October 2021
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October 2021
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Asian Development Bank plans initiative to limit emissions

By Anthony Rowley   
September 1, 2021

The Asian Development Bank is embarking on a study that could lead to a programme to shut down coal-fired plants in some Asian countries.

The initiative, known as the Energy Transition Mechanism (ETM), is expected to be launched by early next year. The lost output from the ETM will be replaced by new renewable energy sources.

"Legacy coal-fired power plants constitute the single largest source of greenhouse gas emissions from human activity. Without addressing them, we will miss the Paris Agreement targets on controlling emissions," Toru Kubo, director of energy with the ADB’s Southeast Asia Department, says in an interview with Asia Asset Management (AAM).

The ETM is a mechanism that will support the transition from coal to clean energy, delivered by creating country-based fund structures, he says. "Concessional funds from the development community, developed countries, and philanthropies will be blended with investments from public and private sector entities.”

"The resulting low-cost financing will be used to acquire coal power plants with the sole purpose of accelerating their retirement and finance replacement power from clean energy resources and energy storage. Both aspects are planned in parallel to ensure adequate and competitively priced clean electricity supply needed for growing economies,” he adds.

What is highly significant about the scheme is that it provides a means to get public and private blended finance directly behind specific projects that are designed to mitigate climate change, and which could be replicated and scaled up across and beyond Asia eventually.

Citigroup, HSBC Holdings and UK insurer Prudential are among the major financial institutions joining the scheme.

According to another ADB official, the initial pilot phase is expected to require between US$2.5 billion and $3.5 billion of total investments. Financing for the scale-up phase that follows could range from $30 billion to $60 billion.

"Removing coal plants that are so dominant in these grids can unlock significant investment in renewables, storage, hydrogen, electric vehicles, and other clean technologies," Kubo says. "The costs of renewable energy and energy storage have been falling rapidly and at some point in the 2030s, they are expected to become cheaper than the cost of running existing coal-fired power plants.”

Scheme partners will have different financing roles, such as providing equity and debt capital, grants and concessional financing plus guarantees. The financing structure will be decided in the feasibility study. The ADB itself is unlikely to take up equity.

Note: A longer version of this article will appear in the September issue of Asia Asset Management.