Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
The Asian Development Bank (ADB) said it secured fresh funding
to develop post-pandemic green infrastructure projects and expedite
the phaseout of coal power in Southeast Asia.
Four donor countries and organizations pledged $665 million to
ADB's Green Recovery Platform (GRP), according to the Manila-based
development bank.
Also, Japan committed $25 million in seed money to the ADB's
Energy Transition Mechanism (ETM), which could eventually retire 30
GW of coal power in Indonesia, the Philippines, and Vietnam and
reduce their combined CO2 emissions by 20%.
The announcements made this week came as rich nations scrambled
to fulfill their $100 billion-per-year climate finance promise to
developing countries in the hope of achieving a successful COP26
outcome.
"Southeast Asia is one of the most vulnerable regions in the
world to climate impacts," ADB President Masatsugu Asakawa said in
a speech during the UN summit
in Glasgow 2 November. "We need ambitious climate projects…We also
need to address the key challenge of financing."
The Association of Southeast Asian Nations (ASEAN) needs $210
billion per year to build low-carbon, climate-resilient
infrastructure during the energy transition, according to ADB
estimates. The current funding gap exceeds $100 billion per
year.
In a bid to promote such infrastructure projects as Southeast
Asia recovers from the COVID-19 pandemic, ADB aims to raise $7
billion in capital via the GRP eventually, Asakawa said.
"The platform will provide financing and technical assistance to
reduce investment risks and catalyze public and private financing
for green infrastructure projects that create jobs and bolster
growth," he added.
"It will also support the efforts of ASEAN developing member
countries to reach their climate goals under the Paris Agreement
and help them strengthen green capital markets, such as by
expanding the issuance of green and climate bonds," he said.
For now, the UK government has promised to contribute £110
million ($151 million), Italy's state lender Cassa Depositi e
Prestiti €132 million ($155 million), the EU €50 million ($59
million), and the Green Climate Fund $300 million.
"Co-investing with our friends in Asia…will help the world meet
its climate goals," UK Foreign Secretary Liz Truss said at COP26.
"[It] will also drive growth in developing countries by supporting
high-quality infrastructure deals, in line with international
standards."
The GRP will be integrated with ASEAN's Catalytic Green Finance
Facility, established by the ASEAN Infrastructure Fund and managed
by ADB.
The facility, designed to accelerate green infrastructure
investments in Southeast Asia, has already received $1.4
billion in cofinancing commitments from the ADB, Agence Française
de Développement, the European Investment Bank, the German
state-owned KfW, and the South Korean government since 2019.
Less reliance on coal
Separately, the ADB said it has won a $25-million grant from the
Japanese government as seed financing for its ETM.
"Japan has been emphasizing the importance of transition
finance…especially in Asia and the Pacific region, where countries
are heavily reliant on coal-fired electricity," said Masato Kanda,
vice minister for international affairs at the Japanese finance
ministry.
"I believe that our grant contribution will become seed money to
attract much larger amounts of donor contributions and private
investment," he said during a press conference 3
November.
Under the mechanism, the bank is aiming to raise capital from
multilateral banks, private institutional investors, and
philanthropic contributors to establish two multi-billion-dollar
funds.
The first will be a carbon reduction fund, which will acquire
and operate young coal power plants with a low cost of capital
provided by ADB partners. As owner, the fund will close those
plants within 15 years.
Theoretically, commercial operators would otherwise have kept
those plants running throughout their normal lifespans of 40-50
years. Such facilities require longer operation periods to achieve
their target returns due to higher capital costs.
The second is a clean energy fund that will develop renewable
power projects, whose output will replace that of retiring coal
plants.
The ADB, which proposed to end coal financing in May, does
not plan to hold equity in the reduction fund. But it is open to
participating in the energy fund.
Having completed a $4.05-million technical study earlier this
year, the bank will aim to accelerate the early retirement of five
to seven coal plants in Indonesia and the Philippines in the ETM's
pilot stage. The pilot project will last for two to three
years.
Indonesia, Southeast Asia's largest economy and coal consumer,
said in its latest Nationally Determined
Contribution that coal will still account for at least 25% of
its power mix in 2050. The share stands at over 50% currently.
That said, there are media reports suggesting that
the country could phase out coal power by 2040 with international
financial aid.
The new mechanism is "an ambitious plan that will upgrade
Indonesia's energy infrastructure and accelerate the clean energy
transition toward net-zero emissions in a just and affordable
manner," Indonesian Finance Minister Sri Mulyani Indrawati
said.
IHS Markit data showed coal accounted for 55% of the
Philippines' power generation in 2019. But the country announced a moratorium on new coal plants
last year.
