Incentivize early coal retirement, gov’t told

The Philippine energy transition is a complex undertaking that requires evidence-based planning and policies

Coming off from the recent Panay Island power disruption, an international think tank said it is high time for the Philippines to incentivize early movers who take the bold step of transitioning away from coal and adopting cleaner energy alternatives.

A recent study by the international think tank Transition Zero has emphasized the critical importance of implementing early coal retirement strategies to proactively prevent the emission of a substantial 290 metric tons of carbon dioxide. The figure notably exceeds the nation’s annual emissions by nearly twofold.

Buyouts for early retirement, however, could cost between $19,198 per megawatt, or MW, to $2.8 million per MW, which calls for clear policy directions to stay aligned with the Paris Agreement by incentivizing early movers for coal retirements.

“The Philippine energy transition is a complex undertaking that requires evidence-based planning and policies. The recent extended blackouts in Panay have exposed the need for upgrades in the power system and a diversified energy mix,” Transition Zero Southeast Asia lead Isabella Suarez said in a statement.

Suarez said the Philippines will need to make “critical policy decisions” for early retirement of the coal power plant fleet to be not only feasible but also “imperative for businesses.”

Costing fuel shift

Transition Zero added that based on data from its Coal Asset Transition tool, coal retirement costs $140 per ton of carbon dioxide, or tCO2, on average, to buy and replace coal plants for carbon reduction.

The study said such an amount is comprised of $41 per tCO2 to end existing supply agreements and the other $99 per tCO2 to replace them with solar plus storage systems.

As such, Transition Zero said early coal retirement by five years and replacement with renewables could be feasible with “tailored deal structures” and “robust selection criteria” apart from incentives for early adopters.

Otherwise, the country will only retire its existing coal fleet between 2047 and 2051 without early coal retirement mechanisms, the think tank warned.

Presently, the International Energy Agency is urging developing countries to phase out coal by 2040 to keep Paris Agreement goals on track.

Matt Gray, the CEO and co-founder of Transition Zero, pointed out that refinancing options must consider the complexity of the Philippine market and its stakeholders.

“Retirement deals and refinancing mechanisms need to be bespoke and tailored to the local context. A robust selection criterion backed by data is necessary to inform transition schedules and facilitate access to appropriate transition finance.

This could include prioritizing plants with expiring power supply agreements, those with the highest emissions intensity or with the lowest availability factors,” Gray said.

Based on data from the Department of Energy, the country’s total installed energy capacity from existing power plants excluding energy storage systems is at 28,359 MW as of the end of November 2023.

Of the said volume, the bulk of it at 12,473 MW equivalent to 44 percent is from coal-fired power plants.

As of 2022, coal dominates the country’s power profile, covering 43.9 percent of the energy mix, with 12.2 GW installed capacity from 58 units.