In line with the bold commitments of countries to the 26th Conference of the Parties on Climate Change (COP26), an innovative low-cost funding mechanism from multilateral agencies like the Asian Development Bank (ADB), to be complemented by private financing, would be needed to concretize the buy-out of legacy power plants or old thermal power fleets that may end up stranded as the world transitions to clean energy or renewables portfolio of investments.

In a virtual briefing with Asian journalists, HSBC Chief ASEAN Economist Joseph Incalcaterra indicated that “there are some encouraging signs about innovative policies – one is being led by the ADB, and essentially using lower cost multilateral financing from donor-countries for example, to buy out coal power plants.”

He explained that these legacy fossil fuel-fired power facilities would be financed “with lower cost of capital -- basically retire them early and save money from lower cost of capital. And as a result, you’ll have higher margins for a period of time, then retire the plant.”

Alongside the precepts laid down under COP26, he emphasized that the buy-out of retirable power fleets or the legacy plants “would be a great solution,” primarily in lowering carbon emissions as part of the all-inclusive goal to still attain the 1.5 degrees Celsius warming limit for the planet.

Incalcaterra highlighted that because of massive state spending in stifling the coronavirus pandemic, “quite frankly, for a lot of countries particularly in Southeast Asia where coal is a big part, we don’t really have fiscal resources right now for the government to use its budget to buy these power plants.”

He added that “there was considerable stress on budgets from Covid-19 and the rest of the region still suffer from Covid-19, so we really need to see innovative multilateral or private sector solutions to these.”

Evan Li, head of Power Utilities, Renewables and Environment (PURE) Research of HSBC, specified that beyond financing strategies, further advancements in technology innovations – primarily on the sphere of carbon capture and storage (CCS) may eventually prompt the technology application shift of the fossil-fed power generating assets, rather than having them entirely shelved or phased out.

In the case of China, for example, he stressed that experiment on CCS deployment has already been gaining traction, and this is seen as a technology that could potentially change the landscape as to the future trajectory for coal-fired power generation.

“If we look at China which is a big country, with lots of coal capacity -- which by the way has 60 percent coal power at this point -- the government has made very clear plans of decommissioning some of the older fleets. Obviously, the country has big, aggressive plans transitioning most of the money into clean, renewables. These are announced, what might surprise us: obviously China is also developing carbon capture as a technology that is sort of evolving.”

Li said if the cost-effectiveness of carbon capture technologies will improve “it might surprise us how we think about coal or even gas power generation –whether those assets will be strand, or in the long-term carbon capture could be the element that could change our minds.”

CCS technology allows the sequestration or sets the process of capturing carbon dioxide before these are spewed into the atmosphere; have them transported and stored for a long period of time, hence, their impact on the environment could be reined in.