International finance for coal-fired power plants Paul Baruya CCC/277 April 2017 © IEA Clean Coal Centre International finance for coal-fired power plants Author: Paul Baruya IEACCC Ref: CCC/277 ISBN: 978–92–9029–600-3 Copyright: © IEA Clean Coal Centre Published Date: April 2017 IEA Clean Coal Centre Apsley House 176 Upper Richmond Road London SW15 2SH United Kingdom Telephone: +44(0)20 3905 3870 www.iea-coal.org 2 IEA Clean Coal Centre – International finance for coal-fired power plants Preface This report has been produced by IEA Clean Coal Centre and is based on a survey and analysis of published literature, and on information gathered in discussions with interested organisations and individuals. Their assistance is gratefully acknowledged. It should be understood that the views expressed in this report are our own, 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) which was itself founded in 1974 by member countries of the Organisation for Economic Co-operation and Development (OECD). The purpose of the IEA is to explore means by which countries interested in minimising their dependence on imported oil can co-operate. In the field of Research, Development and Demonstration over 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, the European Commission, Germany, India, Italy, Japan, Poland, Russia, South Africa, Thailand, the UAE, the UK and the 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 any employee or contractor of IEA Clean Coal Centre, makes any warranty, expressed or implied, or assumes any legal 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 report does not provide financial advice and does not make recommendations as such. 3 IEA Clean Coal Centre – International finance for coal-fired power plants Abstract Since 2013, publicly funded financial institutions such as multilateral development banks and export credit agencies based in OECD America and Europe have adopted strict lending rules for greenfield coal power projects. However, in 2014 these particular financial institutions supplied just U$9 billion out of a total of US152 billion funding of coal power and mining companies and therefore account for a small percentage of coal finance. There is evidence that many other banks are prepared to support cleaner and more efficient high 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 commercial banks in Japan, Korea, and China are pursuing coal projects abroad partly to export their own HELE technologies, even into Europe. Between 2007-12, Asian public finance institutions accounted for 80% of the funding from such sources. They include the Japan Bank for International Cooperation and the China Development 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 provide opportunities for funding cleaner coal technologies in the future. This report provides a brief introduction to project finance and debt instruments. The policies and role of major financial institutions are examined, along with the global trends in coal finance and the increasing role of Asian funding and the terms and conditions often associated with lending from these agencies. 4 IEA Clean Coal Centre – International finance for coal-fired power plants Acronyms and abbreviations AFBC atmospheric fluidised bed combustion AfD African Development Bank AIIB Asian Infrastructure Investment Bank ASEAN Association of South East Asian Nations BAT best available technology BLA bilateral lending agency BLT build-lease-transfer BO build-operate BOO build-own-operate BOOM build-own-operate-maintain BOOT build-own-operate-transfer BREF best available technologies reference document BTO build-transfer-operate CCGT combined cycle gas turbine CCS carbon capture and storage CDB China Development Bank C-EXIM Export Import Bank of China CFBC circulating fluidised bed combustion CHP combined heat and power, otherwise known as cogeneration CIRR commercial interest reference rates CIS Commonwealth of Independent States CO complete-operate COFACE Compagnie Française d'Assurance pour le Commerce Extérieur COP Conference of the Parties CSP concentrated solar power DMC developing member country EBRD European Bank for Reconstruction and Development ECA export credit agency (agencies) EdF Electricité de France EGAT Electricity