Study – pv magazine Australia

3 September 2024 Eva Foley

An Asia-focused study led by researchers at Queensland's Griffith University in collaboration with Singapore-based energy transition consultancy Climate Smart Ventures and researchers at China-based Fudan University's Green Finance and Development Centre has found that early retirement of coal-fired power plants can be financially beneficial for investors.

The study shows that coal-fired power plants in Vietnam and Pakistan could be shut down three to 13 years earlier than planned while maintaining or increasing financial returns.

Published in scientific journal Energy policyThe research paper, “Can investors benefit from early coal-fired power plant closures?” is a plant-level analysis of China-backed coal-fired power plants in Vietnam and Pakistan. However, the report's co-author, Professor Christoph Nedopil, said the findings could also apply to Australian markets.

Nedopil, director of the Asia Institute at Griffith University, said pvmagazine Younger coal-fired power plants, especially those with high financing costs, may be able to be closed sooner than older plants while maintaining or increasing shareholder value.

“The model looks at special situations where there is a high level of debt. Typically, young coal-fired power plants have a very high level of debt, but in general all coal-fired power plant owners try to have a very good leverage ratio,” he said.

“I don't know the debt ratios of the current coal-fired power plants in Australia, but the debt financing model would work if a significant amount of debt was still on the books. So refinancing combined with investments in renewable energy can significantly increase the corporate value of the coal-fired power plant owners.”

Nedopil said if the Australian government found the model interesting or financial institutions agreed, driven by the goal of supporting the acceleration of the energy transition and making the economy greener, they could offer green financial instruments.

“And if they could take, say, 0.5 basis points off the current interest rate in exchange for a promise to close a coal plant early, then that would work in Australia too. It's the same principle, it really depends on the debt and how much debt is on the books,” he said.

“In the study, we looked at young and older power plants and found that we can save more years on the younger ones just because (a) the debt ratio is higher and (b) we can't subtract 10 years from lifetime and decommissioning emissions when the plant is already 30 or 40 years old, it still takes some time to make the transition. Younger plants will still run for 15 years but will be decommissioned seven years earlier.”

Nedopil said the findings were relevant for countries grappling with concerns about their energy security and the need to meet their climate commitments.

“Our research provides a roadmap for implementing financially viable strategies to phase out coal power while expanding renewable energy capacity,” he said.