Carbon Tracker launches revolutionary satellite-based methodology to assess climate risk from fossil fuel plants in emerging economies
LONDON, October 11 – Two fifths of China’s coal power stations are loss-making and owners could save nearly $390 billion by closing plants in line with the Paris Climate Agreement, finds Carbon Tracker in the first study to use satellite images to assess the everyday use and on-going profitability of fossil fuel power plants.
The financial think tank has developed a revolutionary new method to help policymakers and investors understand climate risk in countries with big fossil fuel power industries but inadequate information about plant activity.
The technique is all the more timely as the U.N. IPCC in a major report this week said holding global warming to 1.5˚C will require much deeper cuts in the use of fossil fuels, especially coal.
Matt Gray, head of power and utilities at Carbon Tracker said:
“Satellite imagery coupled with data science offers a powerful response to those governments and asset owners who are unwilling or unable to disclose timely and accurate data.
“If China fails to phase-out coal power, the world will fail to contain dangerous climate change. Our analysis proves it is in China’s own financial interests to retire coal in a manner consistent with the Paris Agreement.”
Nowhere to hide: Using satellite imagery to estimate the utilisation of fossil fuel power plants, applies the approach to China, which has over 1,000 operating coal plants, producing 127 bln tonnes of CO2 emissions over their lifetime or 4.3 bln per year. It finds:
- 40% of China’s coal power stations are already losing money, and this could rise to 95% by 2040 because of the cost of complying with air pollution regulations and a rising carbon price
- It will be cheaper to build new onshore wind farms than operate existing coal plants by 2021. New solar PV will be cheaper than running coal by 2025
- China’s National Energy Investment Group, the world’s largest power company, risks losing $66 billion in stranded assets – half its total capital – if it pursues business as usual
- Two other companies risk losing more than their total capital in stranded assets – Guangdong Yudean Group ($22 billion) and Zhejiang Energy Group ($26 billion)
- All China’s coal power owners can save billions by retiring coal plants in line with U.N. climate targets, with a total $389 billion at risk
Carbon Tracker used satellite images and advanced machine learning techniques to estimate the activity of each coal plant. This enables it to assess each plant’s profitability, calculate when it should close and the potential cost of delaying its retirement.
The Paris Agreement sets a target of keeping global warming below 2°C and as close to 1.5°C as possible, and meeting this will require phasing out coal by 2040.
To meet climate targets one coal plant will need to close worldwide every day, or 100 GW every year, until 2040. But from 2010 to 2017, only around 240 GW was retired. In other words, there needs to be a near threefold increase in the amount of capacity closed to meet the temperature goal of Paris. China’s operational coal plants are equivalent to 1,000 GW of capacity.
The report warns that it is “inevitable” that there will be widespread closures of coal plants ahead of their natural 40-year lifespan, and that if the phase-out is badly managed or delayed there could be “painful impairments” similar to those that saw European utilities write down $150 billion of assets when they failed to anticipate the impact of renewables on their market.
It says: “Markets where governments and asset owners are unable or unwilling to provide granular and timely data are predicted to dominate global demand for both power generation and fossil capacity. For instance, according to the International Energy Agency, China could represent around one third of power generation and over a fifth of fossil capacity globally by 2040.”
Carbon Tracker’s innovative new method will help governments and climate policymakers understand these markets and plan an orderly and economically rational closure programme.
It will also help investors gain trading insights into emerging Asian economies, which are significant contributors to global GDP and have huge fossil fuel exposure, and understand which companies are most at risk of being left with stranded assets.
Laurence Watson, data scientist at Carbon Tracker said:
“The revolution in space sensing is a powerful tool to monitor fossil fuels and energy trends – combining this new data with existing datasets means we can get an asset-level insight on companies anywhere in the world.
“With the realities of the energy transition starting to bite, this new searchlight really leaves fossil laggards with nowhere to hide.”
Carbon Tracker tested its satellite-based modelling techniques in countries where information about coal plant utilisation rates is available and found it was 91% accurate in the US and 92% in the EU.
It now plans to apply its methodology to gas, biomass and oil used for power generation as well as carbon-intensive industrial processes such as refining, steel and cement.
Carbon Tracker assessed the value of every Chinese coal plant in operation and under construction, comparing coal owners’ business as usual plans with the International Energy Agency’s “Beyond 2° Scenario (B2DS) which phases out all unabated coal power by 2035 and gives a 50% chance of limiting global warming to 1.75°C. By assessing the operating cost of each plant and assuming the least economic will close first it is able to establish a rational closure programme and identify which companies are most exposed in a B2DS scenario.
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