become stranded assets by 2021, the total value of stranded coal assets in Japan are estimated to be around ¥8,453 billion ($76 billion). In the 10-year/2026 scenario, this value increases to ¥8,924 billion ($80.2 billion); and in the 15-year/2031 scenario the value decreases to ¥6,857 billion ($61.6 billion).

However, of greatest importance is the value of stranded assets that have been built after 2016, highlighted in the 10-year and 15-year scenarios. Specifically, the total value of stranded coal assets which are built after 2016 in the 10-year scenario amount to ¥6,223 billion ($55.9 billion), while the total value in the 15-year scenario is ¥5,307 billion ($47.69 billion).

The report, Stranded Assets and Thermal Coal in Japan: An analysis of environment-related risk exposure (PDF), is likely the most up-to-date and comprehensive analysis of Japan’s exposure to coal-related stranded assets. Factors impacting the highly uncertain future of Japan’s power generators are many: “climate change policy and renewables subsidies, the prospect of nuclear restarts, energy efficiency, and macroeconomic factors like low levels of population and GDP growth.” These myriad future uncertainties could have huge impacts on Japan’s current plans to expand its coal-fired fleet, potentially exposing the industry and its corresponding billions of investment dollars to “unanticipated or premature write-downs, devaluations, or conversion to liabilities.”

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