Prudential, Citi, HSBC, and BlackRock are reportedly working on a plan to buy out coal-fired plants and wind them down early.
Prudential, Citi, HSBC, and BlackRock are reportedly working together to devise plans to speed up the closure of Asia’s coal-fired power plants – the biggest source of carbon emissions in the region.
According to Reuters, the plan is being driven by the Asian Development Bank (ADB). A potentially workable model has been proposed, and already presented to ASEAN finance ministers, the European Commission, European development officials, and multilateral banks.
The plan involves the creation of public-private partnerships to buy out coal-fired plants and wind them down within 15 years, which is far sooner than their usual life, giving workers time to retire or find new jobs and allowing countries to shift to renewable energy sources.
The proposed mechanism entails the establishment of two facilities. A carbon reduction facility would use low-cost, blended finance to buy and operate coal-fired power plants, using cash flows to repay debt and investors. A separate facility would fund investments in renewables and storage to take over the energy load from the plants.
Under the proposal, development banks would agree to accept a lower return and take first loss as holders of junior debt.
As part of the proposal, the ADB has allocated around US$1.7 million for feasibility studies covering Indonesia, Philippines and Vietnam, to estimate the costs of early closure, which assets could be acquired, and engage with governments and other stakeholders.
Details still to be finalised include ways to encourage coal plant owners to sell, what to do with the plants once they are retired, any rehabilitation requirements, and what role if any carbon credits may play.
The plan is to have a model ready for COP26 in November, so that the group can attract finance and other commitments at the climate conference.
Under the proposed scheme, the first purchases could come as soon as next year, comprising a mix of equity, debt and concessional finance.