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Kicking the Coal Habit: Why Early Retirement of Coal-Fired Power Plants (CFPPs) is Essential and How COP28 Pushed the Agenda

Updated: Apr 30

Writer: Jonathan PHILLIP, George K. KIONGSON

Social Media Team: George K. KIONGSON



The fight against climate change demands a rapid shift away from fossil fuels, and coal-fired power plants (CFPPs) are a prime target. Once considered the backbone of power generation, these facilities are now recognized as significant polluters, emitting greenhouse gases and harming public health. The tide is turning towards early retirement of CFPPs, paving the way for a cleaner energy future, and COP 28 (Conference of the Parties) significantly accelerated this conversation.


COP28 and the Coal Phase-Out Push

The Powering Past Coal Alliance (PPCA), an international alliance for phasing out coal power, achieved a significant milestone at the recent COP28 conference. 60 member countries strengthened their commitment to aligning with the Paris Agreement, meaning a coal phase-out by 2030 for developed economies and 2040 for developing ones. This signifies a significant step forward in the global effort to retire coal-fired power plants.

This is reflected in concrete actions like Indonesia's early retirement of their Cirebon-1 coal plant by 7 years, achieved through collaboration with the Asian Development Bank (ADB) under their ETM (Energy Transition Mechanism) program. ADB's ETM utilizes financing to expedite coal plant retirement and invest in clean energy while supporting affected workers.

Another approach is the Rockefeller Foundation's Coal to Clean Credit Initiative (CCCI). This initiative uses carbon finance to incentivize developing countries to transition from coal to clean energy. The Philippines is a prime example, with a pilot project aiming to retire a coal plant a decade early through carbon credits. Carbon credits are seen as a way to bridge the funding gap for developing countries transitioning away from coal.


The Challenge of Younger Coal Fleets in Asia

While developed economies often have older, nearing-retirement CFPPs, many Asian countries possess younger fleets with an average age of 13.5 years. This presents a unique challenge. Younger plants have higher outstanding debts and expected returns, making early retirement more expensive. 


Scaling Up Early Retirement Efforts

The successful large-scale retirement of CFPPs requires a holistic strategy. This includes:

·      Financing: Developed nations must significantly increase financial support for developing countries transitioning away from coal. The $47 billion pledged by the G7 through the Just Energy Transition Partnerships (JETP) is a start, but far from enough.

·      Just Transition Plans: Strategies must consider the impact on workers, communities, and local economies. This includes environmental restoration, support for supply chain businesses and employees, and mitigating the rise in consumer energy burden.


Financial Mechanisms for Early Retirement

Retiring CFPPs early comes with economic considerations. There's a need to manage stranded assets and potential job losses and ensure a stable energy supply. Here's how finances are being addressed:

·      Refinancing Existing Assets: Lower-cost capital allows for faster repayment of loans, facilitating earlier plant closure.

·      Supporting Affected Workers and Communities: Programs are being developed to ease the social impact of the transition on workers and dependent communities.

·      Building Clean Energy Infrastructure: Investments are crucial to replace the lost capacity from retired coal plants with renewable energy sources.


The Road Ahead

The path towards a cleaner energy future requires a global effort. Developed nations must significantly increase financial and technical assistance to developing countries like Indonesia, the Philippines, and South Africa, which face steeper challenges due to their heavy reliance on coal. The G7's Just Energy Transition Partnerships (JETP) with countries like South Africa, Indonesia, and Vietnam are positive, but more funding and collaboration are needed. Developed nations can also play a crucial role by providing technical expertise and exploring innovative financial mechanisms to reduce risks for private investors in clean energy projects. 


For expert market insights and updates, please don't hesitate to contact Mt.Stonegate. We offer comprehensive one-stop solution services and hold a strong position in the Asian market.


References:

1.     PricewaterhouseCoopers. (n.d.). Tapping into the power of blended finance. PwC. https://www.pwc.com/gx/en/issues/esg/the-energy-transition/sustainable-energy-infrastructure/tapping-into-the-power-of-blended-finance.html

2.     Zhou, L., Ma, Z., Liu, S., & Carter, A. (2023, September 6). 4 priorities for financing early coal retirement in developing countries. World Resources Institute. https://www.wri.org/insights/financing-early-coal-retirement-jetp



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