Breaking an unholy contract with coal

Climate Progress

An uneasy ‘social contract’ has long existed when it comes to building new coal fired power plants in the developing world; country’s receive cheap power to fuel development in exchange for accepting environmental and social destruction. This ‘necessary evil’ has been accepted by policymakers despite often fierce protests because other forms of power are considered too expensive. Now, however, this devil’s bargain has broken as the only justification for polluting, destructive coal plants – that they provide cheap power – is a thing of the past.

The most vivid example of the rupture of ‘coal’s contract’ is the four gigawatt Ultra Mega Power Project Tata Mundra. The plant was built with nearly a billion dollars of public money provided by the IFC and the Asian Development Bank for the ‘cheap and reliable’ power it would provide:

“The project will provide a competitive source of electricity to partly reduce the current power shortages and help meet the growing demand for electricity in the country. Cheap and reliable power from the project will help in improving the competitiveness of Indian manufacturing and services industries which have to often rely on expensive standby diesel generation to fulfill their power needs. Competitively priced power will also improve access to electricity in rural and urban areas of the country while reducing the subsidy burden on state governments. Therefore, the project will have significant impact not only in terms of reducing the prevalent demand supply gap but in reducing the average electricity costs in the country leading to improved access and industrial competitiveness…The project will contribute to enhanced access to electricity through supply of cheap and reliable power.”

The reality is this ‘cheap and reliable’ power is anything but as an Indonesian government decision to raise coal export prices effectively doubled the company’s costs. So great is the effect that the project faces a whopping 270% in annual losses, and the CEO has called it ‘financially unviable’. Add to these woes a mountain of foreign debt that must be paid back in dollars while the rupee is at an all-time low and it’s clear the only way the project can be salvaged is if they are let out of their contract and allowed to significantly raise rates on average citizens.