Planned coal plant expansions in Europe have backfired, Asia could lose too

Between 2005 and 2008 European utilities were determined to embark on a major coal-plant construction programme. They announced plans to build 49 GW of new coal-fired power capacity.

To date, 77% of this new capacity has been cancelled, with more likely to be cancelled soon. 20GW has been cancelled in Germany alone. The economics of existing plants have deteriorated too. For example, in the UK coal use fell by over half in 2016 and the country’s power system now experiences coal-free days for the first time since the 1880s.

New analysis from the University of Oxford Smith School of Enterprise and the Environment finds that unjustified optimism in the future of coal at a company-level combined with wishful thinking in sector-wide forecasting led to the proposed coal expansions that ultimately backfired. The scale and pace of the decline in coal’s economic attractiveness is significant and provides a cautionary tale for Asian utilities and their investors.

European utilities completely misjudged the prospects for new coal-fired generation and have since paid a significant price for this mistake. The subsequent stranded assets, under performance, and reductions to balance sheet capacity still weigh down the sector.
Moreover, significant financial, human, and organisational capital was wasted taking forward so many coal projects through the development process. The proposed plants were also a major unwelcomed distraction for utilities just as the European power system entered an unprecedented period of technology, policy and market innovation.

 

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