‘Paradigm shift’: How investors’ retreat from coal is gathering pace

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'Paradigm shift': How investors' retreat from coal is gathering pace

The coal industry’s biggest cheerleader is about to be ousted from the White House and now leading infrastructure players are pledging to no longer provide infrastructure for coal fired power plants

The long term outlook for the coal market has been gloomy for some time, but in the past week the full scale of the existential threat facing the sector has been hammered home on multiple fronts.

President Trump famously failed to deliver on his promise to end the war on coal. He may have rolled back environmental regulations on the sector, but he could not negate the competitive pressures on the US coal industry from low cost renewables and gas. Coal company bankruptcies continued under the Trump administration and the US famously shuttered more coal power capacity under Trump’s first term than it did under Obama’s second term. But Trump did attempt to throw a lifeline to the embattled sector. President-elect Joe Biden has made no such promises and instead talks openly of multi-trillion dollar clean energy investment and a transition away from fossil fuels. The coal industry is arguably the biggest loser from Biden’s victory.

And Presidential disapproval is the least of the industry’s problems. The past week has seen a wave of coal divestment and withdrawal announcements from prominent infrastructure and investment firms, providing further evidence of the coal sector’s increasingly precarious position in the minds of investors and business leaders.

In the past few days engineering giants Siemens and Toshiba have pledged to stop building components for new coal-fired power plants, joining General Electric and Black & Veatch as companies that have recently confirmed they will end their investments in the coal sector. Meanwhile, South Korea’s largest conglomerate, Samsung Group, announced it would stop all types of funding for coal projects made by its insurance and investment businesses, delivering a further blow to the ailing sector.

As Toshiba president Nobuaki Kuramatani put it, players across the energy sector supply chain are gearing up for a major paradigm shift as demand for coal plummets, renewables capacity expands, and world leaders are increasingly united behind the need to tackle emissions. Recent net zero emission announcements from China, South Korea, and Japan in the past month, paired with Joe Biden’s pledge to return the US to the Paris Agreement, are all expected to usher in a wave of policies that should benefit green energy development and sideline carbon intensive projects – investors and manufacturers are taking note.

“Clearly, there will be a paradigm shift in the energy sector globally,” Kuramatani observed as he announced the company’s new direction. “As a result, we have decided to stop receiving orders for coal-fired thermal power plants that emit large amounts of carbon dioxide.”

Toshiba said on Wednesday that it will instead accelerate its pivots towards cleaner, renewable energy and focus on a new goal of halving greenhouse gas emissions related to its business by 2030. Kuramatani said the firm expected business opportunities to emerge as countries worked to meet decarbonisation commitments under the Paris Agreement and as such the company would be targeting a three-fold increase in its renewable business over the next 10 years.

The Japanese firm’s announcement came just one day after turbine manufacturer Siemens Energy announced it would similarly stop taking new business from coal-fired power plants.

Chief executive Christian Bruch said new investments in coal were at odds with the company’s commitment to sustainability. “Sustainability is at the core of our actions,” he said. Both Siemens and Toshiba have said they will respect existing contracts, however, and the German firm said that existing technology partnerships would be also be “addressed” in light of its withdrawal from coal.

However, again there is a sense of a company recognising where market forces are heading. Siemens’ gas and renewables focused operations look to offer far better long term opportunities than a sector that multiple governments want to phase out.

And yet another blow to the ailing coal sector was delivered this week, as South Korean conglomerate Samsung Group pledged to stop all investment in coal projects through its insurance arms, Samsung Life and Samsung Fire & Marine, and its asset management business.

The move comes after the company was criticised by investors and green groups following research that suggested the companies, the largest property and life insurers in South Korea, had provided $14bn for coal projects in the last decade.

The insurance firms have not directly financed coal projects since June 2018, but this week’s announcement will mean they no longer underwrite insurance policies for such projects or invest in corporate bonds backed by coal projects, Samsung Group said.

In addition, Samsung Securities and Samsung Asset Management, the conglomerate’s brokerage and fund management businesses, also committed to drafting investment guidelines that would mandate a ban on fresh investments in coal mining and coal power plants.

Samsung Group’s withdrawal from coal is expected to have a ripple affect across other companies and financial groups in South Korea, which currently derives just five per cent of its electricity from renewable sources, according to the IEA.

Meanwhile, a smattering of financial updates from the US further planted another nail in the coffin of the coal sector, with the world’s largest private sector coal miner Peabody revealing it was teetering on the verge of bankruptcy after its coal sales volumes plummeted by 23 per cent, and energy company American Electric Power Co announing plans to ditch 1.6GW of coal capacity in Texas by 2028 in a bid to meet federal regulations.

The Covid-19 crisis has undoubtedly played a major role in highlighting and accelerating the coal sector’s decline, as plumetting energy demand during the pandemic saw cheaper forms of power such as wind and solar shouldering the lion’s share of electricity demand in regions with high clean energy capacity. This week’s developments provide yet further evidence that investing and partnering with the coal sector is not only reputationally risky due to its devastating impact on the environment and climate, but an enterprise that can undermine companies’ potential for long term growth and financial security.

Original Source: businessgreen.com

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