Influential institutions look to wind down coal activities

August 18, 2021 | 08:00
Some international lenders, funds, and insurers are joining a growing list of financial institutions across the globe retreating from coal-fired power plants, particularly projects in Vietnam and other Asian nations, as concerns grow over the role that fossil fuels play in exacerbating the adverse impacts of climate change.
Vietnam is altering its power capacity structure over the next decade
Vietnam is altering its power capacity structure over the next decade. Photo: Shutterstock

Earlier this month, the Asian Development Bank (ADB) came up with a proposed mechanism on accelerating closure of Asia’s coal-fired power plants, including projects in Vietnam, with presence of high-profile names such as Prudential, HSBC, BlackRock Real Assets, and Citi.

However, it will not be a walk in the park for banks, funds, or any financier to change overnight and entirely cut ties with coal, experts say. Thus, the consortium plans to create public-private partnerships (PPP) to buy out coal-fired power plants and wind them down within 15 years, while still offering workers a reasonable time to switch jobs and allowing countries to shift to renewable energy sources, according to Reuters.

International organisations join

The ADB has allocated around $1.7 million for feasibility studies in a bid to learn how much the fundamental cost is to help Vietnam, Indonesia, and the Philippines to stop coal-fired related activities.

Ahmed M. Saeed, vice president of the ADB, revealed that a first purchase under this scheme could be completed next year in the most positive outlook. The deal is expected to comprise a mix of equity, debt, and concessional finance, and the mechanism could be scaled up and used as a template for other regions, if successful. It is already in discussions to extend this work to other countries in Asia, Reuters reported.

According to Donald Kanak, chairman of Prudential’s Insurance Growth Markets, to retire 50 per cent of a country’s capacity early at $1-1.8 million per megawatt, Indonesia would require roughly $16-29 billion, and the Philippines would be about $5-9 billion. Vietnam – with a few coal-fired plants which are currently in operation – needs at least $9-17 billion to halt coal-fired energy.

The partners would set up a special-purpose vehicle to buy coal plants in perhaps 10 low- and middle-income Asian countries, including Vietnam, Indonesia, Pakistan, and the Philippines. Meanwhile, with each host country’s backing, it would encourage the erstwhile owners and others to invest in green power. After phasing out coal-fired projects, international lenders are encouraged to invest in green power in such countries.

Other Asian financial institutions, including those actively doing business in Vietnam, have also been cutting their ties with coal-fired power projects.

Singaporean bank OCBC was among the very first Southeast Asian banks to rule out funding new coal power plants in 2019.

Malaysia-based lender CIMB, which is also operating in Vietnam, has pledged to exit from coal-fired plants by December this year.

DBS, Singapore’s largest bank, has committed in April to halt its funding activities for thermal coal power by 2039.

Meanwhile, Japanese megabanks including Mizuho Bank and Sumitomo Mitsui Banking Corporation announced to cut ties with coal-fired power projects two years ago.

Earlier this year, Japanese trading house Mitsubishi Corporation decided to withdraw from the Vinh Tan 3 coal-fired power plant project in Vietnam amid growing international concern about climate change, Nikkei Asia reported. The project is separate from the Vung Ang 2 coal power plant, which the governments of Japan and Vietnam are pursuing together. This is Mitsubishi’s first attempt to withdraw from a coal plant project. The Japanese corporation announced it would switch its focus to greener energy projects, including liquefied natural gas and renewables such as solar.

OneEnergy, a joint venture of Mitsubishi and Hong Kong’s CLP Group, holds a 49-per-cent stake in the $2-billion project, while Electricity of Vietnam (EVN) owns another 29 per cent. The banking consortium behind Vinh Tan 3 includes Chinese lender ICBC. Meanwhile, UK-backed lenders Standard Chartered and HSBC have stopped funding Vinh Tan 3 as a part of their green initiatives.

In a similar vein, other foreign lenders are pledging to make great strides in financing environmentally-friendly projects and target net-zero greenhouse gas emissions in Vietnam, such as UOB, Citi, Standard Chartered, and HSBC.

