More than 800 coal-fired power plants in emerging markets have the potential to be profitably replaced with renewable energy, generating significant returns for investors and reducing emissions.
New modelling by the Institute for Energy Economics and Financial Analysis (IEEFA) finds that it is economically viable to use large-scale investments in renewables, coupled with restructured power purchase agreements (PPAs), to replace these coal plants through transactions that cover all costs associated with their transition to renewables. The study focuses on seven examples.
With just 10% of the world’s existing coal power capacity slated for decommissioning by 2030, the opportunity to bring forward closure dates is substantial
“There is a solid business case for ageing coal power plants to be replaced with large-scale solar and storage systems, transforming the energy landscape and economic potential of emerging markets,” said Paul Jacobson, an IEEFA guest contributor and author of the report. “Such programmes can accelerate the shutdown of emerging economies’ dirtiest power generation assets by more than 10 years while providing the basis to attract substantial foreign direct investment and create significant new employment opportunities.”
In the model proposed by the research, renewables are built and phased in to coincide with the gradual reduction and closure of coal capacity. The deal works because significant revenues from renewables PPAs are guaranteed for 20-30 years.
Such deals can cover all the costs associated with the transition from coal to clean energy, including decommissioning, recovering equity losses from the closure of an operating plant, financing PPAs, building and developing renewables, retraining workers and upgrading grid infrastructure to support more clean energy.
The report uses case studies in five countries – Botswana, Colombia, Morocco, Romania and Thailand – to demonstrate the feasibility of such an approach. In each case, the economic case shows that if renewables are brought online between 2026 and 2028, the projects can completely eliminate carbon dioxide emissions from these facilities by 2029.
While the coal-to-clean transition is viable without subsidies for the projects analysed, there are currently limited resources to identify similar opportunities and support local teams to develop bankable business cases.
This provides an ideal entry point for philanthropic organisations, private financial institutions or development banks to fund dedicated teams to assess the viability of transactions, de-risk them and hand them over to eventual developers.
“As many emerging markets lack the resources to develop coal-to-clean transactions, philanthropic funding can be transformative by bringing together global support and getting deals over the line,” said Jacobson. “This is also an excellent opportunity for financial institutions to create their own deal flow of bankable coal-to-clean transactions.”
The report concludes that an ambitious renewable energy development programme is more likely to be viable than small-scale transactions. This is because large-scale approaches can become national priorities, leading to long-term cost efficiencies and the development of a local employment base.
Read the report: https://ieefa.org/resources/accelerating-coal-clean-transition
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