International Finance For Coal-fired Power Plants
International finance forcoal-fired power plantsPaul BaruyaCCC/277April 2017 IEA Clean Coal Centre
International finance for coal-firedpower plantsAuthor:Paul BaruyaIEACCC Ref:CCC/277ISBN:978–92–9029–600-3Copyright: IEA Clean Coal CentrePublished Date:April 2017IEA Clean Coal CentreApsley House176 Upper Richmond RoadLondon SW15 2SHUnited KingdomTelephone: 44(0)20 3905 3870www.iea-coal.orgIEA Clean Coal Centre – International finance for coal-fired power plants2
PrefaceThis report has been produced by IEA Clean Coal Centre and is based on a survey and analysis of publishedliterature, and on information gathered in discussions with interested organisations and individuals. Theirassistance is gratefully acknowledged. It should be understood that the views expressed in this report are ourown, and are not necessarily shared by those who supplied the information, nor by our member countries.IEA Clean Coal Centre is an organisation set up under the auspices of the International Energy Agency (IEA) whichwas itself founded in 1974 by member countries of the Organisation for Economic Co-operation andDevelopment (OECD). The purpose of the IEA is to explore means by which countries interested in minimisingtheir dependence on imported oil can co-operate. In the field of Research, Development and Demonstrationover fifty individual projects have been established in partnership between member countries of the IEA.IEA Clean Coal Centre began in 1975 and has contracting parties and sponsors from: Australia, China, theEuropean Commission, Germany, India, Italy, Japan, Poland, Russia, South Africa, Thailand, the UAE, the UK andthe USA. The Service provides information and assessments on all aspects of coal from supply and transport,through markets and end-use technologies, to environmental issues and waste utilisation.Neither IEA Clean Coal Centre nor any of its employees nor any supporting country or organisation, nor anyemployee or contractor of IEA Clean Coal Centre, makes any warranty, expressed or implied, or assumes anylegal liability or responsibility for the accuracy, completeness or usefulness of any information, apparatus,product or process disclosed, or represents that its use would not infringe privately-owned rights. The reportdoes not provide financial advice and does not make recommendations as such.IEA Clean Coal Centre – International finance for coal-fired power plants3
AbstractSince 2013, publicly funded financial institutions such as multilateral development banks and export creditagencies based in OECD America and Europe have adopted strict lending rules for greenfield coal powerprojects. However, in 2014 these particular financial institutions supplied just U 9 billion out of a total ofUS152 billion funding of coal power and mining companies and therefore account for a small percentageof coal finance. There is evidence that many other banks are prepared to support cleaner and more efficienthigh efficiency low emission (HELE) coal technologies, especially in Asia.However, there has been a geographical shift from western banks as the lead arrangers of project finance,towards Asian institutions taking greater leadership. For example, public funding agencies and commercialbanks in Japan, Korea, and China are pursuing coal projects abroad partly to export their own HELEtechnologies, even into Europe. Between 2007-12, Asian public finance institutions accounted for 80% ofthe funding from such sources. They include the Japan Bank for International Cooperation and the ChinaDevelopment Bank. This funding reduces the impact of the new policies of the western public agencies.Furthermore, the arrival of the newly formed Asian Infrastructure Investment Bank (AIIB) could provideopportunities for funding cleaner coal technologies in the future.This report provides a brief introduction to project finance and debt instruments. The policies and role ofmajor financial institutions are examined, along with the global trends in coal finance and the increasingrole of Asian funding and the terms and conditions often associated with lending from these agencies.IEA Clean Coal Centre – International finance for coal-fired power plants4
