 Good afternoon and welcome to today's energy seminar. I'm glad you made it through flooding and power outages and internet Outages I barely made it myself on today. Um, we have a great speaker. We owe a great debt of doubt gratitude to the colleagues in the Sustainable Finance Initiative here Alicia Seiger and Katie Taftlin for letting us know that today's speaker Alex Clark who a lot of us have heard about but not met At this point that he was going to be in town this week to meet with some of the people at sfi and others around stanford Alex is a senior researcher at the smith school of Get this title enterprise and sustainability. You know, we're trying to start our new sustainability school here We may take some advice from you on that one But it actually even before covet but especially now it's kind of a world citizen So he spent time and done research with people at Harvard the boston university columbia university the international institute of purified systems analysis and as i'll describe today several groups in china and he's kind of a a A Frontier opener in the sustainable finance Community it has been so for a while and what he's got onto now is something you may Not think about as being crucially important But if you look at the numbers what to do about the existing installed fossil fuel Capacity base particularly large coal fire plant plants is a very high priority in transition planning and what he's going to talk about today is his most recent work on on basically figuring out ways to provide some incentives for coal fire power plants Finance by the chinese government But in other countries Pursuant to the belt belt and road initiative to figure out how to get the provide incentives for those to Basically shut down sooner than they otherwise would which in my view is a very high leverage way to get To closer to net zero sooner rather than later. So without further ado alex clark. Thanks alex Thank you. I'm really pleased and honored to be here and for that very Over-generous introduction that's going to be hard to live up to but it's a horrible day out there So thank you for for being here in person and hello to everyone online So I've in previous versions of this talk. I've they've been slightly longer So I apologize in advance if I need to skip over anything or accelerate little bits But we can always come back to that in q&a So this this work that I'll I'll take you through I'd be remiss if I didn't mention the co-authors listed on the front here So Cecilia Springer who's assistant director of the global china initiative at boston university That's one of the leading sort of academia think tanks on china's overseas investment footprint As well as abanav jindal of ntpc, which is a large indian utility and also the indoor school of management Garisha Mali, who until quite recently was actually here at stanford and previously at the climate policy initiative as well and ryan rafferty to oxford who contributed Perhaps the most important part of this analysis, which is the political economy piece So I'll just spend a couple of minutes explaining what I will be talking about and why we think it's important as Most of you have probably read in some shape or form Coal power is among the most important targets for decarbonization Particularly in the short term the power sector is is one of those areas of the economy where it's relatively clear how we're going to get to Zero net zero emissions But coal power in particular is Perhaps one of the most The biggest time bombs when it comes to the remaining carbon emissions budget And according to various organizations, I think the numbers quoted here are the international energy agency But there are various different analyses that show versions of the same thing Unabated coal power meaning coal power without carbon capture and storage must be phased out by around 2040 for One and a half degrees to be remotely feasible and you can have a whole other conversation about whether it's feasible at all at this point Um much of the global coal fleet operates in regulated markets and that's a sort of catch-all term for Plants that are not operating in a totally liberalized market environment So there are some controls on prices somewhere. There are some controls on how the the electricity tariffs are set It's not essentially operating in a completely free market and that's true of about 90 of existing coal coal fire power plant by capacity Um early retirement is not a particularly new subject When we're talking about coal and various different models have been developed and they're actually being implemented in several markets Important markets around the world including the u.s. Particularly in the southwest the uk and germany and coal use globally at least at the time of writing and you know Obviously energy markets are all over the place at the moment But there's a clear trend downwards and coal is becoming harder and harder to ensure Both in mining and coal power plants and so on But it's the non-oecd and oecd meaning the kind of group of wealthy countries Non-oecd coal fleets are the subject of this analysis and they are Larger in terms of fleet size. They're younger. They're more competitive for using more advanced technologies They're more vulnerable to asset stranding meaning that it's quite likely that the investors in those plants will have to take a loss at some point if The aforementioned targets are going to be met and they operate in less free markets and all of those things combined I mean, they're actually much much more difficult to retire and really Although the low hanging fruit is is well on its way to being picked Um, it's these really difficult to retire plants that really do need attention at this point I'll just quickly