MANILA, Philippines — The Philippines is looking into the viability of the so-called energy transition mechanism (ETM) to finance its shift to clean and renewable sources of power from the current dependence on coal.
The Asian Development Bank (ADB) and the Philippines, Indonesia, and Vietnam were studying the feasibility of the ETM program to establish an ETM facility in each country, which would buy coal-fired power plants and then retire them while jump-starting clean energy sources, the Manila-based multilateral lender said last Friday.
Assistant Finance Secretary Paola Alvarez told a press conference on Tuesday (Oct. 26) that the planned ETM facility in the Philippines was currently in the pre-feasibility study stage.
“We’re looking into first transitioning coal power plants in Mindanao, because they don’t have that much participation in the grid, so we can easily transition them and it’s more doable,” Alvarez said.
“We’re starting with that and we’re looking into how much would it actually cost; what is the business model and how do we efficiently transition them” while considering energy security and affordability, she said.
“We hope it [ETM] is viable because it’s something that we really need to do,” Alvarez said.
“That’s why we’re working with the ADB in order for us to know how to do it in Mindanao first. Once the pilot is successful, then we will look into how to replicate that in other parts of the islands,” she added.
Last week, ADB vice president Ahmed Saeed noted that coal-fired power was an “enormous problem” in the three pilot-countries.
Saeed said coal is still 60 percent of the energy mix in Indonesia. It’s about 50 percent in the Philippines and Vietnam, he said.
“In many countries in our region coal continues to go up, but the countries are very serious about achieving their nationally determined contribution targets under Paris Agreement,” Saeed said.
“This is a way for us to work with them to help them achieve a common objective in a way that’s consistent with their development trajectory and objectives,” Saeed added.
The objective in Indonesia, the Philippines, and Vietnam, he said, was to reduce coal as power source by 50 percent.
“That’s 200 million tons of carbon dioxide a year, the equivalent of 61 million passenger cars,” Saeed said.
“Just the pilot alone can be one of the largest sources of carbon offsets in the world. But we think that much more is possible,” he said.
“We think that this is a structure that can be replicated and scaled, not just across our region, but also in other regions,” Saeed added.
Saeed said the ETM will be composed of two funds: a carbon reduction fund and a separate clean energy fund.
“The purpose of the carbon reduction fund is to provide a blended finance mechanism, one that brings together a variety of different actors in order to incentivize the early retirement of coal-fired power assets,” he said.
“The clean energy fund will invest in the growth and expansion of renewable power to replace the dirtier power that we will be hopefully taking out,” Saeed added.
While the ADB would unlikely hold equity in the carbon reduction fund, Saeed said the lender “anticipates being very actively involved in the clean energy fund that will finance the expansion of renewables.”
In the case of the Philippines, the government plans to rehabilitate the decades-old Agus-Pulangi hydropower facilities in Mindanao before retiring the coal-fired plants in the southern island.
Finance Secretary Carlos Dominguez III said the project would be launched at the COP26 meeting in Glasgow. “This could serve as a model for coal-dependent economies to gradually shift from fossil fuels to more sustainable and greener energy sources,” Dominguez said at last week’s launch of the Philippines’ sustainable finance roadmap and guiding principles.
Dominguez said the country’s ambitious target under the Paris Agreement to slash greenhouse gas emissions by 75 percent in the next 10 years alongside the carbon reduction goals could “fail unless we build a supportive finance environment.”
“Finance policies will enable a shift from carbon-intensive to renewable power sources. They will enable greener habitat and transport systems as well as more resilient agricultural practices,” Dominguez said.
The Philippines’ roadmap enjoined private sector participation through green investment vehicles (GIVs)— “public entities that act like a private financier, focusing on low carbon, climate-resilient investments.”
TSB