Coal retirement updates from COP28  

Source: Pioneer Press

Key Points: Actors in coal plant early retirement signaled progress at COP28. ADB’s ETM hit a milestone. Carbon offset initiatives announced (1) individual plant pilot programs and a draft methodology, with the suggestion that crediting might accelerate retirement by 10 years vis-a-vis refinancing alone, and (2) a framework for jurisdictional level crediting.

The grind for ADB’s first Energy Transition Mechanism (ETM) continues. ADB signed a framework agreement with Cirebon Electric Power for the early retirement of its Cirebon-1 plant. This follows a Memorandum of Understanding (MOU) signed last December by the parties, which include Indonesian utility Perusahaan Listrik Negara (PLN) and the Indonesian Investment Authority (INA). The latest announcement lacks details; along with the long wait, this hints at the challenges in coming to terms. The release did, however, mention that the transaction is to be finalized in 1H2024 and that the retirement date was pushed forward to 2035 from the MOU’s indicative 2037. Please see here for more detail on last year’s MOU and background on the ETM concept.

Carbon crediting as a financing supplement to close single plants… COP28 also marked some progress in using carbon offset credits to fund closing coal plants. The Rockefeller Foundation’s Coal to Clean Credit Initiative (CCCI) and Monetary Authority of Singapore (MAS) announced (somewhat overlapping) exploratory programs for single plant closure. Both announced that they are working with ACEN Corporation of the Philippines to consider use of such credits as part of the early closure of the South Luzon Thermal Energy Corporation (SLTEC) coal plant.

The programs’ collaboration with ACEN follows that company’s late 2022 refinancing of SLTEC in the world’s first and so far only ETM (that was also notable because it included no concessional financing). The COP28 CCCI announcement suggests that the credits enable the SLTEC plant to retire a decade earlier (by 2030) vs. last year’s announcement.

Separately in the announcements, CCCI is working with carbon standard setter Verra to issue the world’s first transition credits. (Verra has published its Draft for Public Consultation of the methodology.) And MAS’s announcement notes that its coalition will explore another pilot in the Philippines island of Mindanao in collaboration with ADB and using ETM.

…And also at a “system” level. The Energy Transition Accelerator, which was introduced at last year’s COP, published a “core framework” for jurisdictional-scale (e.g., country-wide) transition credits to help finance energy transitions. The program offers the benefits, relative to individual plant crediting, of working at significantly larger scale and addressing risks of leakage (i.e., that power foregone from retired coal plants will be replaced by power that is generated from other fossil-based plants). The ETA states in its framework that any credits are to be contingent on the implementation of a Just Energy Transition Partnership (JETP) — a nation (or subnational)-wide plan for transition to clean energy. JETPs, bespoke agreements that are now in five countries, are anchored by planned international concessional funding, which is then to be supplemented by significant private financing.

12/12/2023