COP30: About one-third of world’s coal fleet shows ‘significant’ opportunity for early shutdown, says report
Coal Transition Commission notes that 80% of this capacity are young to middle-aged assets which offer potential for significant emissions reductions
[SINGAPORE] About one-third (34 per cent) of coal plants in Asia – representing a total of 150 gigawatts (GW) – have been assessed to exhibit “significant near-term opportunity” for early retirement, indicated a recent report by the Coal Transition Commission.
Almost 80 per cent of this capacity includes plants owned by independent power producers (IPP) and particularly young to middle-aged assets, noted the report.
“As a result of their age, these plants offer potential for significant emissions reductions impact if meaningful early retirement can be incentivised,” noted the report.
It added that notable opportunities are emerging in East Asia, Europe and Asean. Within Asean, coal plants assessed to have the most opportunities for early shutdown are those operating in liberalised electricity markets or are owned by independent power producers.
The report was one of two published by the Coal Transition Commission at the sidelines of the recent concluded United Nations climate summit, known as COP30, in Belem, Brazil.
However, this analysis excludes coal assets in China, India and the US, as these markets all have sizeable coal fleets with significant variation in market structure and enabling conditions at a subnational level. China currently has the most number of coal plants in the world.
The commission, which is co-chaired by Indonesia and France, was set up at COP28 in Dubai, United Arab Emirates, to help identify practical solutions to support coal-reliant countries in overcoming the challenges of shutting down their coal plants and transitioning to clean energy.
Singapore’s climate action ambassador, Ravi Menon, is also one of the partners of this commission.
Opportunities for early shutdown
According to the report, there are proven solutions to phase out these younger, privately owned coal plants – compared to other coal assets that are owned by a single entity, which are more often than not state-owned utility companies.
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Though these younger IPP-owned assets tend to have outstanding debt obligations and plant value, which can pose barriers to their early retirement, they are also more likely to present opportunities to refinance debt, adjust existing contracts or tap into other revenue streams, such as transition credits or results-based finance, to support their early retirement, said the report.
Transition credits refer to a nascent class of carbon credits that can be generated when a coal plant is shut earlier than scheduled and replaced by renewable energy power generation.
It noted that 70 per cent of the coal fleet in the Philippines – which has liberalised its electricity market – could explore the deployment of existing coal-to-clean financing solutions, particularly structures such as debt refinancing or re-levering.
These asset types are also where stronger project precedents exist, such as the South Luzon Thermal Energy Corporation project, which is currently piloting the use of transition credits in bringing forward its retirement date by another 10 years.
Near-term opportunities also exist in pockets in some single-buyer markets and vertically integrated markets with high shares of IPP participation, such as Malaysia, Thailand and Indonesia. This is especially so for plants that have existing asset-level debt that presents opportunities for re-levering or refinancing.
Nevertheless, even though there are some coal assets that have been assessed to be commercially attractive enough to undergo coal phase-out transactions, the pipeline of bankable projects remain limited, noted the report.
Countries, particularly emerging markets and developing economies (EMDEs), looking to accelerate their transition from coal to clean energy face significant challenges.
These include difficulties in integrating clean energy resources at the pace required to meet rising energy demands, and the important role the coal industry can currently play in creating livelihoods for workers and communities.
EMDEs are often dealing with the added challenge of a young – and for the most part, currently profitable – coal fleet with outstanding contractual and financial obligations.
These conditions create barriers to coal-to-clean replacement – even if the economics, energy security, and other policy and regulations increasingly point to the benefits of clean technologies.
Scaling coal phase-out
To scale the pipeline of projects out of the 150 GW coal capacity, the priority should be to replicate and scale proven solutions. This is especially so for assets operating in countries with strong enabling conditions – which include stronger policies, plans and conditions that support deployment and integration of renewable energy.
Debt refinancing or other cost of capital solutions offer an opportunity for replication for young to middle-aged IPP coal plants, particularly when coal retirement can be combined with new clean energy investments that offer upside to investors.
To support replication and scaling, multi-development banks and development finance institutions could support private capital mobilisation. This can be done through standardisation of project parameters, such as greenhouse gas emissions impact assessment and calibration, as well as complementary risk mitigation structures and solutions targeted at coal-to-clean projects.
Using concessional finance strategically to catalyse other sorts of finance, including private and innovative finance into coal phase-out transactions, is another recommendation put forward in the report.
“Concessional finance should be deployed where it can have the greatest catalytic effect. Blended finance approaches can be particularly important when piloting emerging mechanisms, such as bringing in private commercial finance as well as use of transition credits,” noted the report.
In markets with significant coal fleets that lack strong enabling conditions currently, greater use of concessional finance may be justified.
This includes support for initial pilots where they can build ambition or inform broader policy; or to support other enabling activities such as grid flexibility that supports renewable energy integration.
There also needs to be improved coordination across the ecosystem as the development of coal-to-clean transactions remains fragmented.
“Even in markets with enabling conditions, a lack of coordination across project preparation components and stakeholders required to enable project approvals may slow project origination and financing,” said the report.
To address this, financiers can coordinate closely with governments, power sector decision-makers and technical assistance providers to strengthen hand-offs, align mandates and share data across the project cycle.
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