COP26 players pledge funding to shut down coal plants

The COP26 climate summit in Glasgow is surrounded by a swirl of talk about money. In the opening days of the two-week conference, multiple initiatives have pledged billions of dollars to help poor countries decarbonize their economies over the coming decade — and a huge part of the task will be helping these countries wean themselves off coal.

On Tuesday, the Global Energy Alliance for People and Planet promised $10.5 billion in philanthropic and development aid to help energy-poor countries transition from fossil fuels to renewable energy. The funding includes $1.5 billion in grants from the Rockefeller Foundation, Ikea Foundation and Bezos Earth Fund and $9 billion in low-interest finance from international development institutions including the World Bank and the International Finance Corporation.

This spending is meant to spur about $100 billion in follow-on investment to replace fossil-fueled energy sources with renewable energy, with a key goal being to prevent the building of the estimated 243 gigawatts of new coal plants that are currently planned in developing countries.

Eighty-one nations considered to be energy-poor are now responsible for 25 percent of global carbon emissions, but that share could increase to 75 percent if they’re not brought along on the clean energy transition, according to a new report from the Rockefeller Foundation and the Global Energy Alliance for People and Planet. But these countries receive only 13 percent of global clean energy financing today, despite being home to about half the world’s people, the group said.

“Green energy transitions with renewable electrification are the only way to restart economic progress for all while at the same time stopping the climate crisis,” Rockefeller Foundation President Rajiv J. Shah said in a statement. The new commitment includes a $1 billion pledge the Rockefeller and Ikea foundations made this summer to bring off-grid clean energy solutions to as many as 1 billion people in developing countries.

Construction of new coal power plants must be halted to keep global temperature rise below 1.5 degrees Celsius, as is needed to prevent the most catastrophic harms of climate change, according to research from the U.N. Intergovernmental Panel on Climate Change, the International Energy Agency and many other groups. Progress on that front was announced at COP26 on Thursday: 20 wealthy countries including the United States, Canada, the U.K., Italy, Switzerland and New Zealand committed to ending public financing for overseas fossil fuel projects by the end of 2023.

But preventing new plants from being built is only part of the challenge. Finding ways to finance the early retirement of existing coal plants is equally important.

To that end, South Africa announced Tuesday that it had secured an $8.5 billion commitment from the U.S. and European countries over the next five years to help it reduce its reliance on the coal-fired power plants that now supply 87 percent of its electricity. Eskom, South Africa’s state-owned utility, is burdened by $27 billion in debt and is having trouble providing reliable service, so it needs additional financing to shift to lower-cost renewable energy.

Separately, the Asian Development Bank (ADB) on Wednesday announced a plan to initiate public-private partnerships to buy out coal plants in Indonesia and the Philippines, which rely on coal for 67 percent and 57 percent of their electricity, respectively.

The pilot project would see ADB join with financial partners including Prudential, Citi and BlackRock to supply between $2.5 billion and $3.5 billion to purchase coal plants and retire them within 15 years as those loans are paid down. The partners hope this Energy Transition Mechanism can be scaled up to encompass the $30 billion to $60 billion required to close half of those countries’ coal power plants within the next 15 years.

Digging into the all-important details of coal-buyout plans

Whether these kinds of coal buyouts will end up advancing or impeding countries’ climate goals and economic fortunes is a subject of much debate, however. The ADB’s plan was attacked this week in an open letter from 60 nongovernmental organizations including Greenpeace and Friends of the Earth, which cites a ​“worrying lack of granular information” on whether the program will ​“shorten rather than prolong the lifespan of coal facilities” or lead to their replacement with clean energy.

The complexities of coal-buyout plans are highlighted in a new report from nonprofit research organization RMI that surveys the various models being explored around the world. These include ratepayer-backed bond securitization in the U.S., securing climate finance for emissions reductions from coal closures in Chile, the competitive auction process held to finance the retirement of coal plants in Germany, and the aforementioned mechanisms under development in South Africa and Asia. (Canary Media is an independent affiliate of RMI.)

Rachit Kansal, a manager with RMI’s carbon-free electricity team and co-author of the report, highlighted these complexities in a Wednesday Twitter thread.

“Finance holds great potential” to usher in the coal transition, he concluded, but only if designed and implemented well.”

Over the next four years, an increasing share of the world’s coal fleet will become economically uncompetitive against new renewable energy, shifting the cost-benefit equation in favor of early retirement, the report finds. 

But about 93 percent of the world’s coal power plants are insulated from competitive market pressures that could bring these economic realities to bear, Kansal noted. That’s because they belong to state-owned or state-regulated utilities that can pass on the costs of building and operating the plants to their electricity customers over 20 years or more.

Some countries also rely on coal for government revenue through taxes or profits from state-owned utilities or mining interests, the report notes. This creates risks of economic disruptions from coal retirement plans that don’t incorporate simultaneous investment in new clean energy sources and other types of economic development.

Financing can shield coal plant owners — and their customers — from some of the costs tied up in retiring the facilities before they’ve been fully paid off, eliminating some of the perverse incentives that are keeping them open despite their uncompetitive cost profiles.

But there are big questions to be addressed. ​“How much are you going to pay to close down those coal plants, and how does the value of that money get distributed, and who’s going to benefit?” Koben Calhoun, a principal in RMI’s Carbon-Free Electricity Program and co-author of the report, asked in an interview.

RMI’s report highlights five principles of effective and just coal-closure financing. One is ensuring that costs, risks and benefits are fairly distributed between the financing parties and the countries and communities affected. Another is making sure that the plans lead to as rapid a shutdown of coal plants as possible and the equally rapid deployment of clean energy to replace them, in order to ensure that their impact transforms the whole carbon-emissions equation.

Developing financing structures that embody these principles will require lots of planning and work with stakeholders, including the communities where coal plants are now located, Calhoun said. COP26 has seen several efforts launched to make sure this happens.

On Monday, Bloomberg Philanthropies expanded its ​“Beyond Coal” campaign, which has been operating in the U.S., Europe, Japan, South Korea and Australia, to include 25 developing countries. The initiative seeks to halt construction of all new coal plants and close a quarter of the 2,445 remaining by 2025.

And on Thursday, RMI, Climate Smart Ventures, the Carbon Trust and the International Network of Energy Transition Think Tanks launched the Coal Asset Transition Accelerator, a group that will supply local governments, utilities, financiers and civil society organizations with data and assistance on coal-closure financing.