go through some of the things you might want to consider when you're designing a mechanism to help retire a plant early and It's the the most important thing to bear in mind is when you're closing down a coal plant earlier than Then was expected someone somewhere is probably going to have to take a hit For that in terms of lower returns or an asset stranding cost Whether that's borne by the company that Invested in it or built it or whether it's the government that's effectively bailing someone out in order to for earlier retirement to be achieved so three Three main features are important. Firstly, who are the lenders and who are the sponsors The sponsors are essentially those who hold the equity piece of the Um of the project They could be a state and enterprise soe shorthand could be a private firm Could be a government could be a joint venture between a government and a private firm could be a state bank There are loads of different combinations On the tariff side meaning that the the tariff that the coal power plant receives when it's operating and selling electricity Is also very important, you know, what are the fixed and variable components? How much does that reflect recovery of the costs required to build the plant? How much profit is it making all those sorts of things? And finally access to financial instruments in the market in which you're operating So if you're talking about the u.s Securitization, which is essentially the bundling together of assets for many reasons including pooling of risk is something you can do relatively easily Um, but if you're talking about vietnam or indonesia Securitization is not impossible, but it doesn't have much precedent in those markets particularly for large assets like coal plants um Same thing applies for for bond markets green bond markets and spvs, which is shorthand for special purpose vehicles so, you know, it's not to say that um That in uh, non ocd markets, you can't do all these things But they may be much more difficult to do particularly at a reasonable cost so the some of the key features That really do influence whether something like this is possible in reality are The terms of the contracts under which the power plants operate a ppa Which are referred to in this slide as a power purchase agreement And for most of the plants in southeast asia, and i'm saying southeast asia because that's most of the focus of this study Just the terms are simply not known. So they're not public It's not possible really without a lot of guesswork and some really good investigative research to figure out exactly What contracts these plants are operating under so there's there's a quite a lot of guesswork involved as you'll see in the following slides um So when you're considering all these factors you've basically got three options number one is to refinance um, what that means is essentially taking um Taking one loan borrowing at a lower rate and then using that borrowing at a lower rate interest rate I mean to pay off the original loan and you just end up paying less interest What that does in practice is it it frees up a bunch of Cash flow that you didn't have before and you can either use that to pay down your debt more quickly and therefore potentially retire earlier than than before Or as an option too you can use it at least partly to invest in something new So the other part of the puzzle, you know what the reason that we're retiring coal in the first place is to avoid emissions But in most of the countries that have built coal recently electricity demand is growing very rapidly Most likely at more than 10 percent a year and so just retiring capacity is not an option You've got to find ways of replacing it with something else and the third option which Actually is probably most a front of mind at the moment in the international community is the acquisition model Where you take a financial asset in this case a coal plant Whether it's the debt or the equity or both And you sell it to someone else and that's someone else In some of the mechanisms being touted by the asian development bank and the just energy transition partnerships or jet piece That you may have seen in the news recently, particularly with respect to indonesia Involve the transfer of an asset into a new Financial vehicle that's set up specifically for the purpose of retiring plants early And that would usually involve some sort of combination of private money From commercial banks and what's called concessional money Which would be capital with a much lower interest rates that May come from from development banks the world bank for example, but also also regional banks or even national development banks I'll maybe come back to some of the examples of coal retirement mechanisms around the world today But probably the most important of these is the energy transition mechanism at the bottom here, which is the Still in an early stage, but it's being explored in quite some detail by the asian development bank as a way of retiring mostly older coal plants in southeast asia and I think we'll skip those but but this one jet pee, which I just mentioned so Jet pee is not a whole it's not a particularly new idea at this stage It was first I think touted as a potential solution in south africa Then indonesia and most recently vietnam and You know, I wouldn't necessarily call a jet pee a retirement mechanism It's more a sort of general package of potential ways of getting around The gap between commitments at the national level by countries that don't yet have Means to meet them and typically involves some combination of finding ways to retire coal early and accelerate the deployment of renewables a little skeptical about the The numbers being thrown around by various people high up in the