Despite announcing a coal exit, Japanese conglomerate Marubeni still has around twelve gigawatts of coal-fired power proposals in development, exposing investors to continued risk as the world moves away from coal.
A new briefing note by the Institute for Energy Economics and Financial Analysis (IEEFA), ‘Marubeni Update: Continuing Coal-fired Power Risks’ notes the company announced a major change in policy to reduce reliance on coal-fired power in September 2018.
In addition to cutting by half its coal-fired power capacity of around 3 gigawatts (GW) by 2030, Marubeni announced it would not enter into any new coal-fired business ‘as a general principle’ and would be increasing the ratio of renewable energy generation from 10per cent to 20 per cent by 2023.
Despite this announcement, Marubeni continues to progress existing, outdated coal projects in Japan and across eight developing countries.
IEEFA’s briefing note finds the company’s ongoing coal-fired power projects face a range of difficulties including banks withdrawing from projects, reduced access to insurance, cancellation threats, legal headwinds, community opposition, and cheaper and cleaner renewable energy technology.
Briefing note author Simon Nicholas says developing nations are now leading the transition to clean energy.
“The idea that developing nations will meet growing electricity demand with expensive imported coal-fired power generation is increasingly outdated,” Nicholas said.
“Marubeni must adapt quickly in the face of changing conditions and reduce their coal exposure.
“Given Marubeni’s higher focus on power generation development relative to the other Japanese trading houses, there will be increasing opportunity in renewable energy as the world moves away from fossil fuels and towards clean energy.”
“By accelerating the realignment of its power business towards new clean technology, Marubeni can hope to remain relevant to future power markets and avoid further surprises – such as ever decreasing renewable energy costs – and rising stranded asset risks.”
Over 100 globally significant financial institutions have already exited the coal sector and there’s a new announcement on average every two weeks, including from many of Japan’s significant institutions.
Amongst other moves, in late 2018 Mitsubishi Corp. and Mitsui & Co. divested their last remaining thermal coal mine holdings and then in February 2019, Itochu announced it would no longer develop any new coal-fired power plants or thermal coal mines. More recently, Sojitz Corporation likewise divested its existing thermal coal mine exposures.
In July 2018 Sumitomo-Mitsui Trust Bank announced it would stop providing project finance for new coal-fired power stations and the Standard Chartered Bank – historically a very significant financier of Asian coal-fired power – has also announced an immediate, global cessation of lending to such projects.
Co-author of the briefing note Tim Buckley says Japan’s export credit and overseas development agencies have also moved towards supporting low emissions, deflationary renewable energy developments overseas.
“While Japan is moving away from coal, Marubeni’s continued interest in coal-fired power creates financial and reputational risks for the company,” Buckley said.
“Major global investors have started receiving heightened attention on their coal-related investments.
“Marubeni’s major shareholders will be increasingly wary of the financial and reputational risks associated with continuing to be one of world’s most significant builders of coal-fired power.
“With long construction times and slow or little progress on the ground in many cases, Marubeni’s ongoing coal-fired power projects are likely to hang over the company’s reputation for years to come.”
“As a leading, diversified conglomerate with a focus on expansion into new technologies and new markets, Marubeni is in a strong position to more rapidly move away from coal-fired power while positioning its power business for energy markets of the future.
“The time for adaption and corporate leadership is now.”