The Asian Development Bank is launching a new fund that will buy coal-fired power plants to shut them down early and take a new approach to energy conversion.
ADB is launching the $ 2.5 billion to $ 3.5 billion pilot fund, called the Energy Transition Mechanism, which will focus on buying factories 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 such as Asia.
The program aims to shut down 50 percent of the coal-fired power plants in these 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 accelerate… Their retirement. That is the only reason we would be part of any acquisition,” he said.
The group will team up with other sources of funding, including governments, philanthropy and private investors, to access cheap loans to buy utilities. The facilities will continue to operate until the loans are repaid, after which they will be closed.
“The idea of [initiative] is to take the line of investors and mix different financing to create a very low average cost of capital, ”said Elzinga.
He estimated that a coal plant with 20 years left in its service life might be closed six to eight years earlier under this model.
“People say, why not shut them down tomorrow? That would be really expensive,” Elzinga said.
In addition to purchasing coal-fired power plants, the program will also use incentives to pay for certain operations to retire early and build renewable energy projects where appropriate.
However, dozens of climate groups opposed the move and asked ADB to postpone the program in an open letter.
They claim that the scheme does not provide sufficient guarantees that it will close the plants early, and may have the unintended consequence that it encourages the owners of old coal plants to operate them for a longer period of time.
“We urge ADB not to play with our lives [and] the realities of the current climate crisis. . . with a premature buy-out scheme that remains shrouded in uncertainty, “reads the letter, signed by more than 60 climate charities.