u.s. government The the particular number for the indonesia jet pee which was published with great fanfare towards the end of last year was there is You know the u.s. And and others including commercial banks are putting 20 billion dollars into helping indonesia transition If you look at the details There's not a lot of that as grants most of it is loans and most of it is not new money So although it's probably a positive development. I think we should be a little circumspect about the What it might be achieving additionally to what's already in motion And it's worth mentioning that germany is actively working on a similar type of structure for india, which would be a pretty big deal given how Large of an economy india is but it's still early days So to get around to china What i'm referring to with bri coal here is belton rhoda initiative coal the belton rhoda initiative as most you probably know is a huge and nebulous strategic initiative undertaken by china which It is it's not worth trying to sort of come up with a pithy description But it's a very large international strategic and financial investment program that encompasses well over 100 countries now i'm just using bri bri coal as a shorthand for overseas Coal plants financed by chinese entities so outside china Which is not to say that every single one of them is kind of formally part of the bri. It's just a sort of shorthand But what do we mean when we're talking about bri coal? Well Parts of the reason for China engaging with the bri and the first place was an attempt to internationalize the activities of its state-owned companies and Most of chinese china's economy Certainly within the energy sector is owned and managed by state-owned companies. Some of them have subsidiaries that are listed on stock on stock exchanges But in most cases those represent a pretty small share of their assets But when we're talking about international lending for coal by chinese entities on the public side We're mostly talking about the china development bank cdb And the china export import bank known as xim or some variant of that And you know once a deal has been agreed you'll also see other chinese state-owned companies come in to provide What's known as e pc contracts engineering procurement construction? That's basically a sort of turnkey Here's the plant will build it for you and maintain it and so on As well as other soes engaged in you know upstream downstream some other financial aspect of the of the contract and on top of that Greening the bri has For some time now being at least in government documents in china quite a high priority and you can see here on on the slides Some of the translated versions of the guidance in 2022 documents The sustainable development of foreign investment the construction of a green belt and road And the construction of a new ecological development pattern Um, I think anyone here who works on on any Documents published by the government in china knows that you should take this with a pretty large pinch of salt But the direction of travel is quite clear um, so What are we looking at in terms of numbers? um in the last 10 years mostly chinese entities again mostly The cdb or xim bank Have provided financing for 39 gigawatts of coal power that's currently operating With another 14 gigawatts under construction and another five planned and this data is as of 2022 with the the boston university database that's Probably the best source that we've got on on this subject But as was pointed out in a session earlier today This actually might be an underestimate particularly in particularly in indonesia Because it's not completely clear that all of the coal plants have been built are actually being tracked properly Particularly captive coal plants, which generally speaking operate off grid and are used to provide power to large industrial facilities, for example But you know, they're pretty big numbers Um, they're also concentrated almost entirely in three countries indonesia, vietnam, and pakistan You'll also see south africa on this list. We don't look at it in this study Because we're mostly looking at south and southeast asia Um, but it is clear that other than those four Um, malaysia shri lankan so on a pretty distant second Um On top of that in the particularly in the three three countries of interest to us, but also in general Um These plants are very new they've been built in the last 10 years Bearing in mind that most coal plants operate for at least 30 years and sometimes 40 or 50 They've got a long way to go before they would be retired normally um And if you do some sort of back of the envelope calculations across this entire fleet The annual emissions, um, assuming they operate about 65 to 70 percent of the time is around 200 million tons of co2 per year Across the entire fleet accounting for all of the years left for all of the plants If you shut them all down right now, you would avoid emitting almost 5 billion tons of co2 Those are not negligible numbers. They're not, um You know on the same scale as is economy wide emissions, but it's a pretty big number and, um If you just take that that number at the top and multiply it by five It'll tell you that retiring each of those plants five years early would avoid a gigaton or a billion tons of co2 So this is probably worth doing Um, I'll go through this quite quickly. Um, it's just some of the detail on the financial model that we built using The estimates that we could get hold of But I'll spend a little bit of time on the results We essentially built a a discounted cash flow model of a Hypothetical coal plant with representative characteristics a subcritical coal plant for the engineers in the room subcritical meaning It's a less efficient technology That's more