Scaling Financing for Coal Phase out in Emerging Economies 2025

is a promising approach. This model has the advantage of being able to further accelerate retirement into the next five to 10 years above and beyond phase-out dates realized in the late 2030s and early 2040s achieved through market- based refinancing. Combining refinancing with a later injection of revenue from transition credits would have the additional advantage of capping the volume of transition credits required for the transaction, provided the volume of compensation required by the asset owner is reduced courtesy of the initial deal.30 –Repowering: This involves replacing the CFPP with alternative generation technologies at the same site. This can include reusing the steam cycle while replacing the thermal source or simply building out alternative generation technologies at the same site, for example, solar with batteries. Repowering can help to capture substantial residual value from an asset’s grid connection, land, permits and existing equipment. This can reduce capital expenditure requirements for replacing power capacity, while switching the coal PPA to a more sustainable PPA. Given that the retirement of a CFPP is linked to capacity replacement, engagement with sovereign entities may be improved in comparison with transactions that only involve CFPP retirement. Investors, moreover, may be more willing to commit capital because the transaction involves investment in clean power and immediate, or almost immediate, shutdown of the CFPP . Repowering approaches may face constraints relating to technological feasibility of different options at the site, land availability and transmission connection, which could limit viability depending on site specifics. The financial re-gearing approaches described above can provide substantial payouts to asset owners as demonstrated in this paper. This raises the prospect that asset owners who want to repower could obtain a more sustainable revenue source than their CFPP if the early payout is linked to repowering the CFPP site with more sustainable forms of power generation or battery storage. In the second phase of its work, the Coal-to-Clean Initiative will interrogate these questions. It will also work to develop investible financing vehicles based on the re-gearing approach outlined in this paper. An indicative example is provided below. Description of ongoing cash flows (asset to fund, fund to investor) for multiple plants FIGURE 9: Limited partnership – Commercial debt – MDB capital – Concessional capitalGeneral partnership – Asset manager/ investment manager Fund vehicle CFPP 2CFPP 1 CFPP 3 Year 1 Year 2 Year 3 Year 4 Year 5 Year X Year Y Year Z Yearly cash flowInvestment cash flowInvestment management services Yearly cash flow Investment date Cash flow Shutdown date Business-as-usual shutdown date Source: Coal-to-Clean Initiative Scaling Financing for Coal Phase-out in Emerging Economies 19