Stranded assets

Topic: Environment and Sustainable Development · NCERT: Beyond NCERT

Meaning

Stranded assets are assets that lose their value, or become a burden, before the end of their expected life, because climate policy, cheaper clean technology or changing markets make them uneconomic. In the energy sector these are mainly coal plants, coal mines and coal reserves that can no longer earn enough to cover their costs.

This matters because the loss does not stay with the plant owner. It spreads to the lenders and the government. In India, that means banks and PSUs (public sector power and coal companies and public sector banks).

Explanation

How an asset becomes "stranded"

• Every asset is built for an expected life.
• A coal plant is built on the belief that it will run and earn money for 25 years or more.

• The loan taken to build it is planned to be repaid from those earnings.

• When the plant stops earning early, the plan breaks.

• The plant shuts down, or runs for very few hours → it earns too little → its value falls to zero in the company's books → the loan may not be repaid.

• So the asset is "stranded". It still exists physically, but it can no longer do its economic job.

What causes stranding

• Climate policy: governments set emission targets. Coal becomes more costly or is used less.
• Cheaper technology: solar is now cheaper than new coal in many places. The old plant cannot compete on price.
• Carbon pricing: a price on carbon makes the fossil option costlier, so fossil plants run less.
• Market shifts: power buyers, investors and lenders move to clean sources. Demand for coal power falls.
• The faster the energy transition (the long-term move from fossil fuels to renewables, nuclear and green hydrogen), the greater the risk of stranding.

Three kinds of stranded assets

• Physical assets: coal power plants and coal mines that close early.
• Natural assets: coal reserves still in the ground that may never be dug up and sold.
• Financial assets: the bank loans and company shares linked to these plants and mines. Their value falls with them.

Worked example (imaginary numbers)

• A coal plant costs ₹10,000 crore and is expected to run for 25 years.
• It is expected to recover about ₹400 crore of its cost each year (₹10,000 ÷ 25).
• Cheaper solar power forces it to close after 10 years.
• Cost recovered: 10 × ₹400 = ₹4,000 crore.

• Stranded value: ₹10,000 − ₹4,000 = ₹6,000 crore that will never be earned back.

• If a bank lent most of the money, a large part of that ₹6,000 crore becomes a loss on the bank's balance sheet.

In India

• A young coal fleet: many of India's coal plants were built after 2010 and were expected to run for 25 years or more. If they close early, much of their loan money will still be unpaid.
• Who bears the loss: mostly public sector banks and PSUs. So the risk finally falls on public money.
• Link to climate-related financial risk: this is the risk that climate change, or policy to fight it, damages bank balance sheets. Stranded coal assets are one of the main ways this risk can hit Indian banks.
• Transition figures that raise the stakes:
• On 31.12.2025, non-fossil sources made up 2,66,788 MW (51.93%) of India's total installed capacity of 5,13,730 MW [2].
• In February 2026 the non-fossil share was 52.57%. India met its 2030 target five years early [3].
• NDC for 2031-2035: 60% non-fossil installed capacity by 2035, and a 47% cut in emissions intensity (CO2 emitted per unit of GDP) by 2035 from the 2005 level [3].

• But this is installed capacity, not generation. Coal still produces most of India's electricity. So the coal fleet is not stranded yet. The risk is about the future.

• Policy choice that lowers the risk: at COP26 (Glasgow, 2021), India pushed for the "phase-down" of unabated coal (coal burned without any technology to capture its CO2), not a "phase-out". A slow, planned phase-down gives plants time to earn back their costs.

• CCUS (carbon capture, utilisation and storage) can turn "unabated" coal into "abated" coal. This may extend a plant's life. Reference: NITI Aayog report on CCUS (2022).
• Human side: when coal assets are stranded, coal-rich states such as Jharkhand, Chhattisgarh and Odisha lose coal royalties, District Mineral Foundation (DMF) funds and jobs. This is the just transition problem.

Don't confuse with

• Depreciation: the planned, gradual fall in an asset's value over its expected life. Stranding is an unplanned, early loss of value before that life ends.
• Non-performing asset (NPA): a loan on which the borrower has stopped paying. A stranded coal plant (the physical asset) can cause NPAs in the bank that lent to it. The two are linked but are not the same thing.
• Green premium: the extra cost of the clean option over the fossil option. It is a barrier to adopting new clean technology. A stranded asset is a loss on an old fossil investment. As the green premium shrinks, the risk of stranding grows.
• Just transition: this is about people and places (workers, districts, states). Stranded assets are about capital (plants, reserves, loans). Both come from the same cause: coal declining.

Prelims Hooks

• Stranded assets = assets that lose value before the end of their expected life because of climate policy, cheaper renewables or market shifts. Examples: coal plants, coal mines, coal reserves.
• The risk to Indian lenders is high because India's coal fleet is young: many plants were built after 2010, with an expected life of 25 years or more.
• The loss falls mainly on banks and PSUs. This is a form of climate-related financial risk.
• COP26 (Glasgow, 2021): India secured "phase-down" of unabated coal, not "phase-out". A gradual phase-down reduces the risk of sudden stranding.
• Trap: India's 51.93% non-fossil share (31.12.2025) is installed capacity, not generation [2]. Coal still dominates generation.
• JETPs (Just Energy Transition Partnerships) fund early retirement of coal: South Africa (2021), Indonesia (2022), Vietnam (2022). India has no JETP.

Mains Points

• Pace of transition vs financial stability (GS-III): a fast exit from coal cuts emissions but can strand young plants. That leaves unpaid loans in public sector banks and losses in PSUs. India's phase-down approach and its capacity-first strategy (51.93% non-fossil capacity by December 2025 [2]) let old plants earn back their costs. Suggested answers: no new coal plants that would soon become stranded, repurposing old mine land (for example, solar parks on old mines), CCUS for plants that stay open, and climate-risk checks by banks.
• The counter-argument in the equity debate (GS-II/III): India uses its low per capita emissions and CBDR-RC (Common But Differentiated Responsibilities and Respective Capabilities) to defend a slower, "nationally defined" transition [1]. But if India keeps adding coal plants and has to close them early later, the stranded-asset losses will fall on PSU balance sheets and public sector banks. Delay has a cost too.
• Stranded assets and the just transition as one package: when coal assets are stranded, Jharkhand, Chhattisgarh and Odisha lose royalties, DMF funds and jobs, and Indian Railways loses coal-freight revenue that helps keep passenger fares low. Policy should deal with the financial loss (loans, PSUs) and the human loss (reskilling, diversifying local economies, Finance Commission support for states that lose revenue) together.

Related concepts

• Energy transition
• Energy trilemma
• Energy intensity
• Coal phase-down
• Grey hydrogen
• Blue hydrogen
• Green hydrogen
• Green ammonia
• Hydrogen economy
• Green premium

Read more

• The energy transition and a just transition