typically seen with older plants But actually to my surprise when we were looking at the data for this project Most of the bri coal plants in this study are actually subcritical um And in the model what we do is take a A refinancing year, which is basically the year in which you decide to implement a retirement mechanism Bearing in mind that most of these plants are already operating and have been for a number of years And a retirement year and those can be different. So let's say It's year five. You decide to refinance in year five Um refinance being shorthand for implementation of whatever mechanism And you retire five or ten years after that So they you know, they're different things Um, we have four different retirement scenarios that we look at one of which is a cash buyout What that means is essentially Someone comes in and they buy the plant at its net present value currently So that means future uh cash flows are counted less than present cash flows because future money is worth less um And they use they retire the plant immediately. So someone basically takes the hit whatever it costs 300 million 400 million will buy the plant and we'll shut it down immediately Now that is something that may still happen Um, but we put it there really as a baseline to measure The second option, which is uh a concessional finance option in this case Rather than uh, just buying out the plant and closing it Um, someone comes in and they pay a subsidy to the debt and equity holders that um Allow the entity doing the refinancing to still achieve the expected return And the plant is is retired early The way you do that is by refinancing at a lower cost of capital than you had before And you use some of the difference between the two to achieve this Um, we also have carbon finance scenarios. So these are these are cases in which you account for a value for the avoided emissions um That are realized if you close down the plant early now I'm not saying that there's necessarily a functioning carbon market in any of the countries that we're looking at. There isn't um, it's just trying to hypothetically figure out, you know, what is the the um value on carbon that would need would be needed to justify Uh taking either of these steps So the the first flavor is is what we call the carbon buyout So this is the future price on avoided carbon that would be needed to justify buying the entire plant out and all of its future cash flows Now and retiring it immediately Um, this is not too different to what's been called a debt for nature swap or a debt for climate swap that the world bank has been throwing around recently And actually we've heard anecdotally is also being discussed within china in policy circles Um, though that sort of thing is very difficult to confirm and the final one is a concessional carbon finance model where We're looking at what would be the avoided carbon price required to pay Just the subsidy that's that's needed in order to retire the plant early So not buying out the plant entirely just subsidizing the cash flows to the debt and equity holders um Here are some of the inputs and assumptions. Um, we can come back to this if any of you Think that these are all completely wrong, but the most important one Really is the loan interest rate So cdb and x in bank in china for large infrastructure projects typically lend at actually around four percent So why have we got ten percent here? Well that four percent is really a base on top of which you get other costs like foreign exchange hedging quite a few other little bits and pieces and it's not a very precise exercise But we decided to to keep to our ten percent assumption at least for the purpose of this modeling And this is actually coming out as a working paper in the next week or two and I'll circulate the link once it does Um, but something that we want to do before we submit it to a journal is to undertake a bit more intensive sensitivity analysis on some of these numbers to figure out, you know If we're completely wrong on some of them, does it really matter for the key messages of the paper? Bearing in mind that these are all estimates or estimates based on on what we know Um, I'll just skip through this straight to the results So what we find is that Taking first of all the the non-carbon price Scenarios where you're just using either a cash buyout or concessional finance If you refinance the plant in year five, so that's the refinancing year and then retire it in year 10 five years later It would cost you Basically it cost you 184 million dollars to just buy it out in year 10 Uh, but it would cost you 151 million dollars So about 20 less to refinance in year five and then retire it in year 10 So to achieve the same result it would actually cost you less money And this is basically to do with Discount rates and differences in costs of capital That's what generates that difference because otherwise it all seems, you know, basically the same thing Um, and the the the gap starts to widen in percentage terms the later you wait So if I did the same uh, exactly the same thing But i'm retiring in year 20. It's actually two-thirds cheaper just to use a concessional finance route Now on the carbon prices the only key and the really important thing to say here is that, um You know the numbers you're looking at are actually very very low So the the carbon price that you would need in order to justify doing this Is in all cases less than than 20 dollars a ton Um, I'm not sure how many of you are kind of familiar with, um Carbon pricing the social cost of carbon Actually last week, I think the european ets system for trading Carbon permits breached 100 euros per ton. So, you know, these are pretty small numbers And not that hard to justify actually at