Retiring coal plants will not be easy or cheap

At the UN Climate Change Conference in Glasgow, Scotland, the Philippines conditionally signed a pledge to phase out coal in the coming decades.

Energy Secretary Alfonso Cusi, on behalf of the Philippine government, endorsed the first clause “to rapidly scale up our deployment of clean power generation and energy efficiency measures,” but only partially agreed on the contents of the third and last clauses.

The third clause calls for the end to the issuance of new permits “for new unabated coal-fired power generation projects,” a cease in the “new construction of unabated coal-fired power generation projects,” and an end to “new direct government support for unabated international coal-fired power generation.”

The Philippine government is not capable of withholding permits for coal projects that had already been approved earlier by the Department of Energy. On the other hand, construction of new coal plants have been put on hold after the DOE issued a moratorium last year, although this will only be obligatory in the long term if backed by more binding statutes.

The fourth clause calls for the strengthening of “domestic and international efforts to provide a robust framework of financial, technical, and social support to affected workers, sectors and communities to make a just and inclusive transition away from unabated coal power in a way that benefits them,” and expanding “access to clean energy for all.”

Presumably, this fourth clause expounds on the Philippines’ much-reiterated calls for climate justice, which in simpler terms depend on financial support that can be channeled to make the transition from the use of coal to clean energy happen.

Heavily reliant on coal

The Philippines is one of a handful of countries, together with Indonesia, that have signed the clean power transition statement with conditions, recognizing that without the commitment of richer countries to set aside funds to phase out coal use, its pledge to shift to clean power would just be an empty declaration.

In fueling economic growth during the last two decades, the Philippines – like Indonesia – had increasingly relied on cheap coal for power generation. Coal already accounts for 57 percent of the Philippines’ total energy mix today, and would likely breach 60 percent if and when all of the 22 DOE-approved coal power plants come on stream.

The transition to cheap coal, plus a slew of other reform measures, have somehow helped bring down the cost of power generation in the country, although it is still one among the highest in the region. Keeping the cost of electricity from going higher will be a major challenge if coal use is immediately stopped.

Currently, the Philippines has 28 coal-fired power plants, many of them relatively new, thus making most of them unsuitable for retirement as proposed by climate activists to help bring down carbon dioxide emissions caused by coal use worldwide.

For now, increased pressure by environmentalists is keeping proponents of proposed new coal power plants from moving ahead with their projects, and in fact, a number have already officially announced they will discontinue with their proposals.

Coal continues to be the single biggest nemesis of climate change activists, and thus, is at the center of discussions at the Glasgow COP26 summit. An estimated 46 percent of carbon dioxide emissions has been traced to coal use from power generation.

The clamor for a full halt in new coal-fired power plants is just half of the equation, though, with the other half being a retirement of old plants – all with the hope that emissions will be slowed down to avoid further global warming beyond two degrees Celsius.

‘Coal swap’ challenge

Based on these realities, the Philippines had cautiously entered into an agreement with the Asian Development Bank (ADB) to participate in an energy transition mechanism (ETM) or “coal swap” scheme for Southeast Asia, where the retirement of existing coal power plants will be replaced by new clean energy projects.

The ADB is looking at retiring 50 percent of SEA’s coal fleet over the next 10 to 15 years to reduce carbon dioxide emissions by 200 million tons a year. ETM is already being utilized in Europe, which by far, has been leading in implementing coal swaps.

In SEA, ADB is initially working with the Philippines and Indonesia, but will likely bring in Vietnam eventually. The latter two are the region’s biggest users of coal for electricity generation.

Finance Secretary Carlos Dominguez III was in Glasgow to launch the ADB coal swap initiative, which would involve the support of several multi-billion funds to “buy out” existing coal power plants while at the same time replace these with new power generation facilities running on renewable energies.

Initial “pilot phase” plans in the Philippines involve three coal power plants, although the goal is to bring this list to 10 in the medium term, with a total estimated market value of $7 billion. The replacement value in new clean energy power plants would likely be the same amount. Finding investors for both sides of the swap will be a challenge.

If it’s any consolation, the SEA ETM partnership has the endorsement of senior Cabinet-level officials from Denmark, the UK and the US, as well as several leading global financial institutions and philanthropic organizations. Let’s hope that this means prioritized access to funding.

Still, with such major financial deals, time is a big constraint. The pilot stage alone is expected to take two to three years before a workable business template can finally get off the ground.

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