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Report warns of up to US$71B in stranded coal assets in Japan

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Report warns of up to US$71B in stranded coal assets in Japan

Japan may be left to deal with US$71 billion in stranded coal assets due to the falling price of renewable energy, a new report from The Carbon Tracker Initiative found.

Researchers used asset-level financial models to analyze power plant data and determined that it will be cheaper for Japan to build new renewable energy generation than to run coal plants as early as 2025. The report, co-authored with the University of Tokyo and CDP, a nonprofit charity that runs a disclosure system for investors, also concludes that in a levelized cost of energy analysis, onshore wind, offshore wind and utility-scale solar photovoltaics could be cheaper than coal by 2025, 2022 and 2023, respectively.

"There's a technology revolution coursing through the world's power markets," said Matt Gray, head of power and utilities at Carbon Tracker. "This revolution is coming to Japan, which means the government urgently needs to reconsider its pro-coal stance."

Using a model designed to analyze Japan's goals of meeting the Paris Climate Agreement, Carbon Tracker determined the country could avoid US$29 billion of the US$71 billion in potential stranded coal assets by reconsidering developing and planned coal facilities. Researchers modeled a scenario in which Japan's coal plants are forced to shut down by 2030.

"Despite policy signals from the Japanese government, it is still investing heavily in coal," Gray said. "This capacity will become stranded, likely resulting in higher energy costs for the consumer."

Japan has over 11 GW of coal-fired power under construction, permitted, or pre-permitted, the report states. Japan was the second-largest customer of coal from the U.S. in the second quarter, according to an August analysis from S&P Global Market Intelligence. Overall, weakening markets for thermal and metallurgical coal in recent weeks are driving a reduction in U.S. coal export volumes.

Scott Knights, the executive general manager of marketing and logistics for Whitehaven Coal Ltd., noted the importance of Japan to the Australia-based miner during a September meeting with analysts and investors.

"Japan is a critical market for us," Knights said. "Japan, Korea and Taiwan together are over three-quarters of our sales volume, and we don't expect this to change anytime soon."

Peabody Energy Corp. noted in securities filings that Japan, like India and China, included the use of higher-efficiency coal-fueled power plants as part of the plans under the Paris agreement. Sales to Japan generated 10.1% of Peabody's revenue in 2018, down from 11.7% in 2017. Japan is the second-largest destination for Peabody's coal, outranked only by the U.S.