Coal Spending in Japan Risks Stranding $57 Billion of Assets

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Utilities and other companies in Japan pushing ahead with new investments in coal-power plants risk creating 6.22 trillion yen ($57 billion) of stranded assets amid shifts in energy policy and the economics of power generation, according to a study by Oxford University’s Smith School of Enterprise and the Environment.

The amount of coal-fired generating capacity planned or under construction in Japan exceeds the capacity required to replace the nation’s retiring fleet by 191 percent, according to the study released on Thursday.

“This may result in overcapacity and, combined with competition from other forms of generation capacity with lower marginal costs, lead to significant asset stranding of coal generation assets,” the authors said in the report titled Stranded Assets and Thermal Coal in Japan.

Despite shifts elsewhere in the world away from fossil-fuel investments, Japan has continued to rely on coal power as it seeks to diversify its sources of energy after the 2011 Fukushima nuclear disaster. To address concerns about global warming, the country is pushing the development of technologies that would lead to less-polluting coal-power plants, along with carbon capture and storage.

Japan currently has 49 coal-power plants in various stages of planning with a combined capacity of 28 gigawatts, according to the report.

The value of stranded coal assets could be the equivalent of 23 percent to 29 percent of the current market capitalization and 5 percent to 6 percent of total assets of companies with coal-power capacity, according to the report.

“This highlights the risks of continuing to proceed with the planning and development of new coal-fired power plants in Japan,” the authors said in the report.

Tokyo Electric Power Company Holdings Inc. has the highest exposure to asset stranding in absolute value among five companies examined in the report, the researchers said.

Of the utility’s 5.9 gigawatts of existing coal capacity, 3.2 gigawatts was recently built in 2008 and 2009 and therefore has incurred little depreciation, according to the study. The utility has 5.4 gigawatts of planned capacity between 2017 and 2035, where most is planned for pre-2020.

Other companies analyzed in the report were Electric Power Development Co., Chubu Electric Power Co., Kansai Electric Power Co. and Kyushu Electric Power Co.

Because Tokyo Electric isn’t aware of the contents of the report in detail, it declined to comment, spokeswoman Yukako Handa said by e-mail.

“Stranded coal assets would affect utility returns for investors; impair the ability of utilities to service outstanding debt obligations; and create stranded assets that have to be absorbed by taxpayers and ratepayers,” the authors said in the report.