AfDB to launch funds to help shut down coal-fired power plants

MANILA – The Asian Development Bank plans to create funds, perhaps next year, to facilitate early shutdowns of coal-fired power plants in Southeast Asia. The multilateral lender will buy these factories and play an active role in their management.

In collaboration with governments and financial institutions, the AfDB plans to launch funds in countries like Indonesia that rely heavily on coal for power generation, with the aim of accelerating their transition to a low-emission economy. of carbon.

“To coincide with the United Nations COP26 climate summit, the AfDB will review its energy policy. For starters, we will stop giving loans to build new coal-fired power plants. end of their life cycle, ”AfDB President Masatsugu Asakawa said in an exclusive interview with Nikkei. COP26 will open at the end of October in Glasgow, Scotland.

The funds will be financed by government grants and long-term loans at low interest rates and will seek investments from financial institutions. It is believed that several lenders are showing interest. The AfDB aims to set up a fund to buy power plants and another to promote renewable energy in Southeast Asia. He has started consultations with governments and utilities in coal-dependent countries such as Indonesia, the Philippines and Vietnam.

Asakawa did not disclose the size of the funds, but they could be huge. Coal-fired power plants can cost over 300 billion yen ($ 2.7 billion), depending on their production capacity. The first purchase is scheduled for 2022 or 2023.

“Asia accounts for around 60% of global greenhouse gas emissions. It is also vulnerable to natural disasters triggered by climate change. The AfDB has set itself the goal of investing $ 80 billion in climate change projects between 2019 and 2030, ”Asakawa said. .

Asian Development Bank President Masatsugu Asakawa (Photo courtesy of AfDB)

Coal-fired power plants are typically designed to operate for 30 and 40 years. The AfDB hopes that by purchasing the power plants, it can shorten the time needed for utilities to recover their capital and depreciation costs, so that they “can be shut down sooner, even by five or ten years”. Asakawa said.

Coal-fired power plants account for nearly 40% of global electricity production, according to the International Energy Agency. This proportion is highest in the Asia-Pacific region, at around 60%. Reducing dependence on coal will help transform the region into a low carbon society. Asia accounts for about 80% of global coal consumption.

If Indonesia, the Philippines and Vietnam replace half of their coal-fired power plants with plants powered by renewable energy, their greenhouse gas emissions would decrease by about 200 million tonnes per year, which is equivalent to to take 61 million conventional vehicles off the road.

The obstacles to such a change in Asia remain high. Coal is a major energy source for many emerging economies in Asia due to its relatively abundant supplies. Renewable energies have a low environmental impact, but the power output varies depending on the weather and time of day. If a rushed switch to clean energy results in power shortages, it could hamper efforts to develop industries in fast-growing emerging economies. To achieve a low carbon society, ensuring a stable power supply is essential.

Asakawa became AfDB president in January 2020 after his predecessor, Takehiko Nakao, stepped down before completing his five-year term. Asakawa’s second term will begin in November.

Asakawa said he has been busy responding to the coronavirus pandemic since taking office. “We have allocated a $ 20 billion relief plan to directly supplement the public finances of emerging economies. We have also launched a $ 9 billion vaccine initiative,” he said. “But even when countries have funds, the establishment of vaccine deployment frameworks is sometimes delayed. We aim to play a role in improving deployment capacities in Asia.”

In addition to infrastructure development, the AfDB recently issued its very first “blue bonds” to finance projects to protect the marine environment. Japanese companies Dai-ichi Life Insurance and Meiji Yasuda Life Insurance bought the bonds. “In addition to the responses to the coronavirus, the AfDB hopes to implement projects that will help fight poverty and climate change,” Asakawa said.

China has promoted its “Belt and Road” initiative, which aims to create a vast economic zone stretching from Asia to Europe. But many emerging economies are grappling with inflated debts to China, and the amount of those debts remains uncertain. “Internationally, we have the Paris Club, a group of major creditors that includes Japan, the United States and Europe. China and other “emerging creditors” need to be integrated into multinational frameworks. It is also important to persuade private sector lenders to get actively involved in these issues, ”AfDB President said.

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