Scaling Financing for Coal Phase out in Emerging Economies 2025

No re-gearing + maximum concessional financing used in analysis (31% in capital stack) In general, the projections show that maximum possible concessional financing with no-regearing would deliver moderately reduced abatement in comparison to no concessional capital with maximum possible gearing. Overall, CRM loan requirements are around half of what is required in Scenario 1 because the volume of capital is limited by the fact that there is no gearing increase. Total debt requirements are $2.2 billion, of which $700 million would need to be concessional debt (at 1% interest rate). The projected abatement in this scenario is 104 Mt CO2, which is 14 Mt CO2 less than in Scenario 2. Evidently, there is a trade-off between Scenarios 2 and 3. In Scenario 2, the overall facility size to achieve slightly higher emissions abatement is far higher at $3.9 billion, but with no need for concessional finance. In Scenario 3, achieving slightly lower abatement requires far less CRM funding overall at $2.2 billion, but remains expensive in terms of concessional finance at $700 million. Scenario 2 will involve additional costs to deliver re-gearing, though not in the capital stack. These additional costs and how to respond to them are explored in the following section. Re-gearing and concessional debt have comparative abatement impacts The results show re-gearing and concessional debt can have roughly equivalent impacts on abatement. Considering a moderate 5% gearing increase, with no concessional financing, against a moderate 1% decrease in debt interest for a representative 327.5 MW plant from the sample demonstrates comparable abatement impact. Both approaches deliver carbon abatement of about 11 Mt CO2. The total debt required in the gearing increase- only scenario is higher, at $407 million, but all at commercial rates. In the 1% decrease scenario, blended debt totals $329 million, of which $52 million is at a highly concessional 1%.25 Applying sensitivity analysis to gearing ratios in incremental 5% increases demonstrates an optimum gearing increase of between 10% and 20% across the portfolio rather than greater debt increases. This can help extend abatement impact without significantly increasing the cost per unit of CO2 avoided. The capacity to re-gear is also limited by the fact that lower cash flows are available to a plant at higher rates of gearing. Re-gearing versus concessional debt abatement impact and CRM size FIGURE 8 Source: Coal-to-Clean Initiative simulations, with data from Transition Zero26Re-gearing megatonnes CO2 $ million megatonnes CO2 $ millionBlended rate decrease0100200300400500600700 05101520 0% 5%601 600 599582 503 407 329 329 329 329 329 1213 11 11 9329 9111315 15 15 15 10% 15% 20% 25% 30% 050100150200250300350 02468101214 0.0% 0.5% 1.0% 1.5% 2.0% CO2 abated (Mt CO2) CRM facility size ($ million)Scenario 3 Scaling Financing for Coal Phase-out in Emerging Economies 14