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Cambodia's shift toward coal power puts it at odds with the global embrace of renewables. (Source photos by AP) 
Business Spotlight

Cambodia counts the cost of its push to expand coal-fired power

Soaring coal prices and opposition from foreign business stoke doubts over plan

SHAUN TURTON, Contributing writer | Cambodia

PHNOM PENH -- The potential cost of Cambodia's push to boost its reliance on coal power has increased sharply since it began to ramp up two years ago, prompting calls for the government to rethink and promote renewable energy.

As world leaders, banks and companies push to cut carbon emissions by shifting toward cleaner power, Cambodia has been moving in the opposite direction, with plans for new generation capacity and imports that will take fossil fuels from 56% of its grid to almost 75% within the next decade.

International companies warned last year they could scale back manufacturing in Cambodia to avoid breaching climate pledges, with potentially damaging consequences for the economy. And in recent weeks the price of thermal coal has soared to a 13-year high, piling on new costs.

Bridget McIntosh, country director of EnergyLab Cambodia, said there was still an opportunity to change course.

"Cambodia can take existing coal and hydro and build the rest out with solar, wind," she said. "Balancing the analysis shows this will be reliable and cheaper than current plans."

Cambodia's current strategy was set after it suffered major energy shortages during a drought in 2019, which affected the hydroelectric plants that produce more than 40% of the country's power.

Cambodia suffered major energy shortages during a drought in 2019 that affected the hydroelectric plants.   © EPA/Jiji

Seeing coal as more reliable, the government has fast-tracked approval for two new coal plants inside the country and effectively underwritten two more in neighboring Laos with a promise to import power from them.

Analysts say Cambodia is locking in long-term coal contracts at a time when power from solar and wind is surpassing coal in terms of affordability.

Taking into account transmission and distribution losses, large-scale hydro and coal-fired generation plants in Cambodia provide power for between 8 and 11 US cents per kilowatt-hour, according to a report by Phnom Penh-based consultancy Mekong Strategic Partners in 2016.

That compares with 7.6 cents per kilowatt-hour for solar power under some recent contracts, and the costs of the technology are decreasing. A 2019 auction to deliver a solar project, facilitated by the Asian Development Bank, resulted in an agreement to sell power at 3.877 US cents per kilowatt-hour.

Meanwhile, initiatives like the G7's commitment to end coal power and the creation of the Glasgow Financial Alliance for Net Zero, a group of investors controlling over $70 trillion in assets that aims to steer capital toward the goal of net-zero emissions, have "changed the goal posts entirely," said Tim Buckley, director of Energy Finance Studies at the Institute for Energy Economics and Financial Analysis.

The EU and U.S., vital markets for Cambodian exports, have announced plans to aggressively reduce emissions and are debating imposing a "carbon border tax" on some imports from countries without emissions-reduction policies of their own. And companies are scrutinizing supply chains to limit their exposure to carbon-intensive power sources, Buckley said.

"What started as greenwash and 'talking the talk' is becoming, very much, 'walking the walk' and it's only going to go one way," he said.

Cambodia's economy was growing at about 7% annually before the COVID-19 pandemic and electricity demand surged more than 500% between 2009 and 2019. The government had forecast another 500% increase in the next decade.

Authors of a 2003 Cambodian government report were "optimistic" that dams on rivers would help achieve energy independence and allow Cambodia to become an energy exporter. But the ambitions were scaled back as large hydro projects met resistance from communities displaced by reservoirs and from environmental experts concerned about the impact on riparian ecology, particularly along the Mekong.

Climate change has added to the urgency of finding an alternative to hydro, with global warming forecast to increase the frequency of extreme weather events like the 2019 drought.

Courtney Weatherby, Southeast Asia research analyst at the Stimson Center, an independent U.S. policy think tank, said the drought "really pushed, on top of all of these other factors and concerns over hydropower, for a sudden rush to other types of projects."

Victor Jona, the director general of the Ministry of Mines and Energy's General Department of Energy, defended the fast-tracking of fossil fuel projects, saying the authorities aimed to achieve "balance" between "green" and "the economy."

He pointed out that, since the country already gets close to half its energy from renewable sources including hydro, it would be within targets set by ASEAN member states to have 23% of their primary energy supply from renewables by 2025.

