Opting for the Early Closure of Coal Plants is Economically Viable for Pakistan

By IndraStra Global News Team

Cover Map Attribute: Saif Power Plant, Sahiwal, Pakistan / Source: Airbus CNES/Google Maps

 In recent discussions surrounding global climate negotiations, the phasing out of coal has emerged as a crucial element for a successful transition towards sustainable energy sources. At COP28, the Powering Past Coal Alliance witnessed the addition of thirteen countries, including significant contributors to pollution and oil and gas exports, such as the US and the UAE. While the scientific consensus supports the move away from fossil fuel-based power, a significant challenge lies in the financing of such transitions.
The Asian Development Bank (ADB) has introduced the Energy Transition Mechanism (ETM) as a potential solution. This initiative aims to provide capital to developing markets seeking to shift from fossil fuels in their power generation. The ETM proposes a combination of market-based mechanisms, concessional grants, and loans to facilitate the early retirement of polluting assets, encouraging investments in renewable alternatives. However, despite its promise, reaching a universally acceptable agreement remains a complex and challenging task.
The ADB's first official ETM deal with Indonesia involves the premature retirement of the Cirebon-1 coal power plant. The memorandum of understanding, signed in November 2022, outlines a refinancing deal for the 12-year-old plant, intending to reduce 10-15 years off its projected 40-50-year lifespan. However, over a year has passed since the announcement, emphasizing the intricate nature of these negotiations and the lack of transparency in the process.
The proposed ETM framework involves an agreement between plant owners, the government, and ETM investors. According to a report by the Institute of Energy Economics and Financial Analysis (IEEFA), assets qualifying for early retirement typically exhibit characteristics that benefit the public sector, plant owners, and investors alike. The privately-owned Cirebon-1 aligns with these criteria, making it a potential success story for the ETM.
Pakistan emerges as a potential candidate for the ETM, with its thermal power fleet consisting of middle-aged, medium-sized liquefied natural gas (LNG) or diesel plants suitable for early retirement. While the share of coal in Pakistan's power grid may be lower than that of Indonesia, its thermal fleet accounts for 60% of the nation's electricity. The IEEFA's analysis highlights the challenges in Pakistan's energy landscape, including unsustainable incentives and reliance on foreign exchange-intensive fuels, leading to a capacity payment trap.
Given these conditions, the premature decommissioning of specific assets within Pakistan's thermal fleet, as highlighted in a report by the IEEFA, such as Saif Power, Halmore Power, and Sapphire Electric, might prove economically and environmentally feasible. The IEEFA estimates that retiring these plants at age 15 could save the government up to $210 million per plant in excess capacity payments while avoiding approximately 18 million tonnes of CO2 emissions.
The ETM facility presents an opportunity to address Pakistan's challenges in the energy sector, particularly with its coal fleet, which has not yet peaked. The economic feasibility of accelerated coal phaseout initiatives becomes more apparent as these plants age. However, negotiations and stakeholder discussions are necessary to gauge the willingness of all parties involved.
Rumors suggest that Beijing, the sole funder of coal-fired power in Pakistan, may be reconsidering its involvement in the China-Pakistan Economic Corridor (CPEC). Existing CPEC plant owners are facing supply chain issues due to uncleared dues, adding complexity to the situation. An ETM facility could provide a lifeline for troubled coal plants, but careful planning is essential. Balancing the reduction of fossil fuel dependency with accelerated investments in renewable energy and smart grid infrastructure is crucial to minimizing impacts on communities and workers. Overall, the economic sense of closing coal plants early in Pakistan lies not only in cost savings but also in fostering a sustainable and environmentally conscious energy transition. 

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