The Philippines and Indonesia have formed a new partnership establishing an Energy Transition Mechanism (ETM), the first of its kind in Asia and the Pacific, the Asian Development Bank (ADB) said.
At the COP26 in Glasgow, ADB President Masatsugu Asakawa, Indonesian Finance Minister Sri Mulyani Indrawati, and Finance Secretary Carlos G. Dominguez III announced the launch of their new partnership that aims to help accelerate Southeast Asia’s clean energy transition.
Under the partnership, ADB will work with government stakeholders to pilot ETM by jointly conducting a thorough feasibility study focusing on the optimal business model for each pilot country.
“ETM is a transformative, blended-finance approach that seeks to retire existing coal-fired power plants on an accelerated schedule and replace them with clean power capacity,” ADB said.
The mechanism will comprise two multibillion-dollar funds: one devoted to early retirement or repurposing of coal-fired power plants on an accelerated timeline, and the other focused on new clean energy investments in generation, storage, and grid upgrades.
It is envisioned that multilateral banks, private institutional investors, philanthropic contributions, and long-term investors will provide capital for ETM.
“ADB will support the national governments to establish enabling policies and business conditions to improve the program's governance, carbon reduction, and just transition goals,” the bank said.
During the two- to three-year pilot phase, ETM will raise the financial resources required to accelerate the retirement of five to seven coal plants in Indonesia and the Philippines, while facilitating investment in alternative clean energy options within the two countries.
A full scale-up of ETM in Indonesia, the Philippines, and possibly Vietnam—aiming to retire 50 percent of the coal fleet, which is approximately 30 gigawatts, over the next 10 to 15 years—could cut 200 million tons of carbon dioxide emissions per year.
As it grows, ETM has the potential to become the largest carbon reduction program in the world, ADB said.
A pre-feasibility study has been completed and a full feasibility study is underway to finalize the financial structure of ETM, identify candidate coal plants for inclusion in the pilot program, and design just transition activities.
The partnership was endorsed by senior cabinet-level officials from Denmark, the United Kingdom, and the United States, as well as leading global financial institutions and philanthropies.
The Japan’s Ministry of Finance also committed a grant of $25 million to ETM, the first seed financing for the mechanism.
Energy demand in Asia is set to double by 2030, and Southeast Asia is one of the regions continuing to build new coal-fired capacity.
The Philippines recently announced plans to place a moratorium on new coal-fired power plants.