"ETM has the potential to accelerate the retirement of coal
plants by at least 10 to 15 years on average," Filipino Finance
Secretary Carlos Dominguez said.
ADB's eventual goal is to retire 50% of the coal fleet in
Indonesia, Vietnam, and the Philippines over the next 10 to 15
years. This could cut 200 million metric tons of CO2 emissions per
year.
Questions remain
The bank's ambition appears to be dwarfed by five G20 members'
$8.5-billion finance package to
trigger South Africa's shift from coal to renewables in the next
five years, though.
Representatives from HSBC, Prudential, Bezos Earth Fund, the
Rockefeller Foundation showed up at the ADB press conference as
interested stakeholders from the private sector. But the ADB said
they have yet to firm up any financial commitments to the
mechanism.
Environmentalists and financial experts praised the bank's
intent, but stressed that the ETM needs to be carefully designed to
achieve actual decarbonization effects.
In an open letter dated 1
November, a group of nearly 70 non-profit
organizations—including Greenpeace's Indonesia branch—said
the ADB did not fully develop the financing idea and should not
publicize it during COP26.
"Communities and civil society and people's organizations have
had little opportunity to engage the ADB's processes of formulating
the ETM," they said. "There remains no clarity as to…how the ETM
would avoid creating incentives for operators of older coal plants
to extend their planned lifespan in the expectation of receiving
finance."
"Operators of [coal plants could] continue with their projects,
knowing that the risks of stranding assets and potential losses
will be mitigated by a buy-out scheme," they added.
The Institute for Energy Economics and Financial Analysis
(IEEFA) estimated that for the early retirement of half of the coal
plants in Indonesia, Vietnam, and the Philippines, the ETM's total
size would need to be somewhere between $30 billion and $55
billion. This does not take into account the replacement green
energy costs.
"The funding that would be needed to support the scale up of
this program is dramatically higher than existing ADB clean energy
financing programs," the think tank said in a research note.
"Given the gap between current funding levels for energy
transition in Southeast Asia and the commitments that would be
needed to turn an ETM into a viable catalyst for decommissioning,
stakeholders would be right to stress test any statements
concerning the timing or funding levels," it added.
IEEFA data shows 65.6% of the installed coal power capacity in
Indonesia, 83.8% in Vietnam, and 56.9% in the Philippines are no
more than 10 years old. This presents the ADB with challenges in
offering sufficient financial incentives to their operators.
"The stakes are high for all concerned because implementation
challenges could rob the ADB of credibility and block funding for
other, high-impact clean energy funding strategies," IEEFA
noted.
"The question now is whether the ADB and potential donors can
adapt this concept for the complicated realities of Southeast
Asia's growing power markets, and whether they can meet the higher
standards of governance and transparency required by stakeholders
as markets navigate the transition to net zero," it added.
Posted 03 November 2021 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability
{"items" : [
{"name":"share","enabled":true,"desc":"<strong>Share</strong>","mobdesc":"Share","options":[ {"name":"facebook","url":"https://www.facebook.com/sharer.php?u=http%3a%2f%2fcleanenergynews.ihsmarkit.com%2fresearch-analysis%2fasian-development-bank-wins-690-million-in-funding-for-asean-g.html","enabled":true},{"name":"twitter","url":"https://twitter.com/intent/tweet?url=http%3a%2f%2fcleanenergynews.ihsmarkit.com%2fresearch-analysis%2fasian-development-bank-wins-690-million-in-funding-for-asean-g.html&text=Asian+Development+Bank+wins+%24690+million+in+funding+for+ASEAN+green+recovery%2c+coal+phaseout+%7c+IHS+Markit+","enabled":true},{"name":"linkedin","url":"https://www.linkedin.com/sharing/share-offsite/?url=http%3a%2f%2fcleanenergynews.ihsmarkit.com%2fresearch-analysis%2fasian-development-bank-wins-690-million-in-funding-for-asean-g.html","enabled":true},{"name":"email","url":"?subject=Asian Development Bank wins $690 million in funding for ASEAN green recovery, coal phaseout | IHS Markit &body=http%3a%2f%2fcleanenergynews.ihsmarkit.com%2fresearch-analysis%2fasian-development-bank-wins-690-million-in-funding-for-asean-g.html","enabled":true},{"name":"whatsapp","url":"https://api.whatsapp.com/send?text=Asian+Development+Bank+wins+%24690+million+in+funding+for+ASEAN+green+recovery%2c+coal+phaseout+%7c+IHS+Markit+ http%3a%2f%2fcleanenergynews.ihsmarkit.com%2fresearch-analysis%2fasian-development-bank-wins-690-million-in-funding-for-asean-g.html","enabled":true}]}, {"name":"rtt","enabled":true,"mobdesc":"Top"}
]}