A successful transition from coal will require new financing mechanisms and flexible repurposing, according to a Coal Transition Commission report published today.
Coal consumption is concentrated in emerging market and developing economies (EMDEs), which face different challenges than advanced economies — predominantly strong economic dependence on coal and a substantially younger coal-fired fleet, the report highlighted. Countries with the highest level of difficulty for this transition are Indonesia, Mongolia, China, Vietnam, India and South Africa, the commission noted.
The report proposes two major options to reduce emissions from coal-fired units — early retirement and repurposing for flexible usage and retrofitting for the integration of renewable sources. Examples include flexible retrofits to ramp up or down more frequently in a supplementary role to renewable energies, co-firing with lower emission fuels such as biomass and ammonia, or equipping plants with carbon capture, utilisation and storage (CCUS).
Financial feasibility
Existing scale of financing is insufficient to meet coal power emissions cut targets, requiring new mechanisms for public and private investments that allow for the costs to be covered with reasonable returns, the commission said.
The report calls for a regulatory approval to classify investments that reduce emissions from existing coal-fired plants to be considered "transition finance" as financing even for technologies to lower emissions has been difficult to source. For instance, South Africa has faced difficulty obtaining funds from the Just Energy Transition Partnership (JETP) owing to the lack of investible projects. In addition, many southeast Asian plants, particularly in Indonesia and Vietnam, are new and are still subject to unpaid debt. Transition financing for retrofits and flexibility would allow EMDEs to continue using their relatively new fleet while lowering emissions, limiting the financial loss, the report suggested.
That said, the bulk of coal-fired units will need to be retired early to stay within the established 1.5°C global temperature rise threshold, but they need financial feasibility for prompt coal exit, the report pointed out. For example, early coal plant retirements were facilitated by private investment in the Philippines and US where the remaining costs of the plants were securitised with lower interest rates. Likewise, Singapore has piloted a transition credit as a mechanism to reduce the economic gap in the early retirements of plants.
Coal remains the largest source of electricity worldwide, accounting for 36pc of global generation and 40pc of all energy sector emissions, according to the Paris-based International Energy Agency.
