In this note we analyse J-Power’s recently announced decarbonisation objectives, relative to its recent commitments on coal decommissioning and the broader climate ambitions of the region.
There remain concerns around J-Power’s decarbonisation trajectory. J-Power’s 2030 target requires more than the recently promised coal decommissioning and is less ambitious than emissions intensity targets set by Japan’s Electric Power Council for Low Carbon Society (ELCS), which promotes decarbonisation in the Japanese power sector.
The two largest coal plants may be repurposed into a reserve power source, thus significantly reducing the emissions savings potential of this strategy. Parallel commitments to reduce emissions by investment in renewables will only deliver full decarbonisation if high-intensity generation is completely decommissioned.
The company regularly issues into the bond market. This underscores the importance of bond investors in driving J-Power’s decommissioning and renewables investment. J-Power’s transition-linked finance framework could be enhanced with more ambitious targets, or targets directly linked to decommissioning, which could in turn support a lower cost of capital.
The company’s capital structure and generation assets provide an interesting case study in ‘green bond carbon footprint accounting.’ We illustrate how to use project-based carbon footprinting for J-Power’s green bonds. This approach offers better accountability for the impact of green bond capital, but could also support tighter funding spreads if investors can recognise the value of assets with lower financed emissions.
