Finance firms, ADB drafting plan to close Asian coal plants early

Financial firms including British insurer Prudential, lenders Citi and HSBC and BlackRock Real Assets are devising plans to speed the closure of Asia’s coal-fired power plants in order to lower the biggest source of carbon emissions, five people with knowledge of the initiative said.

The novel proposal, which is being driven by the Asian Development Bank, offers a potentially workable model and early talks with Asian governments and multilateral banks are promising, the sources told Reuters.

The group plans to create public-private partnerships to buy out the plants and wind them down within 15 years, far sooner than their usual life, giving workers time to retire or find new jobs and allowing countries to shift to renewable energy sources.

“The private sector has great ideas on how to address climate change and we are bridging the gap between them and the official-sector actors,” ADB Vice President Ahmed M. Saeed said. [He] said that a first purchase under the proposed scheme, which will comprise a mix of equity, debt and concessional finance, could come as soon as next year.

The proposed mechanism entails raising low cost, blended finance which would be used for a carbon reduction facility, while a separate facility would fund renewable incentives. The proposed carbon reduction facility would buy and operate coal-fired power plants, at a lower cost of capital than is available to commercial plants, allowing them to run at a wider margin but for less time in order to generate similar returns. The cash flow would repay debt and investors.

The other facility would be used to jump start investments in renewables and storage to take over the energy load from the plants as it grows, attracting finance on its own.

The model is already familiar to infrastructure investors who rely on blended finance in so-called public-private deals, backed by government-financed institutions.

4 August 2021

IEEFA