ADB scheme has potential to accelerate SEA green energy transition: Fitch

The scheme targets Indonesia, the Philippines, and Vietnam for its initial phase.

The Asian Development Bank (ADB) and Prudential’s recently announced investment scheme to acquire existing Asian coal-fired power plants and retire them early could accelerate the transition to green energy of Southeast Asia, Fitch Solutions said.

Primary target markets of the initial phase of this scheme include Indonesia, the Philippines, and Vietnam.

“From a recipient market point of view, even governments in traditionally coal-dependent markets like Indonesia and Vietnam have started to show an increased willingness to move away from coal in their recent energy strategies. From an international point of view, we have already seen an increase in green financing mechanisms, particularly from more developed nations and push for a 'green recovery' from the pandemic,” it said in a report, adding that they are “cautiously optimistic” of its success.

However, its potential hinges on a few factors, such as parallel support for the build-up of alternative and reliable generation sources, being large enough to have a substantial impact on the entire power sector and presenting a more defined scope of which coal plant assets qualify for the scheme.

“The scheme will likely target newer coal power plants with decades more to its operational shelf life to achieve its objectives, and ‘early closure’ will still entail a 10-15 year timeline. In addition, there will still be some time lags before the scheme can be fine-tuned into an effective mechanism and expanded to the scale where it can significantly alter the power mix, especially given the fact that many of its target nations are emerging markets that are also actively trying to expand its power capacity to meet surging demand and support economic growth over the coming decade,” Fitch added.

Amongst the schemes' financial partners are HSBC, BlackRock, and Citi. It is expected to be financed by a mix of equity, debt, and concessional finance, via public-private partnerships.

Currently, in its pilot, several details about the project have yet to be finalised. Prudential’s preliminary estimates show that it would range from US$1-1.8m/MW, which means that it would run into the billions at the minimum.

“There are also questions around the potential role of carbon credits, potential conflict of interest, moral hazards, and whether or not existing coal plant owners will embrace the scheme. These are expected to be finalised and announced at the United Nations Climate Change Conference (COP26) in November, with hopes for the first transaction in 2022,” Fitch said.