least from a social point of view um And this basically just shows shows what I've Uh just explained And the the important thing to mention is that the interest rate subsidy in the way that we've set it up is only possible uh for years in which, um the The the rate of subsidy is less than the total interest rate So if if the interest rate is 10 percent and the subsidy i'm providing covers 9 percent of that we can do that But you can't cover 11 percent of a 10 interest rate If you did that you'd have to have both an interest rate subsidy plus an additional grant component, which we can do We just haven't done it in this paper. Um Partly to sort of constrain it to the most realistic scenarios um I'll very quickly go through some some of the unexpected strange shapes that we saw in some of the graphs we generated, but basically When you're calculating your carbon price There's one price that you would use to pay off the debt holders and another price That would be used to pay off the equity holders And what we did actually is is calculated a single price that can pay off the debt and the equity holders And without getting into too much detail Essentially, there are different pressures on each of these prices relating to how much of the project is Held by the debt holder at any particular point in time so The the price and carbon is for avoided emissions in the future But the amount of avoided emissions allocated to debt holders falls over time because you're paying the debt down And so the carbon price that's required actually rises over time because the amount of Avoided emissions in the future available to be monetized falls over time And and the reverse is true for for equity with a few nuances which explain that inflection point you see around year 19 18 um referring to 18 or 19 years of early retirement um But you can come back to this I think if it's if it's of interest If you put those two together what you find um, and these this is just a more of a curiosity than anything else But it's it's still quite interesting is that the longer you wait to retire the plant the lower the carbon price You actually need to do that There are quite a few different ways of interpreting that but um And I don't think we've really thought through exactly what that means yet, but it's still a kind of interesting observation Um, and I think we want to be completely sure it's not a modeling artifact before we Think about the policy implications So that's some of the refinement work that will go into this paper before it's in journal Submission submission shape So that's pretty much it on the on the modeling I want to spend the next 10 15 minutes talking about political economy Which I think is actually the really important part of this study And I just want to reinforce all the numbers I've shown you are indicative But they do suggest that You know at the very least using something like concessional finance or carbon finance or both is is a pretty feasible way of getting around this problem Um, so I'll just go through some kind of basic details on Indonesia, Vietnam and Pakistan and they're the kind of context in which they're operating Um, for reasons that will become clear I'll just kind of limit myself to to discussing the political economy factors in each case But um, these these are important because they dictate You know, yeah, you can do the modeling as long as long as you want and you can come out with the numbers all day But unless you've understood what's really going on at the national level and uh in a historical context You may be wasting your time. So in indonesia Indonesia has abundant domestic coal resources. They're relatively cheap to extract. They're not particularly high quality Uh, a lot of them are exported to china, which is relevant in the context of the wider trade relationship um, but by and large, um, the government or the government's actions are dependent on uh, the backing of key politically economic elites both in the state-owned monopoly pln the utility firm, but also, um The the kind of oligarchic control of coal resources Um for quite a lot quite a long time now coal has become a growing component of national local budgets That has kind of created a preference to stick with the status quo and on top of that the um The china backed like a bri coal plants in indonesia are not only protected by something called the investor state dispute settlement mechanism which protects investors against adverse policy action by government But also by another specific treaty called the china asian treaty That you know provides additional protection to investors in china backed units In the country as well uh in pakistan this situation is actually much more dire in fact, um The the government of pakistan has actually just uh indicated that it's going to go for another coal push Having done so about five years ago Partly as a result of the turmoil in energy markets and the cost of gas Particularly lng at the moment and it turns out that the pakistani government didn't have any Hedging or long-term contracts. They were buying gas on the spot market, which Seemed like a good idea for a while, but it's now put the government in unfortunately a very very difficult position where It needs Additional electricity capacity very quickly as cheaply as possible So not only is is early retirement not really on the agenda in pakistan The government is actively considering an expansion of coal fired power In vietnam, um, it's a bit more nuanced of a situation in so far as um, so The way the way vietnam plans its power sector is through eight-year long plans not too different to china's five-year plans Um, and the second to last one was pretty pro fossil fuels and the most recent draft of it is actually pretty