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A Plan For Accelerating The Exit Of Coal Power Globally

Is coal cancelled? Nope. Not globally. But a proposed financing mechanism for developing countries may chart a fast path to coal power’s departure from the world energy stage.

Coal-Fired Generation Remains Steady Amid Calls For Closure

The Intergovernmental Panel on Climate Change and other scientific bodies have called for a dramatic reduction of greenhouse gas (GHG) emissions globally by mid-century. To hit such targets, coal generation (a significant source of emissions) would have to plummet sharply by 2030 and essentially be gone by 2050.

The outlook for coal is already bleak in the US and many advanced economies, where a blend of market, policy, and pandemic forces continues to rout it. In these countries, emissions from coal-fired power generation are falling dramatically as coal is replaced by natural gas and renewables.

But, globally, coal-fired generation is holding steady — with growth of coal use in China, India and emerging economies offsetting reductions by others. While coal-fired generation in the U.S. has dropped by 40 percent in the last five years and in 2019 accounted for less than 24 percent of total generation, globally it has stayed essentially flat  during that time and now accounts for about 38 percent of all generation in the world.

A Financing Mechanism To Accelerate Retirement Of Coal Plants

Dramatic reductions would require dramatic change—and Donald Kanak has some ideas about how to deliver it. Kanak, based in Hong Kong, is Chair of Eastspring Investments and Co-Chair of the Steering Group of the Sustainable Development Investment Partnership ASEAN Hub.

Writing last week for the World Economic Forum, Kanak proposed a “coal retirement mechanism” (CRM) to rapidly accelerate the replacement of coal with renewables in the developing countries where coal use is high and poised to grow. His focus is on ten to twenty low- and middle-income developing countries that (together with China and India) comprise 70 percent of current global coal-fired capacity and 90 percent of planned new capacity

Kanak’s CRM plan goes like this. An investment fund is established and run by a trusted institution with deep knowledge of each country’s circumstances. The idea is to work with an existing institution (such as a multilateral development bank) rather than create new bureaucracy. Investors in the fund would include developed country governments with access to very low-cost capital and large institutional-impact investors. The fund would acquire existing coal-generating plants and retire them within 10-15 years, cutting short their expected lifetimes of 30-40 years or more.

An acquired coal plant could continue to operate and generate revenue streams during its truncated lifetime, yielding a roughly 5 percent investment return, by Kanak’s calculation.

Meanwhile, the proceeds received by the previous owners of the plant could, at the country’s discretion, be targeted for investment in zero-carbon…

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2020-06-09 16:06:21

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