Citi Vietnam has been committed to net-zero by facilitating some low-carbon projects and not financing carbon-intensive projects. This move follows the global group’s broad sustainable finance efforts and international practices in line with environment, sustainability, and corporate governance criteria.

Pramoth Rajendran, head of Wealth and Personal Banking at HSBC Vietnam, told VIR, “With our commitment to the transition to a global net-zero economy, HSBC is well positioned to lead the public effort to build a greener, healthier Vietnam. However, HSBC will not strive to provide as many green credits as possible. We will thoroughly select eligible projects which fits our criteria.”

South Korean President Moon Jae-in in April also pledged that his country would end all new financing for coal projects in places such as Indonesia and Vietnam. He believed that to become carbon-neutral, it is imperative for the world as a whole to scale down coal-fired power plants.

In March, Shinhan Financial Group and Hana Financial Group from South Korea confirmed their announcement to stop financing coal projects in the future. Shinhan Bank said it would not provide financing for coal-fired power projects in- and outside South Korea or underwrite bonds issued to fund coal-fired power plants.

Meanwhile, Hana Financial plans to stop investing in and funding the construction of coal power plants as well as purchasing related bonds, cited The Korea Times.

Last year, KB Financial Group from South Korea also agreed to halt financing construction of coal-fired power plants and to expand investment in infrastructure projects aimed at improving and conserving the environment.

As part of its corporate roadmap to combat global climate change, the South Korean financial giant will no longer participate in financing new thermal power plant constructions in- and out of the country, and instead, increase investment in new eco-friendly opportunities, such as green vessels and vehicles.

Domestic initiatives

On the other hand, some believed that Vietnam still needs to develop thermal power plants to ensure energy security and keep energy prices stable.

In late June, Vietcombank signed a 15-year credit facility agreement of VND27.1 trillion ($1.17 billion) with EVN to fund the Quang Trach 1 thermal power plant. The sum will be disbursed within four years in accordance to the project progress.

Vietcombank is the first credit institution that satisfies the conditions under Decision No.13/2018/QD-TTg and has been approved by the prime minister to grant credit to EVN to finance the Quang Trach 1 thermal power plant project.

Under the National Power Development Plan (PDP8) for the 2021-2030 period, the power capacity structure will be changed in the direction of reducing coal-fired thermal power from 34 per cent in 2020 to 27 per cent in 2030.

During this period, there will be no additional development of new plants in the country other than those already under construction and promoted for operation during 2021-2025. Moreover, the power structure will be changed in the direction of reducing the ratio of coal-fired power source from 27 per cent in 2030 to 17-18 per cent in 2045.

Nguy Thi Khanh, executive director of the Green Innovation and Development Centre cum president of the Vietnam Sustainable Energy Alliance said, “16 out of 34 coal-fired power projects in Vietnam have not been put into operation on schedule and continued to be pushed back for years as per the draft PDP8.”

Khanh added, “One of the major reasons for the slow progress of coal-fired power projects is that it is increasingly difficult to access financial resources. Lenders from South Korea and Japan are the major backers, but now they are phasing out this type of energy due to increasing criticism in their home countries. Thus, the funding pressure will plague Vietnamese banks instead.”

Pham Xuan Hoe, former deputy director of the Banking Strategy Institute under the State Bank of Vietnam, cautioned commercial banks which are increasing their businesses with fossil fuel-related projects that they would also bear significant risks, as the lending quota far exceeds that of other borrowers in other segments.

“Adverse effects from burning coal are so far among the biggest contributors to man-made greenhouse gas emissions. Thus, lending to coal-fired power projects goes against international practices regarding green and sustainable banking development. Continuing to develop coal-fired power plants means that we are transferring risks to our future generations,” Hoe told VIR.

The International Finance Corporation under the World Bank Group stated that Vietnam’s climate-smart business investment potential is an estimated $753 billion from 2016 to 2030, with the majority ($571 billion) going towards the country’s transportation infrastructure by 2030.

Potential investment in renewable energy totals $59 billion, with over half of this ($31 billion) in solar power and another $19 billion for small hydropower projects. New green buildings represent an investment opportunity of almost $80 billion.

By Luu Huong

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