pro renewables Um, there's a lot of attention on vietnam at the moment as is one of the countries in which the jet pee approach may take off um, so it's not i wouldn't say that the pro renewable pro transition policy is necessarily, um Here to stay in vietnam. It's not necessarily credible, but there's a lot of um Uh, there's a lot of indications that you know, there may be room to manoeuvre So, um, what ties all these contexts together Is very rapidly growing electricity demand Uh, a major role for coal in the generation profile nationally a pretty weak financial outlook for coal Which is not entirely true now given where coal gas and renewable prices are relatively at the moment But generally speaking in the medium long term. There's a lot of competition from cheaper renewables Fuel costs are relatively high and load factors meaning the amount of time per year that the coal plant is operating at relatively low And of course in in all of these countries There are long-term national policy goals and a need to attract a huge amount of investment to meet them um Some of the key differences Vietnam has invested in solar expansion to an extent the other two have not um And vietnam has to a certain extent a more advanced discussion or policy framework around retirement that indonesia and certainly pakistan do not um So what does this all mean? I know i'm running short on time. So i'm going to go through this quite quickly But we can come back to it in qna um The long and the short of it is if you take a um In this case, what's called the act objective context framework for analyzing? The political economy of a country with respect to a certain issue or of a kind of political community um What we find is that you know The the key message really is that if coal retirement is going to happen in any of these countries is extremely unlikely to be on the initiative of the national government Meaning the host country meaning the governments of indonesia pakistan and vietnam um, the reason that's relevant here is that the the country I mean i'm using that term quite hesitantly, but i think it's probably quite accurate in this case because the lending is almost entirely by chinese development banks um The country with that's holding all the cards is china um And interestingly enough what our analysis shows is that um, although you do have a preponderance of of elites And oligarchic forces in most of the in all of these countries actually um, those are those same elites may see external restructuring of of infrastructure from a financial point of view as an acceptable way and a legitimate and politically secure way of Allowing the allowing them to retain their role in growing growing the energy system while also phasing out coal And this is not to take an ethical point of view on this by the way and i'm i'm absolutely i don't think any of my co-authors would would advocate for um, you know a situation where the coal barons in indonesia just getting paid off completely 100 percent, but we're just Kind of working through the options because if you take us as an objective view as possible um, you know, it it seems that unless there is significant political change in these countries if you want to Achieve this in the short term. This is something that you will have to take account of So our conclusion really is that foreign capital in this case chinese foreign capital Will most likely be the one that has to pay for coal phase out in some shape or form given the the need to maintain the stability of Of the kind of political patrons in in these countries again, that's more of a sort of realism based approach rather than necessarily something that anyone would want to see but um a lot of the material that comes out of the The kind of more western financial institutions and development banks and so on tends to not really address these issues So it really is important to talk about them So just to to wrap up in the next couple of minutes If we are going to engage chinese institutions in early retirement and you know part of the part of the audience for this work is actually managers in chinese SOEs and state banks and also to an extent um communist party officials If if this is going to depend on chinese institutions Either concessions from chinese lenders meaning that you know cdb or xin bank is willing to accept a lower return on assets than it had previously Or a transfer of those assets to another institution Which could be a vehicle set up by china expressly for the purpose of buying up and retiring coal plants Or it could be another fund capitalized by you know the world bank the uk germany Etc etc etc as per the the jet b mechanism um as long as china is willing to sell its coal plants to To you know the west broadly defined which is perhaps quite unlikely um But it's also worth bearing in mind that you know for indonesia vietnam pakistan to transition to renewables If they're going to do that most of the stuff they will need to buy and import and the infrastructure Only to build all that sort of thing will come overwhelmingly from china. So there may be a win-win Or at least a lose-win situation for china here What might actually work well? either The the banks or the chinese government directly is willing to renegotiate on the terms of existing loans And there is precedent for that across other bri projects The extent to which they're willing to do that And you know how well that aligns with the costs of the results of the model that i outlined earlier is a bit of an open question Transferring coal assets to new entities again china has done this many times domestically in the early 2000s for example there's a huge steel over capacity in the country and Among some of the measures taken by the chinese government