Scaling Financing for Coal Phase out in Emerging Economies 2025

Endnotes 1 IEA (2023), Coal 2023: Analysis and Forecast to 2026 2 IEA (2024), Southeast Asia Energy Outlook 3 Coal Transition Commission (2024), Accelerating Coal-to-Clean Energy Transitions: First Report and Recommendations of the Coal Transition Commission 4 Statista (2024), Annual global emissions of carbon dioxide 1940-2023 5 Center for Global Sustainability (2023), State of Global Coal Power 2023, University of Maryland 6 Baseload power generation refers to the continuous and reliable production of electricity by power plants, typically using sources like coal, nuclear or hydro, to meet the minimum level of demand on an electrical grid 7 Coal Transition Commission (2024), Accelerating Coal-to-Clean Energy Transitions: First Report and Recommendations of the Coal Transition Commission 8 IEA (2024), Accelerating Just Transitions for the Coal Sector: Strategies for rapid, secure and people-centred change, https://www.iea.org/reports/accelerating-just-transitions-for-the-coal-sector 9 IEA (2024), Bringing down the cost of capital is key to unlocking clean energy growth in emerging economies 10 Coal Transition Commission (2024), Accelerating Coal-to-Clean Energy Transitions: First Report and Recommendations of the Coal Transition Commission 11 Other options include carbon, capture and storage (CCS), switching to flexibility and co-firing 12 Ibid 13 Under Article 6 of the Paris Agreement 14 World Economic Forum (2023), Carbon Reduction Bonus 15 Asian Development Bank (2023), New agreement aims to retire Indonesia 660MW coal plant almost 7 years early 16 World Economic Forum (2022), World’s first Energy Transition Mechanism (ETM) for early retirement of a coal plant 17 ACEN (2023), COP28: ACEN, The Rockefeller Foundation and Monetary Authority of Singapore partner to pilot the use of Transition Credits for the early retirement of coal plants 18 CFPPs included in the analysis have been anonymized for the purposes of this report 19 Gearing increase means Increasing the proportion of debt relative to equity in an asset’s capital structure 20 Debt service coverage ratio (DSCR) is a financial metric that measures a company’s ability to cover its debt obligations with its operating income. Debt service reserve account (DSRA) is a reserve fund established to ensure sufficient funds are available to cover a borrower’s debt payments in case of cash flow shortfalls 21 These assumptions are considered moderately ambitious, but realistic. They are intended to stimulate discussion and contribute to identifying solutions, rather than to reflect an accurate forecast of what will happen in the market in question 22 Aurora (2024), Comment: Key themes & Aurora’s energy forecasts in the Philippine power markets and grid 23 Transition Zero (2024), Coal Refinancing in the Philippines: Using the Coal Asset Transition (CAT) tool, https://transition- zero.vercel.app/insights/cat-Philippines 24 Ibid 25 Based on the weighted average of BAU NPV and current gearing of a plant with 327.5 MW capacity with an average load factor (based on plant size) of 60% and current leverage (based on plant age and plant size) of 52% 26 Transition Zero (2024), Coal Refinancing in the Philippines: Using the Coal Asset Transition (CAT) tool, https://transition- zero.vercel.app/insights/cat-Philippines 27 Philippines and Indonesia for example (grid only) have moratoriums on construction of new CFPPs except for those already in the pipeline 28 World Economic Forum (2021), Reverse Auctions 29 While the Net Present Value (NPV) is the same in both scenarios, which implies the total value generated from a discounted perspective is equal, the return on capital differs significantly. In, say, the 30-year scenario, the return is realized faster, resulting in a higher internal rate of return (IRR), which indicates a more favourable outcome for investors who value the speed and efficiency of their returns. Conversely, in the 40-year scenario, the return is slower, resulting in a lower IRR due to the longer payback period and greater impact of discounting on future cash flows. Therefore, investors would benefit more in terms of return on capital if the project were shortened to 30 years rather than extending over 40 years, under the assumption that the NPV is kept the same for the investors Scaling Financing for Coal Phase-out in Emerging Economies 28