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 continues to move 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 10 per 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Despite this announcement, Marubeni continues to progress existing, outdated coal projects in Japan and across eight developing countries.
IEEFAs briefing note finds the companys 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nations will meet growing electricity demand with expensive imported coal-fired power generation is increasingly outdated, Nicholas said.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 Marubenis 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.
|Share of Annual Power Capacity Additions in Emerging Markets. Source: Bloomberg, New Energy Finance, Climatescope|
Over 100 globally significant financial institutions have already exited the coal sector and theres a new announcement on average every two weeks, including from many of Japans significant institutions.
In late 2018, two of Marubenis fellow sōgō shōsha (major Japanese trading houses), Mitsubishi Corp. and Mitsui & Co., divested their last remaining thermal coal mine holdings. In December 2018 it was announced that yet another domestic coal-fired power proposal had been cancelled JFE Steel and Chugoku Electric Powers 1 GW project near Tokyo. This was followed in January 2019 with the announcement that a 2 GW coal-fired power project to be built by Kyushu Power, Idemitsu and Tokyo Gas in Chiba prefecture had been cancelled.
The first few months of 2019 has seen two more of the sōgō shōsha start their moves away from thermal coal. In February 2019, Itochu announced that it will no longer develop any new coal-fired power plants or thermal coal mines. Then in March 2019 Sojitz Corp announced the divestment from its Indonesian thermal coal mine investment as part of its own shift away from thermal coal.
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 Japans 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, Marubenis 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.
Marubenis major shareholders will be increasingly wary of the financial and reputational risks associated with continuing to be one of worlds most significant builders of coal-fired power.
With long construction times and slow or little progress on the ground in many cases, Marubenis ongoing coal-fired power projects are likely to hang over the companys 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.
Facing a mature domestic market and with Japans population in decline, overseas markets will become increasingly important drivers of growth for the sōgō shōsha. For Marubeni, given its higher focus on power generation development relative to the other trading houses, there will be increasing opportunity in renewable energy as the world moves away from fossil fuels and towards clean energy.
Marubeni wont move alone, other sōgō shōsha houses will be reviewing similar opportunities. In January 2019, it was announced that Sumitomo Corporation had acquired Australias fourth largest retailer of solar PV systems, Infinite Energy.
Much of the opportunity will lie in the developing world which is where all of Marubenis current overseas coal-fired power projects are located. However, the idea that developing nations will meet growing electricity demand with coal-fired power generation is increasingly outdated.
Developing nations are now leading the transition to clean energy in 2017 the large majority of zero-carbon power capacity was built in developing nations. Wind and solar accounted for just over half of all power capacity additions in developing countries in 2017 as coal-fired power additions dropped to less than half the 2015 level.
The CEO of Marubenis power generation business has said that the rapid fall in the cost of renewable energy technology has taken the company by surprise, stating no one thought the cost of renewable energy would drop this much.