Three multilateral banks proposed a financing program to the government worth $2.67 billion to voluntarily expedite the retirement and repurposing of coal-fired power plants, mitigate the impact of the transition to the people and enable financing of clean alternatives.
The Asian Development Bank (ADB), the International Finance Corp. (IFC) and the World Bank (WB) released a draft business plan, in consultation with the government of the Philippines, to identify potential areas where they can invest in.
It is called Climate Investment Fund (CIF) Accelerating Coal Transition (ACT) Program Investment Plan Report (IP).
The report proposes $500 million in CIF-ACT funding leveraging $1.336 billion in multilateral development bank co-financing and $830 million in other co-financing to implement investments for accelerated energy transition under a holistic coal phase-down approach.
It is subject to consultations and is designed to address associated challenges linked to the energy transition, people and communities, land and infrastructure.
The report states that coal accounted for 44 percent of the total installed generation capacity and 60 percent of the total generation in 2022, which resulted in an increase in the Philippines’ carbon dioxide emissions. Coal also accounted for 55.4 percent of the country’s total emissions by fuel type last year.
The report said the average age of coal-fired power plants (CFPP) in the country was 12 to 13 years and could potentially hinder efforts to reduce emissions and make room for renewable energy.
The Philippines committed under its enhanced Nationally Determined Contribution (NDC) in the Paris Agreement a 75-percent reduction in greenhouse gas (GHG) emissions from 2020 to 2030.
This is faster than the business-as-usual (BAU) scenario, of which 2.71 percent would be unconditional and 72.29 percent conditional.
“Therefore, without an actual financial incentive, no amount of political will would be sufficient to accelerate the CFPP retirements and repurposing projects and initiate the transformational change required for the transition from coal to clean energy,” the report said.
The IP financing will facilitate the early retirement of the government-owned Mindanao coal plant and other privately-owned CFPP assets. This takes into account the financial implications of existing debt, termination of contracts and closure preparedness and developing assets needed for replacement of power with clean energy such as RE and energy storage solution.
ADB proposed to utilize financing facility of $95 million in concession debt from CIF-ACT, $1 million grant from CIF-ACT, $95 million debt from ADB and $285 million funding from commercial co-financiers to facilitate the energy transition of the Mindanao coal plant, the only remaining government-owned coal asset.
The Mindanao coal plant is being run by the private sector under a build-operate-transfer concession until 2031. After this period, the ownership of the asset will transfer to the government and will have a remaining operational life of 15 to 20 years.
The ADB Energy Transition Mechanism aims to use a combination of concessional and commercial capital to facilitate the early retirement of Mindanao coal plant, subsequent decommissioning or repurposing of the asset and replacement of power with clean energy and transmission assets.
ADB also proposed to utilize financing facility amounting to $120 million in concession debt from CIF-ACT, $2-million grant from CIF-ACT, $240-million debt from ADB and $240-million funding from commercial co-financiers for the private sector coal operators.
It proposed that IFC utilize ACT funding of $140 million in concession debt from CIF-ACT, $5-million grant from CIF-ACT, $280-million debt from IFC, $280-million funding from commercial co-financiers to co-finance greenfield RE projects including battery energy storage systems and other technologies such as offshore wind, floating solar and pumped hydro.