Because the mud settles on the Music Hau 2 coal energy deal, its cancellation sends a transparent message: Southeast Asia is pivoting away from coal. With fast urbanisation and rising vitality calls for, the area faces a selection – cling to the previous or embrace a cleaner future. The market appears to have made up its thoughts.
Final month, the Authorities of Vietnam issued a discover of termination on the Music Hau 2 coal energy mission – a decade-long endeavour backed by a Malaysian agency and Eximbank Malaysia – citing unresolved financing points.
Simply weeks earlier than the termination, the Vitality Shift Institute warned that the mission threatened Vietnam’s Simply Vitality Transition Partnership (JETP), probably risking US$15.5 billion in important vitality transition assist.
What can the markets be taught from this? Listed here are the important thing takeaways.
Lesson 1: Coal is rapidly dropping strategic significance in Vietnam’s vitality future
Vietnam’s resolution to scrap Music Hau 2 marks a turning level: coal is turning into a lot much less of a precedence within the nation’s vitality system. The capital markets must get up to this actuality or threat pouring assets into offers which can be destined to fail.
The indicators had been clear in Vietnam’s Energy Improvement Plan 8 (PDP8), printed in Could 2023, and its prior draft iterations from 2022. PDP8 highlighted the necessity for coal energy technology to be capped at 30.2 gigawatts by 2030, aligning with its JETP commitments.
An in depth assessment of PDP8 reveals that the Music Hau 2 mission didn’t make it onto the listing of “necessary energy supply initiatives” that make up the 30.2-gigawatt cap.
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Southeast Asia faces a fancy vitality panorama. The area shouldn’t be solely navigating the vitality transition but in addition grappling with fast urbanisation, rising vitality demand, geopolitical challenges, and aspirations to maneuver into middle-income economic system standing.
Its absence from an inventory of strategic initiatives signifies it had misplaced its precedence standing inside Vietnam’s vitality planning a number of years earlier than. As an alternative, Music Hau 2 was categorised as “difficult”. Different coal energy initiatives, which confronted the same downgrade, had been additionally scrapped or transformed to fuel.
The mission’s backers ought to have seen the writing on the wall or reaffirmed with the federal government earlier than committing any financing to the mission. Whereas it might be argued that the Authorities of Vietnam ought to have been extra express about its stance, the broader tendencies had been already clear, and pre-investment due diligence ought to have anticipated these strikes.
Vietnam is shifting gears, prioritising different sources of vitality over coal.
Lesson 2: Don’t be fooled by know-how labels
After our preliminary commentary, we acquired enquiries from the market concerning the “ultrasupercritical” (USC) label of Music Hau 2, implying its mark of significance to Vietnam. This can be a misunderstanding. The USC label is just a coal know-how. It doesn’t recommend its significance to the market.
In response to the IEA, USC crops function at increased temperatures and pressures, reaching some working effectivity in comparison with subcritical and supercritical crops, and interprets to decrease carbon dioxide (CO2) emissions per unit of electrical energy generated.
However whereas the USC coal know-how is extra environment friendly than older coal crops, it’s nonetheless a significant emitter. The truth? USC coal crops emit 720-870 grams of CO2 per kilowatt-hour – round 15-30 per cent discount in emissions in comparison with subcritical and supercritical applied sciences, however nonetheless far above the near-zero emissions from renewables. Regardless of effectivity positive factors, a USC coal plant remains to be unappealing to a market in search of to decarbonise.
Moreover, in keeping with the Japan Coal Vitality Middle, USC coal crops have been working because the early 2000s, underscoring that this know-how is much from new, and don’t signify a significant innovation or align with present vitality tendencies.
Pivoting again to Vietnam, the claims that Music Hau 2 would have “enormously diminished emissions” for the nation had been extremely exaggerated.
Lesson 3: Southeast Asia is shifting on from coal, regardless of an absence of clear pathway
Southeast Asia faces a fancy vitality panorama. The area shouldn’t be solely navigating the vitality transition but in addition grappling with fast urbanisation, rising vitality demand, geopolitical challenges, and aspirations to maneuver into middle-income economic system standing. Whereas some could interpret these dynamics as a continued want for coal-fired energy, latest developments recommend in any other case.
The termination of the Music Hau 2 shouldn’t be an remoted case. The cancellations of the Vinh Tan 3 mission in Vietnam, Cirebon 3 in Indonesia, Sual 2 within the Philippines, and Krabi in Thailand all inform the identical story: coal is dropping its funding case. And it indicators a broader shift. Whilst nations within the area take time to finalise their public decarbonisation plans, their actions are talking louder than phrases—governments are more and more deprioritising coal.
The Asean Centre for Vitality (ACE) not too long ago advocated for coal to stay a big a part of the area’s vitality combine for longer than the IEA anticipates, citing the necessity for dependable baseload energy and social and financial issues.
The ACE report additionally questioned the Asean Sustainable Finance Taxonomy’s stringent standards to recognise coal energy technology as a “sustainable funding” and, at its report launch occasion, prompt amendments to the taxonomy to make sure abated coal energy initiatives can safe financing.
Nevertheless, ACE’s stance, together with the challenges of securing financing for coal energy initiatives like Music Hau 2 in Southeast Asia, confirms that deal circulation and capital should not supporting a idea that coal enlargement – or extension – is required.
Sizeable coal energy initiatives are pricey and closely reliant on overseas capital, however worldwide buyers are more and more hesitant to finance coal initiatives – no matter whether or not coal energy technology is labelled as a “sustainable funding” in regional taxonomies.
The route of journey in Southeast Asia is unmistakable. The coal trade, and its supporters, must adapt, and quick.
