Locked In and Priced Out: How Coal Power Contracts Fuel Debt and Delay the Energy Transition

Summary:

• Power Purchase Agreements (PPAs) are seen as necessary to build power infrastructure,
  yet they lock in aging and uneconomic power plants beyond when they would retire due to
  market forces alone.
• PPAs in India, Indonesia, and Pakistan have led to severely mis-aligned incentives creating
  unsustainable debt, fossil fuel lock-in, and affordability crises.
• For instance, capacity payments made to keep coal running now exceed some countries’
  annual health budgets, while providing electricity to households that costs three times as
  much as renewables.
• We outline three policy approaches to ‘break the coal contract trap’:
  • Payouts compensating coal power producers for a contract’s residual value, conditional
    on total closure;
  • Careful renegotiation of capacity payments to coal power plants alongside technology
    swaps to crowd in cheaper, clean technologies, and;
  • Where renegotiation fails, litigation to terminate a PPA.
• Finding ways to exit rigid PPAs, many of which were never sourced competitively, will create a
  pathway for a more just and equitable energy transition, to reduce greenhouse gas emissions,
  national debt and household electricity bills.

University of Oxford Smith School of Enterprise & Environment Policy Brief: "Locked In and Priced Out: How Coal Power Contracts Fuel Debt and Delay the Energy Transition"