Last year, several major companies, including clothing giants H&M, Adidas, Puma and Gap, sent a letter to the government expressing concern about plans to expand coal use, saying countries that view coal as a viable source of energy for the long-term "will lose out."

They are now pushing for permission to buy renewable power directly from producers using so-called direct power purchase agreements, as a way to meet their carbon targets and to encourage the building of more solar and wind projects.

"It would allow companies with carbon neutral commitments to meet them in Cambodia via the national grid," an H&M spokesperson said recently, and it would "provide the investment into the national grid to better support increased percentages of renewable energy, and better grid stability to avoid power cuts."

Companies also want an end to restrictive rules on rooftop solar. Currently, businesses using solar panels cannot feed excess energy back to the grid, and there are disincentives to its use. The amount of solar that can be installed is capped at 50% of a company's contracted load from the state-owned power company EDC and, by installing solar, businesses are not eligible for off-peak rates.

Developments in recent weeks have added new questions about Cambodia's coal strategy. Thermal coal of the kind used in power generation is trading at a 13-year high, and not far from an all-time record. Rising demand from China and India has collided with supply disruptions and a reluctance to invest in new mines in a world pursuing decarbonization. Prices have more than tripled since 2019.

The Lower Sesan 2 dam in northern Cambodia: Hydro power has played a major role in Cambodia's energy mix. (Photo by Vann Soben)

And China's President Xi Jinping last month pledged the country would stop funding new coal plants abroad and instead finance greener sources of power.

China's role in Cambodia's energy sector is so extensive that, as of 2018, almost three quarters of the domestic power supply came from Chinese-built and financed power plants.

All but two of Cambodia's operational and planned coal plants are Chinese-built and operated, but Chinese firms are also involved in several solar power projects. After installing its first in 2017, the country now has five solar farms, with five more in the pipeline.

By 2030, authorities plan to have enough solar energy in the grid to cover 17% of peak demand, according to a 2020 presentation by the EDC.

President Xi's announcement was sparse on details, with no ready information about when funding for coal would stop and what would happen to projects in the pipeline.

Li Shuo, Senior Climate and Energy Policy Officer at Greenpeace China, said the pledge signaled that "the world was ready to say goodbye to coal" but would need to be followed by action to deliver renewable technology to developing countries.

"We should not write off the genuine energy demands from much of the developing world," said Shuo.

McIntosh, of EnergyLab Cambodia, said that by damping economic activity and the growth in demand for power, the pandemic had given Phnom Penh the chance to rethink its strategy -- particularly plans to import 2.4GW of coal power from Laos.

"If the 2,400MW of coal imported from Laos will struggle to get finance now -- wouldn't it be better to invest in solar and wind in Cambodia?" she said. "It would result in billions of dollars of investment, local green jobs and much needed economic stimulus."

Attention is now turning to a "2040 masterplan" for Cambodia's future energy mix that is being developed by the government with the assistance of the Asian Development Bank.

ADB country director Sunniya Durrani-Jamal said it was too early to discuss what renewables targets would be presented by the final report, but she said the lender was "encouraged" by Cambodia's increasing solar capacity and pointed to regional trends as a reason to be optimistic.

Last year, the Philippines proposed a moratorium on new coal plant projects. Bangladesh has scaled back coal ambitions after the withdrawal of banks that would have financed such projects. Vietnam, meanwhile, has canceled or frozen more than a dozen coal projects and aggressively pursued solar.

"Regionally, a lot of countries are taking a second look at their coal investments," said Durrani-Jamal.

For the time being, however, the strategic focus on coal is causing frustration for proponents of sustainable generation like renewable energy company The Blue Circle.

The Blue Circle runs a wind farm in Vietnam but has struggled to introduce wind power in neighboring Cambodia. (Photo courtesy of The Blue Circle)

The company, which runs a wind farm in neighboring Vietnam, has faced an uphill battle to introduce wind power to Cambodia.

It has been ready for months to move forward with an 80MW project in the coastal province of Kampot but is unable to secure an agreement from EDC to buy its output.

This is despite proposing selling power at 6.85 cents per kilowatt-hour, which would make the $100 million facility the cheapest source of wind generation in ASEAN and cheaper than Cambodia's coal deals.

"It's like fighting windmills," said company founder Olivier Duguet. "At some stage someone will have to answer, why not in Cambodia?"

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