Coal Project Funding Drops to Lowest Since 2010

A few years ago, coal use seemed to be on the decline. Several major economies had pledged to replace the dirty fuel with cleaner alternatives and were already shutting down some of their old coal-fired plants. Then Russia invaded Ukraine and plunged the world into chaos, exacerbating an ongoing energy crisis that caused prices to soar and left countries scrambling to find alternative sources of energy.

The Kremlin blocking natural gas exports to the rest of Europe made the situation significantly worse and forced many European countries to return to their coal-power plants to shore up their energy supplies in the short term. However, while this move led to fears of a large-scale regression to coal-fired power that would impact global green-energy goals, it seems these fears were unfounded.

More than a year after Russia invaded Ukraine and initiated the return to coal, funding for coal projects in other countries outside China is at its lowest level since 2010. Data from the Global Coal Project Finance Tracker by the Global Energy Monitor shows that for every U.S. dollar dedicated to coal projects last year, another $14 that was earmarked for proposed coal projects did not flow into the coal market.

This shows that outside of China, most countries across the world are spending significantly less on coal projects. However, southeast Asia and China in particular have continued to enjoy strong lending to coal projects despite scores of social, political and economic factors that discourage investment into coal.

According to the Global Coal Project Finance Tracker, only $544 million in funding was set aside for a pair of coal-fired power stations by the end of the financial year in 2022. The Bank of the Philippine Islands and the Rizal Commercial Banking Corporation financed the refurbishment of six units at the Puting Bato power station in the Philippines while the Export-Import Bank of India funded the refurbishment of existing units in Zimbabwe’s Hwange Power Station.

On the other hand, the global coal sector lost a whopping $7.7 billion in project financing in 2022, and some experts believe the actual figure is much higher as data on coal power plants isn’t easily accessible. Investment in coal projects peaked in 2017 at around $38 billion at the close of the financial year before dropping by more than 70 times to reach slightly over half a billion dollars last year.

Corporate lenders are investing much less in the coal sector due to private and public divestment policies. In addition, players in the coal industry are borrowing less due to the increasing price of coal and higher interest rates.

These shifting attitudes toward coal projects suggest that major players in the space, such as Alliance Resource Partners L.P. (NASDAQ: ARLP), may consider pivoting their operations away from coal if they are to evolve and survive in these changing times.

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