Capitalizing on Coal: Early Retirement Options for China-Backed Coal Plants | Clark | Energy Seminar
Channel: Stanford ENERGY
Date: 2023-03-11

China’s development institutions have played a role in financing over 39GW of currently operating overseas coal power plants, largely in South and Southeast Asia and commissioned within the past two decades.  Early retirement of these plants will likely require concessional financing to reduce the cost to investors and address the consequences for related stakeholders, including workers and electricity consumers.

This research analyzes the early retirement options available for retiring representative subcritical and supercritical coal power plants located outside China and financed by Chinese entities. Our analysis of an illustrative subcritical plant with representative characteristics suggests that an interest rate/equity return requirement subsidy approach allows the plant to be retired 25 years early for $151m, less than half the cost of a full buyout, at $341m. The cost of the subsidy relative to buyout costs declines the later the plant is retired. Further, the price on avoided emissions required to fully fund a subsidy for retiring the plant 25 years early is just $12.5/tCO2, falling to $2.8/tCO2 if retired 15 years early. These findings suggest that subsidizing investor returns may be a more effective use of concessional funding than full buyouts in securing early retirement.

These solutions are unlikely to be pursued by host countries, given limited fiscal space to subsidize interest payments and powerful pro-coal entrenched interests. Early retirement of BRI coal plants may therefore require more active engagement by Chinese lenders and equity holders in renegotiating outstanding debts, lowering the cost of borrowing where appropriate and subsidizing interest payments where possible; or agreeing to the transfer of debt and equity ownership to other institutions.