was to set up a dedicated bad bank or bad asset manager To take care and wind down of wind down all of the kind of underperforming assets So there's experience of doing this and then thirdly is the option i already mentioned which is transferring the asset to a international blended finance fund which is conditional on china being willing to sell the assets Who should who's well placed to do this well? chinese dfis or development finance institutions are well placed to do this Both on the debt side through debt for nature or debt for climate swaps or simply just a concessional instrument And then on the equity side actually chinese dfis have share holdings in about two dozen Overseas development funds that have already been set up some of which already have kind of green targets or sustainability goals And those sort of entities are really ideal To either pull capital for the use of interest rate subsidies as i discussed earlier Or to buy and hold coal power assets with the intention of closing them down So there are ways in which this can be done I think i've probably already summed all of this up so i'll just kind of Go through this And finally some of the further questions that we'll be exploring in future work or some of my colleagues will Is And this is really these are really critical questions and have been you know, for example in the case of germany There's a big public debate on the extent to which public money has been used to pay Utilities that own coal fired power plants on the basis They are not economic now. They're not going to be economic in the future the utilities knew that but They came up with inflated values for them You know, this is this kind of moral hazard problem is a real issue in all of the context i've discussed as well potentially So how much should should the coal plant know to be compensated if at all who should meet those costs? What i haven't really discussed this in any detail but in in in the context of kind of geo strategy and geo economic investments and You know china's wider footprint and and access to resources A single coal plant is usually part of a much larger package of investments Which may include you know railway lines that could include a football stadium or soccer stadium say in america Some of which may be explicitly designed to lose money So it's it's generally speaking part of a much wider strategic Set of investments and that should really be accounted for when you're thinking about which which plants You should target first for early retirement And then how I seem to have written half a question here, but How should proponents of coal phase out approach this problem? I think what we've tried to do in this paper is to provide some avenues for Potential success or at least being able to start a conversation Ideally with chinese stakeholders on on doing something about this But our hope is that it's at least additional to the existing conversations out there So I know that's been a lot of material and thank you very much for listening and look forward to your questions Alex that was great a little corset Global political economy focused on your transitions. I would say Any questions from our in-house audience? We now have about Seven eight ten questions. All right. Hi Alex. Thanks for your presentation I just had a question about kind of the terminology of phase out And like on the last slide you had phase out So one of our last speakers his name was Arthur Lee and he had been at some of the uncops and whatnot And he essentially told us that You know one of the last times he was there some of the chinese representatives Kind of staunchly opposed the term phase out and preferred phase down So just in thinking about the role that they have to play in the refinancing I'm curious about a little bit more on your perspective of Their perspective where do they stand right now? That's a really good question Do you want to gather a couple more or should we just do one at a time? Okay, I'll just keep going if that's okay So you're absolutely right One of the real sticking points of the last cop was exactly this use of terminology phase out versus phase down And I've actually encountered this directly with another paper that I was due to present At a symposium held with a chinese entity and I was emailed 12 hours before to say now You can't talk about this Because it was looking at employment and it was looking at phase out within china The open question is how china uses that terminology vis-a-vis overseas investments because it's an extremely politically sensitive issue within china But my impression is you know, it would it wouldn't actually decrease the You know, I would be perfectly willing to swap out that terminology actually if it was able to Get this Show on the road. I don't think it I think it's really semantics in this case And it's important to bear in mind though There is actually a very valid point underlying the whole debate over coal phase out phase down Which is in for a lot of these countries, particularly ones I've talked about there is no realistic way currently Of meeting the demands the electricity demands of their populations Without some form of coal Even if the intention is to get off coal as soon as practically possible That's not something that happens overnight and it doesn't happen without, you know A serious amount of time and money invested in institutions and vehicles for doing so Thank you I was wondering if you could speak a little bit more to the interaction between like china and then the national governments um Of like indonesia vietnam pakistan, um, and if there was a move like for indonesia, for example They have made a lot of commitments to phase out coal to reach net zero by 2060 Certainly just commitments