Scaling Financing for Coal Phase out in Emerging Economies 2025

Strategic use of concessional financing: Insights from the Philippines 2 Given the volume of operational CFPPs worldwide, scaling coal phase-out using concessional capital will be challenging. Similarly, transition credits may take time to scale and could also be limited in availability. To help address this challenge, the analysis underpinning this paper set out to stress-test opportunities and limitations in CFPP phase-out mechanisms using cost-of-capital levers, assessing also the options to limit concessional financing as far as possible. The analysis is based on publicly- available data from 10 real-life plants in the Philippines.18 Overview of the analysis 2.1 The analysis explores how refinancing with debt can maximize emissions reduction from coal plant retirements while minimizing the use of concessional finance. It looked at the maximum abatement achievable for these plants given a set of market assumptions outlined below. To do this, it assessed abatement impacts of a relatively large tranche of highly concessional debt (at 1% interest rate) in a blended capital stack (containing commercial debt and up to 31% concessional debt), combined with other refinancing tools capable of reducing overall cost of capital including gearing increase and tenor extension of debt (see Box 2 for explanation of these financial engineering options).19 The analysis then worked back to explore how much abatement remains achievable when the concessional component of the debt is progressively reduced to zero, leaving alternative financial engineering options to deliver the decarbonization impact (see Box 2 for explanation). In all scenarios, loan tenor extension is maximized to the full extent possible. Scaling Financing for Coal Phase-out in Emerging Economies 8