Retiring coal plants early can benefit investors, communities and climate

(The Third Pole, 6 Oct 2023) A new study modelling early retirement of coal plants in Pakistan and Vietnam has found that with refinancing to support renewables, investors can win alongside the environment.

As the biggest source of greenhouse gases, how to transition the energy sector from carbon-intensive fossil fuels to green energy has long been at the heart of discussions around mitigating climate change. A shift away from coal in particular has come into sharper focus since the G7 countries and China announced in 2021 that they would stop funding new coal plants abroad.

This has also led to a growing discussion about accelerating the phase-down of existing coal plants. For example, the Asian Development Bank’s Energy Transition Mechanism aims to expedite retirement or repurposing of fossil fuel plants, while the Glasgow Financial Alliance for Net Zero (GFANZ) has published voluntary guidance for financing the early retirement of coal-fired power plants in the Asia-Pacific region.

A big question is, however, what early retirement of coal plants means for their owners and investors. Governments, companies and financial institutions invest in coal plants to make a profit, which depends on running the plant for the duration of its power purchasing agreement (PPA), usually 25 years, or even until the end of its technical lifetime, typically about 40 years. Shortening a plant’s operational lifespan would thus negatively impact investors, incentivising them to fight early coal plant retirement in the courts and through lobbying.

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The Third Pole, 6 Oct 2023: Retiring coal plants early can benefit investors, communities and climate