right now and so still need to figure out how it's going to happen But I was curious on if there was enough pressure or interest coming from inside the country if they would have the power to Um, you know buy out these assets from china or kind of like what does that power relationship look like between China and the national governments So I think it really depends on the case and sometimes it depends on the individual power plant so We do have quite a lot of visibility. Thanks to the work of bu over Who owns the debt associated with these plans? We sometimes know who owns the equity The picture on you know private Investors is much much murkier and hard to get hold of particularly if those investors are chinese Um So let let's just let's just take a case in which you know that There's a chinese institution that's provided the debt, but in all other respects. It's kind of backed by a domestic entity um I think for the reasons that we've outlined it's unlikely that the um the domestic entity Whether it's at the government level or whether it's the uh state-owned power company, for example at pln in indonesia's case It's pretty unlikely to be the initiator of the conversation Not least because there are so many other priorities, but just that they're not in a position to uh necessarily They're not in a very strong negotiating position and historically, you know, um, china has been very unwilling to um engage with other multilateral well multilateral development banks particularly and you know the ocd world in general on them Uh renegotiating debt when in bilateral relations with specific countries, particularly those that are under debt distress Which applies to a lot of these cases. They have been Um, so it really depends on, you know, what precedent there is for for, you know, the chinese lender taking a haircut on a particular project or not um Probably the context of the wider relationship, but yeah, it's hard to comment in in general, but um, You know, I think honestly, we've done a pretty superficial analysis here to be honest But um, it'd be well worth while going into really Real detail on the histories of these relationships to try and figure out, you know, what the best tactics would be to get a conversation started That's a bit of a roundabout answer, but I I hope it was helpful Yeah, just um on this point of replacing Capacity right this idea that these countries don't have a whole lot of other options than coal Um, have you looked into or how do you think that the numbers might change with that carbon price? If you also included the sort of subsidizing the cost of the capital to replace that capacity with coal alternatives Like how much would that raise the the carbon price that you guys found um That's a good question So I think you know, you'd probably need to treat that as an additional grant component or something where you know You've got a 10 interest rate, but you're actually providing a subsidy of 15 percent partly to help retry retire the coal plant early and partly to Uh, provide upfront cash to invest in new renewable capacity um, or you could divert a share of the The funding freed up through the through the concessionality mechanism or carbon pricing mechanism and you know Direct some of that towards funding early retirement and some of it towards Renewables, but yeah, it would raise the carbon price, but I'm not sure it's really worth thinking about I'm not sure that's um the way in which I'd frame it to be honest because you know renewed It kind of it can get quite quickly get confusing in policymakers heads to put those two things together um So, you know the are kind of Sides of the same coin, but I wouldn't necessarily bundle the renewable capacity addition stuff into the carbon pricing discussion But you know, it's something we haven't thought about so thanks for the suggestion. We'll think about it As we develop the work Hey, Alex, thank you for your presentation Um, there's been a lot of rhetoric lately, especially in the united states on economic naturalism Particularly considering Chinese investments. Do you foresee that being any sort of barrier to your plans? Are your targets? Um, oh, that's a loaded question Yeah, I mean, you know clearly the the The level of sort of technology and collaboration and infrastructure the nature of the conversation between The us and china is deeply unproductive at the moment Um, there might be some good reasons for that. I think there are some bad reasons for that that are really to do with You know, um, nothing that really has any basis in fact sometimes um, but Actually for looking at these at this particular case Yes, it might close off the avenue where china might be willing to sell some coal assets to a blended fund that's got some Western institutions or countries backing it But I think we've shown that You know china has the capacity and probably the self-interest to do this completely without involving anybody else And that you know, that is still a hypothesis and it's something that we're trying to test by sending this paper to people we think might Be willing to tell us what they actually think in the chinese government um But uh, you know, I think yeah one of the positive conclusions is that you don't necessarily need western participation to make this work Yeah, the best thing that could happen is they could read your paper and then decide It's such a good idea. It was their idea in the first place for the way you described it We're just about out of time for the public questions Alex is going to stay and talk to the student group afterwards. So Alex, thanks for opening our eyes to for most of us a brand new dimension to global energy transition planning in Search of sustainability. Thank you very much. Thank you