State majority-owned Korean power utility, Kepco, has decided to invest in a coal-fired power plant in Indonesia despite a warning from a government auditor that it could cost the company millions of dollars over the plant’s lifetime.
The decision, taken by the board this week, comes after major shareholders urged Kepco to drop coal investments on grounds of environmental and financial sustainability.
A Korean campaign group told GCR the move "raises serious questions on Kepco’s ability to make rational and responsible decisions".
After months of deliberation, Kepco’s board decided on Tuesday to proceed with acquiring a 15% equity stake, costing $51m, in the 2,000MW Jawa 9 & 10 power station in Banten Province, reports The Yonhap News Agency.
It made the decision despite an assessment by South Korea’s official overseas investment auditor, the Korea Development Institute (KDI), which warned of a potential final outcome loss of some $43m for the plant over its lifetime, which would lose Kepco around $7m.
This prompted campaigners, investors and politicians to oppose the investment, saying it was not just bad for the climate, but bad for Kepco’s bottom line as well.
The KDI warned that Kepco’s assessment of the scheme overestimated both the volume of electricity sales and the yearly transmission rate, while underestimating the cost of the plant’s construction.
It also warned that the global transition away from coal would have a negative impact on the Jawa scheme.
Technically, the scheme passed the KDI’s pre-feasibility review, which prompted the board’s decision to proceed.
But Korean campaign group, Solutions for Our Climate, pointed out that the scheme’s profitability index score of 0.549 – just exceeding a fail score of 0.5 – placed it in what the KDI calls a "gray zone", meaning it should be considered with caution.
"It is deeply disappointing that Kepco’s board approved the investment in Jawa project," Sejong Youn, an attorney and head of coal finance at Solutions for Our Climate, told GCR.
"It raises serious questions on Kepco’s ability to make rational and responsible decisions in accordance with the energy market trend and the climate risks. It is also troubling that the Korean Government, despite its ongoing efforts with the Green New Deal initiative, has allowed government-controlled entities to invest almost two billion dollars into a coal project that will lock in tremendous amount of greenhouse gas emissions."
Sejong Youn argues that the rapid fall in the cost of renewable energy in southeast Asia will render coal power uncompetitive before the end of the Jawa plant’s lifetime.
Kepco is also considering investing around $200m in the 600MW Vung Ang 2 power plant in Vietnam.
The KDI warned against that, as well, saying it could result in a net loss for Kepco of about $80m.
In March, a group of heavyweight investors urged Kepco not to invest in the plants "because carbon emissions are increasingly being considered as a competitiveness factor in global markets".
Image: A coal-fired power plant in The Netherlands (Adrem68/CC BY-SA 4.0)