Cheap debt, gearing and loan tenors – How financial engineering enables early retirement BOX 2 Injection of cheaper debt, increased asset gearing and lengthened loan tenors work in different ways to enable early retirement. Refinancing with cheaper debt Refinancing with cheaper debt lowers the debt servicing burden for an asset owner. This frees up cash flow, which can be used for alternative purposes, including making dividend payments earlier than previously possible. Asset owners can realize equity value faster while still meeting their debt obligations. Financial re-gearing Increasing the ratio of debt to equity in an asset’s capital structure lowers overall cost of capital because debt is almost always cheaper than equity. As CFPPs operate, they gradually pay off their debt, raising the overall share of equity in an asset, and increasing the opportunity for re-gearing. Where possible, analysis in this paper has taken publicly available information on gearing ratios at commissioning. Where not available, it has assumed a flat 70:30 debt-to-equity split. The model has then adjusted the gearing ratio based on assumed debt repayments made by the asset owner between commissioning and the time of the early retirement deal (January 2025). In all the simulations, a maximum 80% debt ceiling is allowed, but gearing increase possibilities for all plants are limited to well below this threshold due to cash flow limitations (cash flows have to satisfy the requirements of 1.25x debt service coverage ratio (DSCR) and one-year debt service reserve account (DSRA) in the simulation). Increasing gearing may entail additional risk for some lenders, requiring guarantees or other payment assurances.20 Extending loan tenors Spreading debt repayments across a longer payback duration frees up cash flow. As with cheaper debt, this cash flow can be used to monetize equity value by providing dividend payments earlier, enabling an asset owner to bring forward a plant’s retirement date. Debt tenors for most CFPPs at financial close in EMDEs mirror offtake contracts. The modelling has assumed extending the tenor of new lending to the plant until two years before its (new) retirement date. For some lenders, this may require guarantees or other payment assurances. The plants in the dataset comprise a total capacity of 3,275 MW and represent about one quarter of the Philippines’ total CFPPs. Context of simulations – 10 plants in Philippines FIGURE 4 Note: 1. Coal retirement mechanism Source: KPMGPhilippines10 3,275 MW 55-70% plants in the Philippines analysed total capacity current assumed gearing Age of plants Number of plants Total capacity 5 to 8 years 3 1,468 MW 8 to 14 years 3 789 MW 14 to 18 years 4 1,018 MW CO2 abated (metric tonnes) Debt rate concession Gearing increase 0.0% 0.5% 1.0% 1.5% 2.0% 0% 5% 10% 15% 20% 25% 30%Based on straight-line paydown from the initial gearing at commissioning Analysis of CRM1 facility application scenarios Scaling Financing for Coal Phase-out in Emerging Economies 10

Scaling Financing for Coal Phase out in Emerging Economies 2025