The Asian Development Bank is launching a new fund that will buy coal power plants in order to shut them down early, taking a new approach to the energy transition.
ADB is launching the pilot fund of $2.5bn to $3.5bn, called the Energy Transition Mechanism, that will focus on buying plants in Indonesia, the Philippines and Vietnam. Coal is the dirtiest fossil fuel in terms of emissions, but widely used to generate power in regions such as Asia.
The programme aims to close down 50 per cent of coal-fired power plants in those three countries, which would cost between $30bn and $60bn, according to David Elzinga, senior energy specialist at ADB.
“We are here to buy coal plants, to accelerate . . . their retirement. That is the only reason we would enter into any acquisition,” he said.
The group will team up with other funding sources, including governments, philanthropy and private investors, to access low-cost loans to purchase the utilities. The plants will continue to operate until the loans are repaid, then they will be shuttered.
“The idea of the [initiative] is to take the range of investors, and blend different financing, to create a very low average cost of capital,” said Elzinga.
He estimated that a coal plant with 20 years remaining in its operational life might be able to be shut down six to eight years sooner, under this model.
“People say, why not shut them down tomorrow? Well that would be really expensive,” Elzinga said. “This is really meant to be a managed acceleration of retirement. To make sure the market [is] still stable and viable, for future investments for clean energy.”
In addition to buying coal plants, the programme will also use incentives to pay certain operations to retire early, and build renewable energy projects where appropriate.