The World Bank said Thursday an accelerated decarbonization scenario would leave the Philippines with $10 bilion worth of stranded coal-fired power plants.
“The accelerated decarbonization scenario will have a tremendous impact on the power system technology mix. What this tells us is if the Philippines is aspiring to reach carbon neutrality by mid-century, it really has to ramp up renewable energy investment dramatically and at the same time start to phase down coal-fired power around 2030,” said WB senior energy specialist and infrastructure program leader for the Philippines Feng Liu.
This is because coal still accounted for about 43 percent of the country’s installed capacity as of 2021, based on Department of Energy records.
The WB’s Philippines Economic Report said phasing down coal-fired power would result in substantial stranded assets. It said less than three gigawatts (3,000 MW) of coal-fired power plants would be in operation by 2040 under the ADS, compared to about 14 GW under the current power scenario.
“The present value of the financial losses due to stranded CFPPs is about $10 billion under the ADS. Current CFPPs (11 GW in 2020) in the Philippines are relatively young, most of them having been commissioned no early than 2010,” the report said.
It said the coal power plant phase-down would take place from 2028 to 2040 under the ADS, requiring effective solutions to address the financial cost of the stranded assets of privately owned CFPPs.
The WB said the Philippines should conduct a better assessment of the economic, social and financial risks of stranded assets, not only for coal but also for natural gas infrastructure, as it pursues an accelerated decarbonized pathway.
“While the Philippines has limited domestic production of coal, coal mines as well as the existing 30 or so CFPPs will need to be gradually retired to achieve the net-zero goal,” it said.
The report said CFPPs directly employ few people but more people indirectly rely on them for livelihood including across the supply chain and service sector, resulting in the larger community being potentially adversely impacted by their closing.
“While RE production will result in employment opportunities, labor market misalignments will likely arise [e.g., temporary job losses from closing CFPPs],” it said.
The WB said labor gains from RE might not happen in parallel as RE jobs would be created in different areas of the country, and existing labor force might not move with the new jobs.
The report said pursuing ADS could benefit both the Philippines and the global community if there is a cost-sharing mechanism “to defuse the national burden of elevated costs while capturing the additional global benefit of reduced GHG emissions.”
It said the ADS system cost of $125.4 billion is only 6 percent higher than CPS of $133 billion covering the period 2022 to 2040.
“While reduced local environmental damage do not have a market-based monetary value, reduced global environmental damages could be monetized through the sale of carbon credits,” the report said.
“Therefore, there is potential that the cost of stranded assets due to the early retirement of CFPPs could at least be partially addressed through international purchases of carbon credits. If local and global environmental benefits are included, the ADS would have a net advantage over the CPS,” the WB said.