Acronyms and ETFBCFGDFSAGDPGEGHGGNIatmospheric fluidised bed combustionAfrican Development BankAsian Infrastructure Investment BankAssociation of South East Asian Nationsbest available technologybilateral lending transferbest available technologies reference documentbuild-transfer-operatecombined cycle gas turbinecarbon capture and storageChina Development BankExport Import Bank of Chinacirculating fluidised bed combustioncombined heat and power, otherwise known as cogenerationcommercial interest reference ratesCommonwealth of Independent Statescomplete-operateCompagnie Française d'Assurance pour le Commerce ExtérieurConference of the Partiesconcentrated solar powerdeveloping member countryEuropean Bank for Reconstruction and Developmentexport credit agency (agencies)Electricité de FranceElectricity Generating Authority of ThailandElectricity Generating Company Ltd (Thailand)environmental impact assessmentEuropean Investment Bankengineering, procurement and constructionemission performance standardselectricity supply industryelectrostatic precipitatorenvironmental and social standardsEuropean UnionEU Strategic Energy Technology (Plan)fluidised bed combustionflue gas desulphurisationfuel supply agreementgross domestic productGeneral Electricgreenhouse gasesgross national incomeIEA Clean Coal Centre – International finance for coal-fired power plants5
EBSOxSPCSPPSTEAGUNUNCITRALhigh efficiency low emissionsInternational Bank for Reconstruction and DevelopmentIndustrial and Commercial Bank of China LimitedInternational Chamber of CommerceInternational Centre for the Settlement of Investment Disputes (World Bank)International Development AssociationInternational Finance Corporationinternational finance institutionsintegrated gasification combined cycleindependent power producerJapanese Bank for International CooperationJapanese Export Import BankJapanese International Cooperation Agency (JICA)Export-Import Bank of KoreaKreditanstalt für WiederaufbauKorea Trade Insurance Corporationlevelised cost of electricityliquefied natural gasmultilateral development bankMultilateral Investment Guarantee AgencyMassachusetts Institute of Technologymultilateral lending agencymemorandum of understandingmountaintop removalNippon Export and Investment Insurancenitrogen oxidesNational Power Corporation (Philippines)Natural Resources Defense Counciloperation and maintenanceOne belt, one roadOrganisation for Economic Co-operation and Developmentpulverised coal combustionpressurised fluidised bed combustionPT Perusahaan Umum Listril Negara (Indonesia)particulate matterpower purchase agreementPublic Utilities Regulatory Policies Actrenminbi (China)regional member ate-maintainrest of the worldState Electricity Board (India)sulphur oxidesState Planning Commission (China)Small Power Producer (Thailand)Steinkohlen Elektrizitätswerke AGUnited NationsUnited Nations Commission on International Trade LawsIEA Clean Coal Centre – International finance for coal-fired power plants6
US EXIMVEBWBGWEPPUS Export Import BankExport Import Bank of RussiaWorld Bank GroupWorld Electric Power Plants (database)UnitsGWekWkWhMWeMWhUS /kWegigawatt (electrical)kilowattkilowatt hourmegawatt (electrical)megawatt hourUS dollars per kilowatt electrical capacityAcknowledgementsThe following individuals are acknowledged for their assistance with the preparation of this report.Paul ZakkourTakahiro UenoMurray BirtManuela NaesslJudy RaphaelNigel HalesLeo KirbyKeith BurnardShelly HsiehSimon KeelingJuho LipponenStephen MillsHugh LeeYuki TanabeMasahiro JarakuAlfred BeckerDaniel PlankermannMichael HeapLiam McHughAyaka JonesScott SmouseCarbon CountsCRIEPIDeutsche BankEBRDEskomGE PowerGE PowerIEAIEAIEAIEAIEA CCCIndependentJACSESJICAKfWKfWOrbis Portfolio Management (Europe) LLPWCAUS DOEUS DOEIEA Clean Coal Centre – International finance for coal-fired power plants7
ContentsPreface3Abstract4Acronyms and 32.42.53Introduction12The basics of project financeDebtEquityGuaranteesProject financing partiesThe syndicate151516161719International agreements3.1 The Organisation for Economic Co-operation and Development (OECD)3.2 UN Conference of the PartiesIntended nationally determined contributions (INDC) in emerging economies4232425Role of global commercial banks in the coal sectorVoluntary principles of western commercial banksTechnical benchmarks set by commercial banksCommodity prices and confidence in the coal sectorSummary26293335375.15.25.35.4Asian bilateral finance institutions6.1 The role of an ECA in the export of power generating equipmentExport trends of HELE technology from selected Asian countriesWestern technology manufacturers6.2 Japanese ECA fundingJBIC and NEXINew lending rules for JBICJapan International Cooperation Agency (JICA)6.3 Chinese financial institutionsChina Development Bank (CDB)China EXIM and SinosurePlanned investment by Chinese banksLending practices of Chinese banksChinese equipment manufacturersDomestic investment in ChinaGreen bonds in China722Global trends in coal power and mining project finance4.1 Implications of future trends in coal-fired capacity4.2 Energy 6.4 Korean financial institutions6.5 Summary6263Multilateral development banks7.1 Overview of MDB coal policies6465World Bank GroupAfrican Development Bank (AfDB)Asian Development Bank (ADB)European Bank for Reconstruction and Development (EBRD)European Investment Bank (EIB)Inter-American Development Bank (IADB)Asian Infrastructure Investment Bank (AIIB)New Development Bank (NDB)IEA Clean Coal Centre – International finance for coal-fired power plants68707173747576788