Generating Authority of Thailand EGCO Electricity Generating Company Ltd (Thailand) EIA environmental impact assessment EIB European Investment Bank EPC engineering, procurement and construction EPS emission performance standards ESI electricity supply industry ESP electrostatic precipitator ESS environmental and social standards EU European Union EU-SET EU Strategic Energy Technology (Plan) FBC fluidised bed combustion FGD flue gas desulphurisation FSA fuel supply agreement GDP gross domestic product GE General Electric GHG greenhouse gases GNI gross national income 5 IEA Clean Coal Centre – International finance for coal-fired power plants HELE high efficiency low emissions IBRD International Bank for Reconstruction and Development ICBC Industrial and Commercial Bank of China Limited ICC International Chamber of Commerce ICSID International Centre for the Settlement of Investment Disputes (World Bank) IDA International Development Association IFC International Finance Corporation IFI international finance institutions IGCC integrated gasification combined cycle IPP independent power producer JBIC Japanese Bank for International Cooperation JEXIM Japanese Export Import Bank JICA Japanese International Cooperation Agency (JICA) KEXIM Export-Import Bank of Korea KfW Kreditanstalt für Wiederaufbau K-SURE Korea Trade Insurance Corporation LCOE levelised cost of electricity LNG liquefied natural gas MDB multilateral development bank MIGA Multilateral Investment Guarantee Agency MIT Massachusetts Institute of Technology MLA multilateral lending agency MOU memorandum of understanding MTR mountaintop removal NEXI Nippon Export and Investment Insurance NOx nitrogen oxides NPC National Power Corporation (Philippines) NRDC Natural Resources Defense Council O&M operation and maintenance OBOR One belt, one road OECD Organisation for Economic Co-operation and Development PCC pulverised coal combustion PFBC pressurised fluidised bed combustion PLN PT Perusahaan Umum Listril Negara (Indonesia) PM particulate matter PPA power purchase agreement PURPA Public Utilities Regulatory Policies Act RMB renminbi (China) RMC regional member country ROL rehabilitate-operate-lease ROM rehabilitate-operate-maintain ROW rest of the world SEB State Electricity Board (India) SOx sulphur oxides SPC State Planning Commission (China) SPP Small Power Producer (Thailand) STEAG Steinkohlen Elektrizitätswerke AG UN United Nations UNCITRAL United Nations Commission on International Trade Laws 6 IEA Clean Coal Centre – International finance for coal-fired power plants US EXIM US Export Import Bank VEB Export Import Bank of Russia WBG World Bank Group WEPP World Electric Power Plants (database) Units GWe gigawatt (electrical) kW kilowatt kWh kilowatt hour MWe megawatt (electrical) MWh megawatt hour US$/kWe US dollars per kilowatt electrical capacity Acknowledgements The following individuals are acknowledged for their assistance with the preparation of this report. Paul Zakkour Carbon Counts Takahiro Ueno CRIEPI Murray Birt Deutsche Bank Manuela Naessl EBRD Judy Raphael Eskom Nigel Hales GE Power Leo Kirby GE Power Keith Burnard IEA Shelly Hsieh IEA Simon Keeling IEA Juho Lipponen IEA Stephen Mills IEA CCC Hugh Lee Independent Yuki Tanabe JACSES Masahiro Jaraku JICA Alfred Becker KfW Daniel Plankermann KfW Michael Heap Orbis Portfolio Management (Europe) LLP Liam McHugh WCA Ayaka Jones US DOE Scott Smouse US DOE 7 IEA Clean Coal Centre – International finance for coal-fired power plants Contents Preface 3 Abstract 4 Acronyms and abbreviations 5 Acknowledgements 7 Contents 8 1 Introduction 12 2 The basics of project finance 15 2.1 Debt 15 2.2 Equity 16 2.3 Guarantees 16 2.4 Project financing parties 17 2.5 The syndicate 19 3 International agreements 20 3.1 The Organisation for Economic Co-operation and Development (OECD) 20 3.2 UN Conference of the Parties 21 Intended nationally determined contributions (INDC) in emerging economies 22 4 Global trends in coal power and mining project finance 23 4.1 Implications of future trends in coal-fired capacity 24 4.2 Energy divestment 25 5 Role of global commercial banks in the coal sector 26 5.1 Voluntary principles of western commercial banks 29 5.2 Technical benchmarks set by commercial banks 33