Indonesia and Philippines join plan to shut coal plants early

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GLASGOW(BLOOMBERG) – The Asian Development Bank has launched a plan that aims to help Indonesia and the Philippines retire 50 per cent of their coal fleet over the next 10 to 15 years.

The plan, called the “Energy Transition Mechanism,” comprises two multi-billion-dollar funds.

One will be used for the early retirement or repurposing of coal-fired power plants, while the other will focus on clean-energy investments, ADB president Masatsugu Asakawa announced at the COP26 Climate Summit in Glasgow.

Multilateral banks, private institutional investors and others will provide capital for the mechanism.

The first seed financing for the mechanism will come from Japan, which is committing US$25 million (S$33.7 million), according to an ADB press release.

The pilot phase will aim to raise enough money to accelerate the retirement of five to seven coal plants in Indonesia and the Philippines.

Officials at the Manila-based development bank have previously described the plan as using the funds to buy and run the power plants at a lower cost of capital than is currently available to commercial operators.

That would allow them to generate enough returns over a shorter period to facilitate the early closures of the assets.

Still, the plan has come under criticism by non-governmental organisations.

Groups including the Centre for Energy, Ecology and Development sent a letter to the ADB this month addressing their concerns over the plan’s lack of details.

They argued that the proposal, which first involves buying the coal plants, could actually extend the lifespan of these coal facilities.

National reliance on coal as a source of fuel has come under scrutiny in recent months as countries globally deal with an energy crisis.

Indonesia is the world’s largest exporter of coal, with prices recently surging to a record high. In the Philippines, coal contributes to more than half of the country’s power.

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