7.2 Potential impacts of stricter MDB coal policies7.3 Other public financial institutionsIndiaGermanyRussia8978797980817.4 Summary81Discussion and conclusions8.1 The role of energy in industrial development8.2 Conclusions838385ReferencesIEA Clean Coal Centre – International finance for coal-fired power plants889
List of FiguresFigure 1 Introduction to project finance17Figure 2 Funding share of coal power and mine projects in 201423Figure 3 Global fossil power investment24Figure 4 Commercial banks project-finance loan commitments, 2008 and 201237Figure 5 Annual coal funding by public financial institutions in 2007-15, US billion40Figure 6 Institutions supplying more than US 1 billion in public finance for coal, 2007-14,US billion40Figure 7 Historical supplies of coal boiler technology from China, Japan, and Korea to overseas powerstations in 2008-2016, MWe43Figure 8 Projected supplies of coal boiler technology from China, Japan and Korea to overseas powerstations in 2017-21, MWe43Figure 9 Financial instruments used by JBIC47Figure 10 Chart of JICA financial operations and responsibilities51Figure 11 One Belt, One Road – projects completed and planned December 201553Figure 12 China-backed and Western-backed development banks measured by total assets US billion54Figure 13 Chinese providers of coal power finance – confirmed financing only57Figure 14 Top destinations for Chinese overseas coal power finance – confirmed and unconfirmed deals 58Figure 15 Annual support for coal by multilateral development banks 2007-13, US billion67Figure 16 Obstacles to business in low-income countries84IEA Clean Coal Centre – International finance for coal-fired power plants10
List of TablesTable 1Maximum repayment terms for coal-fired power21Table 2Commercial banks’ participation in coal power and mine projects, coal policies and powerperformance (HELE) policies27Table 3List of commercial banking signatories to selected voluntary agreements30Table 4Fall in mining stocks worldwide35Table 5Manufacturers of components in overseas coal plants (MWe), existing and under construction 44Table 6JBIC funded coal plants 2003-1548Table 7Coal finance provided by multilateral development banks in 2007-1367Table 8World Bank coal finance in FY 201469Table 9Minimum performance criteria of new coal-fired power plants that may be supportedby the IADB (IADB, 2009)76IEA Clean Coal Centre – International finance for coal-fired power plants11
Introduction1 IntroductionIn the last few years, there have been several major policy changes by government-backed financialinstitutions in relation to funding overseas coal-fired power plants. In 2013, leading American andEuropean financial institutions announced strict measures to assess such projects. They includedhigh-profile multilateral development banks (MDB) such as the World Bank Group, the EuropeanInvestment Bank (EIB), and the European Bank for Reconstruction and Development (EBRD). The measuresmeant that financial support for any new coal-fired power plants would only be considered under ‘rare andexceptional circumstances’.The trend spread across other western funding agencies that engaged in overseas development funding.The first affirmative action came in 2013 from the export credit agency (ECA) the Export Import Bank ofthe United States (US EXIM) which reversed a decision to assist the 1200 MW Thai Binh subcriticalcoal-fired power plant in Vietnam, citing environmental reasons (Palmer, 2013). Elsewhere, theScandinavian countries issued a joint announcement to heavily restrict public finance for new coal-firedpower plants while the UK Development Finance Institution (DFI) and the Commonwealth DevelopmentCorporation (CDC) also ended support for unabated coal plants overseas.All these policies were adopted in conjunction with changes in guidelines from the Organisation forEconomic Co-operation and Development (OECD) which harmonised the approach to funding coal projectsfor all OECD-based export credit agencies. In most cases, support for subcritical coal plants was ruled outfor large-scale projects, steering coal power developments towards high efficiency low emissions (HELE)coal technologies.While the funding from multilateral development banks has reduced, there are still a small number of newcoal projects in various stages of planning. These plants are in countries suffering from severe powershortages in Asia and Eastern Europe. Furthermore, the Asian Infrastructure Investment Bank (AIIB) is anew MDB led by China, and whose members comprise both OECD and non-OECD countries. The AIIB wasset up in 2015 to finance large-scale infrastructure projects such as power plants. In its first year, the AIIBhad no coal power plants included in its project portfolio, yet the AIIB has adopted a more