At the United Nations’ COP26 climate summit in November, the Asian Development Bank and Prudential, UK-based insurance, aim to propose an ambitious investment scheme to reduce carbon emissions in Asia.
A shortlist of existing coal-fired power plants around Asia will be included in the proposals, which will be purchased and retired far before the end of their life spans.
According to ADB Vice President Ahmed Saeed, they haven’t decided on a particular amount [financially] but expected the pilot to acquire at least a few coal-fired power plants.
HSBC is also involved in the programme, which entails investigating the Philippines, Vietnam, and Indonesia for coal-fired power stations that could be shut down a decade or two early. BlackRock and Citi are also working on the strategy. Requests for comment were not returned by the companies.
The UN asserts that all coal plants in the world must cease operations by 2040 to decrease carbon emissions, therefore an untested programme to cut the life spans of coal-fired plants in Asia — the last primary redoubt for coal — is gaining traction.
The ADB plans to unveil many coal plants it seeks to acquire, as well as partner countries and firms, during COP26.
Although the bank has not set a budget, estimates start in the billions of dollars. All three partners want to show that coal plant takeovers can work so that they may be used in poor nations that are dependent on cheap fossil fuels.
They might be able to get roughly 20% of the money they need from governments and institutions, however, this amount could vary. Aside from being compensated, those organisations would participate in order to cut emissions rather than for a financial gain. According to Saeed, the remaining 80% or so may be raised through equity and debt at current market rates.
The partners will retire a coal-fired power station within 15 years of purchasing it, as opposed to the typical life cycle of 30 to 40 years. They expect to raise funds for the pilot in less than a year and demonstrate a successful acquisition at COP27 in 2022.
Despite the fact that research firm Wood Mackenzie predicts that renewable energy would be cheaper than coal in Asia, the area continues to build new coal-fired plants. China, India, Vietnam, Indonesia, and Japan “are responsible for 80 % of the world’s planned new coal plants and % of existing coal capacity,” according to research released on June 30 by think tank Carbon Tracker.
Donald Kanak, Chairman of Prudential Insurance Growth Markets, is the driving force behind the trial initiative. He predicts that retiring half of Indonesia’s coal capacity will cost $16 billion to $29 billion. For Vietnam, investors would need to raise $9 billion to $17 billion, and for the Philippines, $5 billion to $9 billion.
Countries taking part in the system would have to replace coal with renewable energy, otherwise meeting climate objectives would be difficult, according to Kanak.
Other ADB members in the area, in addition to Indonesia, the Philippines, and Vietnam, want to join the project, according to Saeed. Investor interest has been building in the meantime.
He claimed that his company, in collaboration with GS Energy of South Korea, was the first to get Vietnam’s clearance to replace a proposed coal plant with a $3 billion liquefied natural gas facility. LNG is a fossil fuel, yet it emits half as much pollution as coal, according to him.