State majority-owned Korean power utility, Kepco, has come under increasing pressure to drop plans to invest in coal-fired power plants in Vietnam and Indonesia after an official audit of the schemes flagged up the risk of them losing millions of dollars over their lifetimes.
Campaigners, investors and politicians say that not only are the investments bad for the climate, they are bad financial risks as well.
We encourage the Korean Government to use its position as the majority shareholder to scrutinise these plans against its support for the Paris Agreement– Harry Ashman, Church Commissioners for England
Kepco is considering investing around $200m in the 600MW Vung Ang 2 power plant in Ha Tinh Province, Vietnam. The $200m represents the 40% equity stake in the scheme held by Hong Kong power company, CLP Holdings, which decided to stop investing in coal power in December 2019, and put its stake in Vung Ang 2 up for sale.
In Indonesia, Kepco is considering taking an equity stake of $51m in the 2,000MW Jawa 9 & 10 power station in Banten Province.
In recent months, major Kepco shareholders including BlackRock, UBS Asset Management and the Church of England have challenged Kepco on its plans for these two projects on grounds of sustainability.
But this month it emerged that South Korea’s official overseas investment auditor, the Korea Development Institute (KDI), had assessed the Vung Ang and Jawa schemes as potentially loss-making, meaning that Kepco would not only be contributing to the climate crisis, but that it stood to lose millions of dollars in the process.
In its second pre-feasibility study on the schemes, the KDI found that the Vung Ang development is at risk of losing approximately $158m over its lifetime, which translates into a net loss for Kepco of about $80m.
For the Jawa scheme, the KDI predicted a final outcome loss of $43.58m for the plant, which would lose Kepco around $7m.
KDI does not publish its findings, but they can be requested by members of South Korea’s legislature, the National Assembly. KDI’s latest findings were obtained by the opposition assemblyman, Kim Sung-whan, and were sent to GCR by Korean campaign group, Solutions for Our Climate.
"Kepco is really losing face with this investment," said Sejong Youn, an attorney and head of coal finance at Solutions for Our Climate, in an interview today.
"Global investors have already left the coal business because, number one, they think it’s unprofitable and, number two, they think it’s irresponsible in the climate crisis."
Sejong said that, on its own, the Jawa plant would produce on average 10 million tonnes of carbon dioxide a year, which, over 25 years, would be 250 million tonnes of CO2, which is equivalent to the annual emissions of Thailand or Spain.
"Kepco seems to believe they have a better understanding of how these projects work, and they seem to be convinced they will be profitable despite the preponderance of evidence that shows otherwise," he said.
"What we need to see is the changing reality of the energy market, and how things can be different in the coming 25 years. The levelised cost of renewables is falling rapidly in southeast Asia, and these coal-powered plants will be rendered uncompetitive in a number of years. This is still new to Korea and Kepco, and they don’t have a good grasp on how the market is changing."
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".Â
"Kepco’s ongoing investment in overseas coal projects risks tying countries in the region into high emitting, economically risky infrastructure, at a time when Korea should be helping its neighbours to build the foundations for a low carbon future," said Harry Ashman, engagement analyst for Church Commissioners for England, a body that manages the assets of the Church of England.
"We encourage the Korean Government to use its position as the majority shareholder to scrutinise these plans against its support for the Paris Agreement."
Also party to the statement were APG Asset Management, Sumitomo Mitsui Trust Asset Management, UBS Asset Management, Legal & General Investment Management, and others.
In April it emerged that the world’s biggest single asset manager, BlackRock, had in multiple engagements expressed concern over Kepco’s potential involvement with the coal projects, and had asked for a "clear strategic rationale justifying the company’s involvement".
The Financial Times reports that APG has already sold most of its €60m stake in Kepco over its backing of coal power.Â
Image: A coal-fired power plant in The Netherlands (Adrem68/CC BY-SA 4.0)