WEF Explores Financing Closure of Coal Power Plants

Coal makes up 36% of the world’s total power generation today. In emerging and developing countries, coal remains a significant energy source, accounting for a higher share of their energy generation.

In Southeast Asia, for instance, coal provides half of the power generation. Without slashing carbon emissions and investing in cleaner energy sources, coal emissions could account for nearly half of the global carbon emissions required to limit warming to 1.5°C.

Phasing out coal presents several challenges. It requires significant investment in alternative energy sources to replace coal generation capacity, as well as investment in grid infrastructure.

Additionally, securing support from key stakeholders, including plant owners and operators, is crucial. It is also essential to ensure that the alternative power sources are both reliable and affordable. Furthermore, we must support impacted workers and communities by providing them with new job opportunities.

A report published in February 2025 by the World Economic Forum (WEF), in collaboration with KPMG and backed by the Growald Climate Fund, titled “Scaling Financing for Coal Phase-out in Emerging Economies,” offers valuable insights into increasing financing for the phase-out of coal in emerging and developing economies (EMDEs). WEF’s Coal-Clean Initiative challenge in numbers:

A third of the world’s power generation comes from coal, which releases over 10.3 gigatonnes of carbon dioxide (Gt CO2) into the atmosphere annually. In emerging and developing economies (EMDEs), coal usage has increased by 40%.

However, in 2023, only 15% of the world’s clean energy investments were directed towards EMDEs. If all 6,525 coal-fired power plants (CFPPs) operate for their entire expected lifespan, they will emit 250 Gt CO2 by 2050. This amount is equivalent to half the carbon budget required to limit global warming to within 1.5°C.

The International Energy Agency (IEA) estimates that reducing coal emissions by 160 Gt CO2 by 2050 is necessary to achieve net-zero global emissions. Two-thirds of this reduction must come from retiring CFPPs, with over 60% of the retirements needed in EMDEs.

However, retiring a significant number of CFPPs poses enormous challenges. It requires bridging the gap between the value the plant would have generated over its lifetime under a Business-as-Usual (BAU) scenario and the value if it is closed earlier than planned. Younger plants tend to be more difficult to retire because the return on investment is typically realised over their expected operational lifespan.

The report emphasises the importance of coal retirement mechanisms (CRMs) in facilitating the early closure of coal plants, particularly in emerging and developing economies (EMDEs). It includes case studies from Chile, Indonesia, and the Philippines that demonstrate the viability of these financial strategies in decommissioning coal power plants ahead of schedule.

For instance, in northern Chile, two coal-fired power plant (CFPP) units in Tocopilla closed two years earlier than planned, thanks to a $125 million loan package from the Inter-American Investment Corporation (IDB Invest) and the Clean Technology Fund (CTF).

In Indonesia, the 660 MW Cirebon-1 CFPP can be retired seven years earlier with the support of the Asian Development Bank’s (ADB) energy transition mechanism (ETM) refinancing. In the Philippines, the South Luzon Thermal Energy Corporation (SLTEC) coal-fired power plant in Batangas is on track for an early retirement, moving from an initial closure date of 2040 to as early as 2030, facilitated by refinancing through lower-cost debt and equity from local banks and institutional investors, as well as the use of transition credits.

Addressing this issue is crucial for encouraging plant owners to engage in discussions about retirement.

Generally, these pilot transactions adopt one of two approaches: lowering the cost of capital and utilising transition credits. Lowering the cost of capital increases cash flows, allowing asset owners to realise equity value sooner and facilitating earlier plant closure. This reduction in capital costs often involves blending commercial and concessional financing, the latter being loans provided at below-market rates by institutions such as multilateral development banks.

Additionally, a new class of carbon credits has been developed to support the early retirement of coal-fired power plants, compensating asset owners for the economic value they lose when they retire their plants prematurely. Buyers of transition credits are likely to include corporations seeking voluntary carbon offsets as well as governments pursuing decarbonisation objectives.

The report emphasises the need to explore financial restructuring to facilitate the early retirement of certain coal-fired power plants, particularly those with substantial debt.

To advance the transition from coal to clean energy, a wider range of government policies and financial tools is required. This includes commitments to transition, regulations that reduce the value of coal, and removing barriers to the growth of renewable energy. Furthermore, many CFPPs will require additional financing, including transition credits and concessional capital, to accelerate retirement and attract private investment.

Learn more about the report by browsing the link in the “Source” section below.