Coal burns out as insurance dries up

Climate Finance

Coal burns out as insurance dries up

Share on

Underwriters withdraw financing from new and existing coal power plants.

In a severe setback for the coal power industry, insurers are withdrawing their financial support for both new projects and existing power plants. It is a welcome turn of events for those pressing for a phase-out of coal — the single largest source of carbon emissions — in order to meet Paris Agreement climate targets.

A new report indicates that companies are struggling to find insurers willing to finance building new, multibillion-dollar plants powered by fossil fuel. And the coal power plants currently in operation are being forced to sign up with smaller, inexperienced insurance companies for coverage as a growing number of mainstream insurers withdraw from the sector.

The report is issued by the Insure Our Future campaign and the Korean non-profit Solutions for Our Climate. It’s based on documents that spell out the contracts for five coal power projects of KEPCO, Korea’s national power utility. Details of which companies insure which projects are not usually public, so the report offers a rare look into the withdrawal of insurers from the world’s leading coal market, non-Chinese Asia.

The documents reveal that in 2018, KEPCO signed contracts with 19 insurers to underwrite the construction of a $7.2 billion coal power plant in Vietnam. Four years later, 72% of that underwriting has been withdrawn from the market.

“The withdrawal of so many insurers has made it much more cumbersome and expensive to obtain cover.”

By 2021, when KEPCO insured the construction of another Vietnamese coal power plant for $4.4 billion, Asian insurers provided 55% of the financing, led by Japanese firms. Half of the insurance capacity eventually provided for that plant has now retreated from the market as several underwriters have announced they will no longer insure new coal projects. Five “insurers of last resort” now provide 72% of the financing capacity for the project.

The replacement of experienced, international insurers with a variety of smaller actors is also affecting existing coal power plants. In 2021, KEPCO scrambled to line up 24 different insurers to provide $556 million of coverage for the operation of a small coal power plant in the Philippines.

“Major international insurers have withdrawn from coal projects and been replaced by a haphazard coalition of the willing — a few global climate laggards, small specialty insurers, and assorted companies from the Global South,” said Peter Bosshard, global coordinator of the Insure Our Future Campaign and report author. “The withdrawal of so many insurers has made it much more cumbersome and expensive to obtain cover. The few insurers who remain will find it challenging to provide the vast expertise and capacity required to insure a complex new coal power plant.”

Why does this matter? KEPCO is a major player in the Asian power market, developing and operating coal power plants across the region and the Middle East. And Asia is the locus of global coal power generation and development, with 91% of all plants planned or in construction worldwide and 75% of operating coal plants.

Is this the beginning of the final chapter in the coal power story? Sure looks like it.

Written by

John Howell

John Howell is a writer, editor, and broadcaster who oversees the Climate Finance Weekly newsletter and advises on communications and media strategy. He was co-founder, editorial director, and chief of thought leadership for 3BL Media, for which he managed all original editorial content, wrote, and edited newsletters, and created the Brands Taking Stands initiative. He has worked as an editor and contributor for Elle, Artforum, and High Times magazines, developed new media for Hearst Magazines, and created communications for Calvin Klein, Polo/Ralph Lauren, and The Body Shop. He lives and works in New Hampshire and Maine.