New research from Griffith University challenges conventional wisdom by demonstrating that early retirement of coal-fired power plants can actually benefit investors financially. In partnership with Climate Smart Ventures and Fudan University, the study presents groundbreaking findings on the economic feasibility of speeding up the shift from coal to renewable energy in developing Asian nations. These insights offer a compelling argument for accelerating climate action while safeguarding financial returns.
The urgent need for global decarbonization necessitates the premature closure of coal-fired power plants (CFPPs), particularly in developing Asia, which houses the majority of the world’s coal capacity, explained the researchers. While research on financing CFPP retirement is well-established in developed countries, it remains relatively unexplored in the developing world. Initiatives like the Asian Development Bank’s Energy Transition Mechanism and the Just Energy Transition Partnership highlight the growing focus on accelerating CFPP retirement in Asia. However, challenges such as increasing electricity demand, the relatively new age of many Asian CFPPs, and the significant influence of Chinese investment complicate these efforts.
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Their study evaluates the enterprise values of six Chinese-backed CFPPs in Vietnam and Pakistan, commissioned between 2010 and 2023, under various financing models and future geopolitical scenarios. The analysis reveals that refinancing these CFPPs can substantially increase their enterprise values, making early retirement more financially viable. Younger plants, with more operational years to forego, are particularly well-suited for early closure. By combining refinancing with early retirement and investments in renewable energy, CFPP owners can significantly enhance their financial performance, providing a strong incentive for expedited phase-out.
Griffith Asia Institute Director Professor Christoph Nedopil said the findings were relevant for countries grappling with energy security concerns and the need to meet climate commitments.
“Our research offers a roadmap for implementing financially viable strategies to phase out coal power while expanding renewable energy capacity,” Professor Nedopil said.
“Options such as blended finance, green bonds, and debt-for-climate swaps could play a pivotal role in facilitating the early retirement of coal plants.
“With the right financial mechanisms, we can accelerate the retirement of coal plants in Asia without compromising investor returns.
“This opens new avenues for addressing climate change while ensuring economic stability.”
Key findings include:
1. Early retirement of coal plants can be financially advantageous for investors.
2. Younger coal plants, particularly those with high financing costs, can potentially be retired earlier than older plants while maintaining or increasing enterprise value.
3. Refinancing strategies, combined with renewable energy investments, can significantly enhance enterprise values for coal plant owners.
4. The study demonstrates that coal plants in Vietnam and Pakistan could be retired 3-13 years earlier than scheduled while preserving or increasing financial returns.