open policytowards coal power projects and appears to have none of the lending restrictions prescribed by othermultilateral development banks.The adoption of World Bank style policies by the wider financial community remains mixed; these strictpolicies seem at odds with the outlook for investment in new coal-fired power which remains buoyant incertain regions of the world. A great deal more coal power capacity is due to be commissioned in comingyears, and even more plants are in the planning stage. According to Platts World Electric Power Plant(WEPP) database, 280 GWe of new coal-fired capacity is already under construction and will come onlineby the end of 2022. A further 660 GWe are in various stages of planning. Eight out of the top ten countriesplanning new power plants are Asian and 70% of the new capacity is being built in China and India. TheIEA (2016) sees SE Asia as the growth area for new coal-fired power in coming decades. All of this new andIEA Clean Coal Centre – International finance for coal-fired power plants12
Introductionplanned capacity either has finance committed or will require it. Many of these stations have been plannedwith no expectation of funding from the AIIB. The IEA CCC estimates that in 2014 alone, global investmentfor coal power plants, mines, and associated transport infrastructure could have amounted toUS 152 billion.Each financial institution has its own motivation, and their policies towards coal investments aredetermined by their perceptions of the risks and rewards for coal power projects. Some of the risks willaffect the economic viability of a project compared with alternatives to coal power, and other risks arerelated to environmental and climate regulations. While various multilateral development banks andexport credit agencies announced a retreat from coal funding, other banks and institutions, predominantlyAsian, are readily available to fill the gap.Based on this premise, the report examines the current and future status of funding for coal-fired powerplants. The study opens with an introduction to project finance, followed by the current global regulatoryframework, chiefly COP21 and changes to the OECD export credit rules. Next is a discussion on trends incoal finance from major institutional sources from both public and private sources. The report estimatesthe scale of direct funding from multilateral development banks and examines the lending policies ofvarious funding sources, notably the commercial banking sector and other government-backed lendingagencies.The strong geographical dimension for new coal developments and funding is recognised. Most of the newgenerating capacity will emerge in faster growing economies, and this report examines the importance ofoverseas funding needed in smaller low and middle income economies outside China and India. Particularattention is paid to the role of large Asian financial institutions which have usurped western banks in termsof project finance for large scale infrastructure developments. Some of the most interesting aspects of coalfinance are reviewed, such as lending practices and competition between different lending agencies.Furthermore, financial assistance can be combined with wider strategic government policies, for examplewhere debt for power plant projects is exchanged for access to natural resources or other commodities.This report investigates how these arrangements work and how finance deals can be used to boost exportsof power plant equipment from lending countries. One of the outcomes of this report is that Asian countrieswith large funding agencies are also exporting HELE technologies, such as boiler, steam turbine andgenerator components to overseas power projects. With Asian equipment companies enjoying a lead insupplies of coal finance and equipment supply, the report considers how western equipmentmanufacturers are adapting to keep pace with competition in the expanding Asian market.The report concludes with the multilateral development banks themselves. The, policies for each bank areexamined and the differences in approach to assessing coal power developments are highlighted. Thedriving force behind MDB policies are considered, such as member country climate goals, and the reportalso considers how stricter coal funding policies can impact economic development in low and middleincome economies. The emphasis of the report is on funding for new greenfield plants, however theupgrading of existing plants, retrofitting environmental equipment, and adapting stations to be carbonIEA Clean Coal Centre – International finance for coal-fired power plants13
Introductioncapture ready are outside the scope of this report, but such opportunities for financial institutions shouldbe considered for future research.IEA Clean Coal Centre –
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