On June 17, U.S. think tank Institute for Energy Economics and Financial Analysis (IEEFA) released “Accelerating the coal-to-clean transition”, a report concluding that more than 800 coal-fired power plants in emerging markets could potentially make a profitable switch to renewable energy.

In 2023, despite the global acceleration of phasing out coal-fired power plants, the total capacity of global coal-fired power plants increased, and only 10% of the world’s existing coal power capacity is slated for decommissioning by 2030. However, this IEEFA report indicates that more than 800 coal-fired power plants in emerging markets could profitably transition to renewable energy, creating more investment opportunities for the decarbonization of the energy industry.

IEEFA proposes a model in which renewable energy is built and phased in to coincide with a gradual ramp-down and closure of coal-fired power plants. Using case studies from five countries – Botswana, Colombia, Morocco, Romania, and Thailand – to demonstrate the feasibility of this model, IEEFA shows that, without any government subsidies, energy transition can be initiated within five years, with all costs borne by private investors. The costs include plant decommissioning expenses, compensation for investment losses due to plant closure, Power Purchase Agreement (PPA) financing costs, renewable energy construction and development costs, workforce retraining, and grid infrastructure updates. The assurance of 20-30 years of revenue from renewable energy PPAs is a driver for the transition from coal-fired to renewable energy, but it also noted that there are limited resources to identify similar opportunities and support local teams that can create business cases that will ensure yielding of benefits.

Of the more than 800 coal-fired power plants identified by IEEFA, over 600 have been operating for more than 30 years and mostly have no debt or PPA constraints, making them relatively easier to transition to renewable energy. The costs associated with transitioning the remaining around 200 plants can also be quickly paid off and made profitable under the new model. The report finds that an ambitious renewables buildout programme is more likely to be viable than small transactions, because large-scale approaches can become national priorities compared to small-scale, leading to long-term cost efficiencies and the development of a local employment base.

This report demonstrates from case studies of five countries that decarbonization will lead to opportunities to shift investments from coal to clean energy, and suggests governments, investors and philanthropic organizations can seize these opportunities by 1) focusing on identifying more specific transition projects that can become operational in the next three to five years, and 2) investing in funds to establish local teams in specific countries to conduct due diligence and develop business plans that will ensure a return on investment.

The report shows that the economic conditions are ripe for financial institutions to create the business flow of shifting from coal to clean energy. How climate action and the global economy move forward will depend on how seriously the world takes on the shift from coal to renewable energy. We hope that discussions on decarbonization continue, and that over the next three to five years we can accelerate the coal phase-out and seriously develop opportunities for a transition from coal to renewables.

IEEFA：More than 800 coal plants could potentially make a profitable switch to solar (Link)
Press Release (report download)：Accelerating the coal-to-clean transition (Link)

Written/Published: IEEFA
Published: June 17, 2024