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Coal to retain dominance of energy mix in Asia

“…we notice banks are still interested in financing projects that meet efficiency standards,” notes UK-based consultancy Wood Mackenzie

Hongsa coal-fired power plant in Laos

By Ronnel W. Domingo

Asia, January 8, 2018


Coal-fired power projects are expected in the next two decades to maintain dominance in the energy markets of emerging economies in Asia despite tighter regulations and decreasing appetite among European financiers.

According to UK-based consultancy Wood Mackenzie, emerging markets in Asia are expected to attract a total of $250 billion worth of investments in coal-fired power over the next decade.

This is Wood Mackenzie’s projection despite strong headwinds amid more stringent regulations against coal and firmer commitments toward tighter controls on greenhouse gas emission.

In the Philippines, Congress has moved to raise the tax on coal from P10 per metric ton to P50 per ton this year, P100 per ton in 2019 and P150 per ton in 2020—a move seen to discourage investments on coal-fired projects.

The company noted that financing institutions in Europe —banks as well as export credit agencies or ECAs—had increasingly shown aversion to investing in coal power projects over the past year.

“This could impact Asia since we expect growth in power demand through to 2035, and this calls for new power capacity, including coal-fired ones,” the company said in a commentary.

Wood Mackenzie believes coal-fired power will remain dominant in the region as electricity demand in Southeast Asia is expected to grow at about 4.6 percent yearly.

The company also observed that the power grid infrastructure in many markets of emerging Asia was “inefficient, weak and susceptible to blackouts.”

“Improving grid accessibility, robustness and interconnectivity will take years or decades of effort and require a huge amount of investment,” Wood Mackenzie said.

“With these considerations in mind, we project Asia’s coal power capacity investment opportunity to top $250 billion over the next decade,” the company said.

Wood Mackenzie believes that export and import banks as well as private-sector banks in Asia will provide continued support for coal-fired investments.

“In addition, we notice banks are still interested in financing projects that meet efficiency standards,” the firm said. “The effects of the tightening financing terms from ECAs also tend to be milder for emerging markets in Asia.”

“(They) also make exceptions for markets such as Indonesia, Cambodia, Laos, Myanmar, the Philippines, and South Asian and Central Asian countries because they are classified as low national electrification rate countries per the IEA criteria,” it added.


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