The transition away from coal fired power sector is a crucial requirement in the transition to Net Zero and is the key target for the JETPs.
The need for action is urgent. Indonesia generates more than 60% of its electricity from coal-fired power stations, while over 80% of Vietnam’s coal power plants are less than 10 years old2. Indeed, Asia has the world’s youngest fleets of coal-fired power plants, according to the International Energy Agency (IEA), and such facilities have an average life of 30-40 years34. This leads to the need to be smart, and quick, about the scheduling of individual plants to be retired to drive the best emissions reduction outcome.
Taking less efficient coal power plants offline ahead of schedule would clearly have a positive impact on Asia’s emissions, but this needs to be aligned to the creation of the low carbon energy replacement as well as addressing the impact on supply chains, investors, and local communities if the programme is to secure wide support.
The JETPs aim to facilitate early coal retirements by creating a framework for the public sector and private investors to work together.
The support of the public sector is seen as crucial in giving all stakeholders including private investors the confidence that their funds will go towards a genuine reduction in carbon emissions, without causing negative social impact. Without proper safeguards, there is a risk of “emissions leakage” – that the decarbonisation impact will be later reversed, as well as a risk of job and income loss in affected communities. Blending finance from public and private sources can help accelerate the shift away from coal by reducing the cost of capital, thereby shortening the payback period of a power station and hence inducing investors to accept an early retirement of their asset.
Reducing the financing cost is made possible by “risk-sharing” with Governments, philanthropic foundations or development banks utilising several approaches including grants, concessionary capital or guarantees in different forms.