Report: 800 Coal Power Stations Ripe for Profitable Transition to Renewable Energy

A recent report from the Institute for Energy Economics and Financial Analysis (IEEFA) has identified over 800 coal power stations in emerging economies that could be profitably replaced by renewable energy.

The report, titled "Accelerating the Coal-to-Clean Transition," highlights the substantial economic returns in transitioning from coal to renewable energy. According to IEEFA’s findings, renewable energy projects can produce profit margins that not only cover the costs of decommissioning coal plants, but also generate substantial profits for operators.

Currently only 10 percent of the world's coal power capacity is slated for decommissioning by 2030, although IEEFA suggests that more coal decommissioning transactions can be completed within the next three to five years.

In its report, IEEFA provides five specific opportunities where it believes it would be economically profitable to run power purchase agreement (PPA) programs to move from coal generation to investment in renewable energy generation.

"These five cases have a profit margin from the renewable asset that is more than enough to pay for the full upfront transaction and coal plant closure costs while still generating an economic profit for the operator of the power facility," it explains. The projects are as follows, along with the potential amount of CO2 emissions prevented:

• Gecelca (Colombia) — 1 million metric tons (MT) on an annual basis
• TAQA Morocco (Morocco) — 277 million MT
• Oltenia Energy Complex (Romania) — 51 million MT (natural gas plant emissions)
• Botswana Power (Botswana) — 82 million MT
• Electricity Generating Authority of Thailand (Thailand) — 21 million MT (annual basis)

To capitalize on these opportunities, the report presents a two step strategy.

First, stakeholders need to dedicate time to identifying specific transaction opportunities that can be viable within the next three to five years. Second, investing in funds to establish local teams in targeted countries is crucial.

These "coal transition facilitators" would develop bankable business cases by conducting due diligence and financial analysis. These teams would be responsible for collaborating with various stakeholders, including utility companies, clean asset developers, investors, bankers and local regulators to determine transaction feasibility.

One of the advantages outlined is that transactions can be structured to cover all associated costs, including societal costs such as retraining workers, upgrading grid infrastructure, site decommissioning and restructuring PPAs.

Despite the advantages, the strategy relies on philanthropy playing a catalytic role by funding the transition facilitation teams. Private financial institutions and banks can also capitalize on the overhaul by funding bankable coal-to-clean transactions with current and potential players involved in the transition.

Lastly, the report emphasizes that large-scale programs such as these face significant challenges that can be effectively managed by adopting a phased approach to rolling out renewables over several years.

This strategy allows countries to develop their supply chains, cultivate skilled workforces and secure necessary financing. The inherent flexibility and scalability of renewable energy projects makes this approach more feasible compared to the substantial upfront investments typically required for coal or nuclear power.

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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article