The Asian Development Bank is launching a new fund that will buy coal-fired power plants in order to shut them down sooner, taking a new approach to energy transition.
The AfDB is launching the $ 2.5 billion to $ 3.5 billion pilot fund, called the Energy Transition Mechanism, which will focus on purchasing power plants in Indonesia, the Philippines and Vietnam. Coal is the dirtiest fossil fuel in terms of emissions, but it is widely used to generate electricity in regions like Asia.
The program aims to shut down 50% of coal-fired power plants in the three countries, which would cost between $ 30 billion and $ 60 billion, according to David Elzinga, senior energy specialist at ADB.
“We are here to buy coal plants, to speed up. . . their retirement. That’s the only reason we would make an 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 utilities. The factories will continue to operate until the loans are repaid, and then they will be closed.
“The idea of [initiative] is to take the range of investors and combine different financings, to create a very low average cost of capital, ”Elzinga said.
He estimated that a coal-fired power plant with 20 years remaining in its operational life could be shut down six to eight years earlier, depending on this model.
“People say, why don’t we shut them down tomorrow? Well that would be really expensive, ”said Elzinga.
In addition to purchasing coal-fired power plants, the program will also use incentives to pay for certain operations in order to take early retirement and build renewable energy projects where appropriate.
However, dozens of climate groups opposed this decision and called on the AfDB to delay the program by an open letter.
They argue that the program does not provide sufficient guarantees that plants will shut down early and could have the unintended consequence of causing owners of old coal plants to run them longer.
“We urge the AfDB not to play with our lives [and] the realities of the climate crisis at your fingertips. . . with a premature buyback program that remains surrounded by uncertainty, ”says the letter, signed by more than 60 climate charities.