Page 11 - Malaysian Re Foresights issue 2

MALAYSIAN RE FORESIGHTS ISSUE 2| JULY 2020

The Unpopular but Necessary Case for Coal Fired Power Plant

Climate change has been a topic of intense discussion It is interesting to note, that in 2017, President Trump
for many years. Change in weather patterns has been pulled out of the Paris Agreement, citing that the accord
identified as one of the causes of increases in would undermine the US economy. The US needs
catastrophic flooding and typhoons which have power for growth in support of the economy. Very
disrupted the way of life. In late 2016, countries came much so do countries in Asia, where the economy is still
together to sign what became known as the Paris very much depended on fossil fuel for power generation.
Agreement. The objective was to combat climate
change and to accelerate the actions and investments The International Energy Agency (IEA) reports that
needed for a sustainable low carbon future. A timeline South East Asia’s electricity demand grows at an
was set, that by 2030, the global temperature rise was average of 6% per year, which is among the fastest in
to be limited to 1.5 degree Celsius. the world. Since 2000, the overall energy demand has
grown by more than 80% and this is driven by fossil fuel
Coal fire power plants were identified as one of the use - oil is the largest element of power source,
parties responsible for carbon emission that directly followed closely by coal. The IEA reports that oil and
impacted the increase in global temperature. As a result, coal fired power plants will continue to be the main
many signatories of the Paris Agreement have agreed to power generation in South East Asia region
support the phasing out of reliance on fossil fuel,
namely coal fired power plants as a source of power The diagram below shows the demand for different
generation. To support this, many European based types of power plants until 2040 as projected by IEA.
insurers and reinsurers have been reducing their
portfolio, or in some extremes, even stopping the
underwriting of coal fire power plants altogether.
Among these are AXA XL, Scor, Zurich, Allianz, Swiss Re,
Munich Re, Generali, Mapfre, QBE and Hannover Re.
Over the pond, US based companies were not as
determined like their European counterparts. To date,
only Chubb has joined in the ranks to stay away from
coal fired power plants.

The consequence of this action is the decreased supply
of capacity in the power industry for coal fired power
plants which in turn, has driven terms upwards. The
average increase for a coal fired power plant, with clean
Chart 11 SEA’s Demand for Power Plants 2018 - 2040
loss on expiring, is about 15% to 20% from expiry terms.
With the timeline set for 2030, and the limited players Production of electricity in South East Asia is still
supporting coal, the window for this “hard market” will dominated by coal where coal power plants accounts
probably last until 2030. As clients still needed time to for almost 40% of the region’s power source, with
adjust to the new normal, balancing the need the Indonesia leading the way. Indonesia is the largest
th
support the Paris Agreement, as well as ensuring producer of coal in the region and 5 largest in the
premium growth is not ignored, each company adopted world. Malaysia and Thailand are the highest coal
different approaches with some only putting a stop to importers in the region and are ranked the 8 and 10
th
th
insuring new coal fired power plants. On the other hand, respectively in the world (IEA 2019). The popularity for
others have continued albeit a reduction in the overall coal power generator is due to its relatively cheaper
power plant portfolio, limiting the percentage of coal cost to build and operate as compared to other renewal
fired power plants in their books, and having a plan to power sources such as solar and wind. Furthermore, it
continually decreasing the percentage and allowing a has been around for many years and the turbines are
softer exit from the market. considered proven and reliable technology. Because of
these two important factors, it is expected to continue

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