What costs can the revenue from transition credits cover?
We need a solution that meets the needs of all of the stakeholders in a power plant – from shareholders to the local community, to the workforce and bill payers – and leaves them the same, or ideally better off. So part of the transition credit needs to go to buying out existing contracts.
Renewables are cost-competitive with coal power in many markets. However, if you want that clean power to provide the same grid services, you will need some subsidy for the storage element.
The final element is the just-transition aspect.
There are 200-250 people directly employed in most coal plants and intersections with the local community, so the transition credits would cover those costs as well.
Which coal plants can transition credits help to close?
Transition credits should only be applicable to coal plants that are operational in developing and emerging markets and that wouldn’t in the normal course of events retire anyway.
First of all, the average age of a coal plant, particularly in the Asia region, is about 15 or 16 years, compared to a technical life of 40 and often times 50 years.
And the second factor to consider is that 90 per cent of these plants are locked into long-term power purchase agreements.
If you were to take that coal plant offline and replace it with clean power, we’ve seen that there’s not a financially viable off-ramp at the moment.
What is the incentive to buy transition credits?
Generally, it’s going to be countries or companies that have a carbon reduction target.
Let’s say you are a major company operating in the Philippines, what are your options for sourcing clean electricity?
So, we’re trying to create a mechanism for corporate entities to actually engage in the decarbonisation of power systems in emerging markets and creating a clean power system for everybody.
When it comes to countries that have used up most of the carbon budget, they have a moral responsibility if they want to support developing and emerging markets to decarbonise more rapidly, to find a financially viable pathway for that to happen.
This interview has been edited for length and clarity.
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