Executive summary Coal accounts for 36%1 of total global power generation, making up far higher shares in many emerging and developing economies (EMDEs) – coal provided half of South-East Asia’s total electricity in 2023, for instance.2 Without urgently investing in alternatives and scaling back coal- related emissions in EMDEs, the existing global fleet of coal assets will consume half the world’s remaining carbon budget to keep average warming of 1.5 degrees Celsius within reach.3 Yet, phasing out coal and scaling investments in replacement technologies is a complex challenge. It includes the need to build replacement capacity and invest in grids; to secure buy-in from system operators and plant owners, as well as upfront investments in jobs and communities; and to rapidly grow overall demand for energy. While coal phase-out must be accelerated to achieve global climate targets, failure to deal with energy security and affordability concerns or provide impacted workers and communities with new jobs and economic opportunities will only serve to slow the pace of the transition. This paper, a result of expert consultations and analysis undertaken by the World Economic Forum’s Coal-to-Clean Initiative, acknowledges the importance of addressing these issues, but focuses mainly on making more financing available for coal phase-out in EMDEs. The goal of this paper is to contribute something new to this discussion by confirming two core hypotheses: –Coal retirement mechanisms (CRMs) can help retire some kinds of plants early, with lesser need for concessional capital. –Structured the right way, CRMs can provide a business case for asset owners to consider early retirement. The analysis showcased in this paper, based on 10 coal-fired power plants (CFPPs) in the Philippines, highlights the potential for tried and tested financial engineering approaches – namely financial re-gearing and loan tenor extension – to help retire some kinds of plants early, without using large amounts of concessional financing. This is equivalent to the coal capacity retirement achieved in the few phase-out transactions delivered in EMDEs to date. These approaches have the additional advantage of facilitating an early payout to the CFPP owner in return for early retirement, equivalent to between 20% and 40% of the asset’s remaining value. This could be linked to renewables investment or include commitments that the funds will not be reinvested in fossil fuels. Not only can this provide an important incentive to transition a CFPP , it can also help an asset owner mitigate the risk of stranded assets and diminished revenue flows. These findings point to the value in further exploring how financial restructuring can help retire some types of plants early (for example, project financed CFPPs with substantial debt remaining). Accelerating the coal-to-clean transition overall, however, will require a broader set of government policies and financial tools. These include government commitments to transition, policies and regulations that make coal less valuable and more costly going forward, and addressing barriers to scaling up renewables. Many CFPPs will also require additional financing, including from transition credits and concessional capital, to bring forward retirement dates and crowd in private investment. This analysis paves the way for the second phase of the Coal-to-Clean Initiative, a collaboration between the Centre for Energy and Materials and the Giving to Amplify Earth Action (GAEA) programme. It provides a foundation on which to test these concepts and develop investible and scalable financing vehicles to accelerate the coal-to-clean transition in EMDEs. Scaling Financing for Coal Phase-out in Emerging Economies 4

Scaling Financing for Coal Phase out in Emerging Economies 2025