Early retirement of coal plants to significantly cut CO2 emissions

The early retirement of coal supply agreements in the Philippines is expected to significantly reduce carbon dioxide (CO2) emissions, aligning the country with the objectives of the Paris Agreement.

Climate analytics TransitionZero said retiring coal plants five years ahead of schedule could prevent 290 metric tons of CO2 emissions, almost double the Philippines’ annual CO2 emissions from fossil fuels and industry.

But with buyouts for early retirement seen costing between $19,198 per megawatt (MW) to $2.8 million per MW, TransitionZero said there is a need 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,” TransitionZero Southeast Asia lead Isabella Suarez said.

“The recent extended blackouts in Panay have exposed the need for upgrades in the power system and a diversified energy mix. Coal plants coming offline in megawatts affect the overall stability of the system, at the expense of consumers and the economy. The Philippines will need to make critical policy decisions for the early retirement of the coal fleet to be not only feasible, but imperative for businesses,” Suarez said.

Amid high marginal abatement costs due to the country’s tariff structures, TransitionZero found that early coal retirement by five years and replacement with renewables could be feasible with tailored deal structures, robust selection criteria, and incentives for early movers under the Philippine Energy Transition Plan.

Without early coal retirement mechanisms, it said the Philippines would only see the existing coal fleet retire between 2047 and 2051.

International Energy Agency suggests that developing countries need to phase out coal by 2040 to keep Paris Agreement goals on track.

“Our data highlights that policy incentives to jumpstart coal retirement and refinancing options must account for the complexity of the Philippine market and its players. Retirement deals and refinancing mechanisms need to be bespoke and tailored to the local context,” TransitionZero CEO and co-founder Matt Gray said.

“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.