Energy Seminar: Capitalizing on coal: early retirement options for China-backed coal plants in Southeast Asia and beyond

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. 

Bio

Alex Clark is a PhD researcher at the Smith School of Enterprise and the Environment, University of Oxford, where his research focuses on the identification and transmission of fossil-fuel related economic risks in the public sector, and how governments and their agents should respond to these risks, with a focus on state-owned power companies, China and coal phase-out. Alex supports Oxford's engagement with Chinese government stakeholders through the Economics of Energy Innovation and Systems Transition (EEIST) project and through collaborative work with the Grantham Institute at the London School of Economics. Alex is currently a Visiting Scholar at the Columbia Climate School. He has held fellowships at the Harvard Kennedy School, Boston University Global China Initiative, and European Council on Foreign Relations. He was a Europaeum Scholar in 2021-22, and a 2021 Summer Programme fellow at the International Institute for Applied Systems Analysis (IIASA).

Alex has worked as a consultant to the Center on Global Energy Policy at Columbia University, and worked as an analyst at the Climate Policy Initiative (CPI). He holds an MSc in Global Governance and Diplomacy from Oxford University, a BA in Philosophy, Politics and Economics from Warwick University, and is a former holder of the Henry Fellowship at the Harvard Graduate School of Arts and Sciences, where he focused on energy geopolitics and policy, electric mobility and international law.