Still Business as Usual for Coal Projects in Southeast Asia?
By Peter du Pont and Marc Eliemel Tagub, ACE Partners
There is increasing pressure on international investors to reposition their energy-related portfolios and to divest their financial stakes in fossil fuels in favour of renewable energy (RE). These divestments, which are primarily driven by the increasing threat of climate change and the need for concrete actions to mitigate emissions of greenhouse gases, have been making the rounds in climate and business news feeds, as companies, and also governments, announce they are “going green”. While it appears that things are changing, and there are indeed major announcements of large renewable energy investments across Southeast Asia on a weekly basis, it still looks to us mainly like business as usual in the region.
Research on Investor Perceptions
In a joint research paper with the Stockholm Environment Institute (SEI) published late last year, we found out that despite a predominant view that many of the large energy sector infrastructure investors are embracing renewable energy, there are continuing, and pernicious, institutional biases to channel money into large traditional fossil fuel investments in Southeast Asia. Analysis of interviews with 17 Asian-based energy investors and energy experts suggested that awareness of climate change and discussions on climate-related risks have an insignificant impact on clean energy investments in Southeast Asia. There is a major disconnect in the region between the need to consider climate-related risks, and the manner in which these risks are actually integrated and addressed in power sector investments and decision-making.
The key policy insights of the report are:
Power sector investors in Southeast Asia generally do not consider climate-related risks as a significant factor when making investment decisions.
Pressure to commit large sums through recognized investment channels creates path dependency towards continued financing of large-scale fossil fuel projects.
Policy and regulatory action is needed to raise awareness of climate-related risks, lay out the potential for stranded assets, and create opportunities for investing in renewable energy.
While the research and interviews were conducted in 2018 and 2019, and the energy landscape is rapidly changing, we feel that the discussions of significant and increasing climate risks for fossil-based energy projects in the Southeast Asia region are not as much at the forefront of discussion as they should be in the region. According to the International Energy Agency (IEA) data and statistics, fossil fuels still account for well over half (58%) of total primary energy supply in ASEAN. The region aims to have nearly one-quarter (23%) of its primary energy supply from renewable energy by 2025, but according an ASEAN policy brief published in 2020, The New Role of Coal Fired Power Plant in the Era of Energy Transition, achieving this target will not reduce fossil fuel significantly because of continued reliance on coal for the power sector and oil in transport. An example of this is Cambodia’s decision to use coal to achieve rural electrification of 70% households by 2030.
The policy implications and need for urgent action remain relevant:
There is an immediate need for action from governments, financial regulators and energy sector associations who work with power sector investors, to address the gap between awareness of climate risk and continued, residual investment preference for fossil-fuelled energy projects.
Actions may include: (a) better data gathering and refinement of analytical tools to quantify climate-related investment risks and their impacts; and (b) policy and regulatory action that involves addressing the influence of major incumbent players in decision-making and removing institutional biases towards centralized generation, with the aim to open opportunities that would shift investment patterns.
Bright Spot in the Philippines
The Philippines has recently taken some encouraging urgent actions. Following a reassessment of the country’s energy system, the Philippines Department of Energy (DOE) has declared on 27 October 2020 a moratorium on new coal-fired power plants to support improvements in energy sustainability, reliability and flexibility by increasing the share of renewable energy in the electricity mix. DOE believes that the shift to cleaner energy will create new jobs and opportunities in the energy sector. In support of this moratorium, the National Renewable Energy Board (NREB), which advises DOE on renewable energy issues, has urged affected power firms to become clean energy champions and realign their budgets to finance renewable energy projects.
These recent concrete steps in the Philippines, which aim to pursue institutional divestment from coal power plants and to spur investments into renewable energy, are a good example of how to address weak investment preference for clean energy, and continued investor interest in fossil-fuel investments in Southeast Asia. It’s a good start!
However, in line with the findings of our SEI report, institutional biases continue to allow the channel of money into coal projects. The moratorium covers only 40 percent of all coal projects in the development pipeline and excludes those that were already endorsed before the declaration of the moratorium. According to the Philippines’ Center for Energy, Ecology, and Development (CEED), which has called for an expansion of the moratorium’s coverage, many of the exempted projects have not or have barely started construction due to the pandemic and years-long resistance from impacted communities, electricity consumers, and other stakeholders.
Conclusion: The Tide Has Not Yet Turned
While it appears that things are changing inevitably toward a green energy future in Southeast Asia, it remains business as usual for many large-scale investors who favor investments into coal power. The news of divestments from coal projects in response to climate-related risks is exciting, and appears to be increasing in frequency; however, the reality on the ground and investment decision-making show that large investments in Southeast Asia are still being channeled into traditional coal projects.
 More than one-third (35%) of total primary energy supply comes from oil and 22.5% comes from coal.