Deutsche Bank was asked to participate in financing a coal-fired power plant in a developing country in Asia. This country’s government aims to stimulate economic growth and enhance living standards with minimal negative environmental impacts.
The government ratified the Kyoto Protocol and included the development of renewable energy for electricity production in its National Power Development Plan. However, the high national demand for electricity cannot yet be met by renewables alone.
We support renewable energy and new technologies. Nevertheless, it is our view that the global economy cannot yet function solely on renewable energy and will keep utilizing conventional energy sources to cover its growing energy demand. For this reason we consider financing coal power plants to provide a diversified range of energy sources that countries need during the transition period.
As a matter of principle, transactions related to coal, including coal mining and coal fired power plants (CFPP), are reviewed under our environmental and social reputational risk framework.When considering finance for a coal power plant, we pay special attention to ensuring that the most modern and efficient technology is used. We further review to what extent the technology applied may contribute to an overall average reduction in carbon intensity in the country.
The proposed CFPP would not employ the best available technology according to EU standards. The power plant was designed to use sub-critical technology, meaning that in terms of power production the plant is less efficient compared to more modern power plants.
As a developing country, the project hosting country lacks the financial means to acquire the best available technology. Investment in sub-critical power plants is, in general, 30 percent less expensive. However, in a discussion with technical experts we learned that the CFPP could be retrofitted with improved technology at a later point in time.
After reviewing all the facts, we escalated the case to a reputational risk committee for a final decision. The bank decided to withdraw from providing finance to this project because of our commitment to a well-balanced energy policy and best-available technology for transactions related to coal.
Nevertheless, we recognize the pressing need for energy in this developing country and have been providing financing for a wind farm in that same Asian economy via one of the Deutsche Bank funds dedicated to promoting the energy sector and energy efficiency in developing countries.