April 18, 2024
SINGAPORE – Dozens of coal-fired power plants, many of them in South-east Asia, could be retired early by 2030 by using a carbon financing initiative, a sustainability conference heard on April 17.
The Rockefeller Foundation-led Coal to Clean Credit Initiative (CCCI) guides power plant owners and their investors to use carbon offsets to fund early plant retirement. These transition credits are nascent but have strong support from Singapore’s central bank and other financial institutions.
Transition credits aim to monetise the emissions savings from the early closure of coal plants. Revenue would come from the sale of high-integrity carbon credits to companies or governments, with each credit representing a tonne of emissions avoided by shutting a power plant early.
In many cases, the early closure of each power plant is likely to avoid millions of tonnes of emissions.
The goal of CCCI is to retire 60 coal plants globally by 2030 and transition credit financing is a key lever for achieving that, said Ms Elizabeth Yee, the Rockefeller Foundation’s executive vice-president of programmes.
She was speaking during Ecosperity Week 2024, a sustainability conference convened by Singapore’s investment company Temasek, held from April 15 to 17 at Sands Expo and Convention Centre.
Many of the 60 coal plants she mentioned would be in South-east Asia, Dr Joseph Curtin, managing director of the power and climate team at the Rockefeller Foundation, told The Straits Times.
“When you take the whole subset of eligible coal plants, there could be a couple of thousand globally. So we think trying to get 50 or 60 across the line by 2030 is a realistic objective,” he said.
Ms Yee said: “Coal is the single largest contributor to global emissions and it accounts for 20 per cent of global emissions and 70 per cent of power emissions. And it is the leading cause of premature death in the world – worldwide, 800,000 people perish early.”
In South-east Asia, coal power plants are the main source of electricity and a major source of air pollution and carbon emissions driving climate change. Many of the plants are young, with an average age of less than 15 years.
Coal plants have a lifespan of 40 to 50 years, and investors recoup their money via long-term power-purchase contracts with utilities. This means that closing them early is costly. Carbon finance can help bridge the gap by funding the forgone revenues and the costs of swopping coal power for renewable energy.
Also key to the transition is funding to retrain coal plant workers affected by early plant closures.
In December, the Monetary Authority of Singapore (MAS) launched the Transition Credits Coalition, or Traction, which is backed by nearly 30 members and will study the challenges and propose solutions to scale the early retirement of coal-fired power plants in Asia.
On the sidelines of the COP28 climate talks, MAS announced it was collaborating with the Philippines’ ACEN Corporation, the listed energy platform of the Ayala Group, and the Rockefeller Foundation for a first pilot of the CCCI.
The partnership focuses on a 246MW coal plant owned by ACEN with the aim to retire the plant by as soon as 2030, which is 25 years ahead of the end of its technical life. It plans to use a mix of carbon credit revenues and low-cost climate finance to achieve this.
The plant is currently due to close by 2040. According to a study, closing it 10 years earlier could avoid up to 19 million tonnes of carbon dioxide (CO2) emissions, said the Rockefeller Foundation on April 17.
The Rocky Mountain Institute in the United States led the CO2 reduction assessment. The goal is to replace the coal plant with clean power and battery storage, and provide financial support for workers affected by the early closure.
How does CCCI work?
CCCI is mainly a de-risking tool to provide an additional revenue stream and make a phase-out deal more appealing to other investors, the foundation said.
Not all power plants would be eligible. The CCCI methodology is very conservative in terms of calculating emissions reduction credits that could be issued. A key element is ensuring that power plant owners are committed to not building any new coal power plants anywhere else in the world.
The CCCI methodology has been developed over several years and is currently being reviewed by Verra, the world’s leading organisation that verifies carbon credit methodologies, and projects and issues carbon offsets, Ms Yee said. The foundation has helped fund the development of the methodology and provide other technical support.
Dr Curtin said more projects are being considered under CCCI.
“We’re exploring a portfolio of potential pilot projects, including in Indonesia. We’re undertaking due diligence on one project in Indonesia at the moment,” he added.
The Asian Development Bank (ADB) is involved in a separate transition credit pilot in the Philippines.
The aim is to retire a 200MW coal plant in Mindanao five years early, in 2026. The current power-purchase agreement ends in 2031. The plant, commissioned in 2006, has a technical life up to 2046, ADB has said.
Mr Mikkel Larsen, chief executive of carbon exchange Climate Impact X, told a panel discussion at the Ecosperity conference on April 16 that transition credits could cost at least US$30 (S$41) each when taking into consideration the needs for a just transition. The price would vary significantly depending on the specific project and the amount of concessional capital.
Blended finance – a mix of grants, concessional loans and commercial capital designed to lower the cost of capital – can cover some of the early shutdown costs.
But carbon finance will be needed as well and the US$30 price reflects the cost of a socially just transition and larger infrastructural needs to support renewables, such as the use of battery storage solutions, Mr Larsen said.
In order to ensure that there is demand for these credits at such high prices, “key anchor buyers” like governments must be willing to purchase them, or allow for them to be used in a way for countries to meet their national climate targets, he added.