1、 WORKING PAPER:GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION A FRAMEWORK FOR ASSESSING THE CLIMATE AND SOCIAL OUTCOMES OF COAL TRANSITION MECHANISMS November 2022 GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|2 Authors:Climate Bonds Initiative Sean Kidney Zofia Wetmaska Climate Policy In

2、itiative Barbara Buchner Jonathan First Vivek Sen Vikram Widge RMI Koben Calhoun Tyeler Matsuo Chiagozie Obuekwe Emma Slater Uday Varadarajan Authors listed alphabetically by organization and name.Contacts:Tyeler Matsuo,tmatsuormi.org Koben Calhoun,kcalhounrmi.org Zofia Wetmaska, Barbara Buchner,bar

3、bara.buchnercpiglobal.org Vikram Widge,vikram.widgecpiglobal.org About Climate Bonds Initiative Climate Bonds is an international organization working to mobilize global capital for climate action.Climate Bonds promotes investment in projects and assets needed for a rapid transition to a low-carbon

4、and climate-resilience economy.Its mission is to help drive down the cost of capital for large-scale climate and infrastructure projects and support governments seeking increased access to capital markets to meet climate and greenhouse gas(GHG)emission reduction goals.About Climate Policy Initiative

5、 CPI is an analysis and advisory organization with deep expertise in finance and policy.Our mission is to help governments,businesses,and financial institutions drive economic growth while addressing climate change.CPI has six offices around the world in Brazil,India,Indonesia,the United Kingdom,and

6、 the United States.About RMI RMI is an independent nonprofit founded in 1982 that transforms global energy systems through market-driven solutions to align with a 1.5C future and secure a clean,prosperous,zero-carbon future for all.We work in the worlds most critical geographies and engage businesse

7、s,policymakers,communities,and NGOs to identify and scale energy system interventions that will cut greenhouse gas emissions at least 50 percent by 2030.RMI has offices in Basalt and Boulder,Colorado;New York City;Oakland,California;Washington,D.C.;and Beijing.GUIDELINES FOR FINANCING A CREDIBLE COA

8、L TRANSITION|3 CONTENTS 1.Introduction-4 2.Managing the reputational risks of CTMs-7 3.A framework and guidelines for evaluating the credibility of CTM transactions-9 3.1 Stage gate 1:Is it credible to provide transition finance for the coal plant?-9 3.2 Stage gate 2:Does the transactions proposed c

9、oal transition pathway support 1.5C goals?-17 3.3 Stage gate 3:Does the transaction include a plan and provisions to support a just transition?-22 3.4 Stage gate 4:Does the transaction provide transparency and accountability to outcomes?-26 4.Next steps and future work-27 5.The guidelines in practic

10、e:Illustrative examples across market and instrument types-28 5.1 Ratepayer-backed bond securitization in the United States-31 5.2 Sovereign sustainability-linked bond to support the transition of PLNs coal fleet-33 5.3 Managed transition vehicle for an IPP-37 Endnotes-41 GUIDELINES FOR FINANCING A

11、CREDIBLE COAL TRANSITION|4 1.Introduction This working paper provides a framework for assessing the climate and social credibility of financial transactions that aim to accelerate a managed phaseout of coal-fired power plants globally(or coal transition mechanism CTM transactions).It proposes a set

12、of initial guidelines to help funders,financial institutions,coal plant owners,and the stakeholders to whom they are accountable assess key questions,including whether a CTM transaction:Results in real,demonstrable emissions savings Enables a broader coal-to-clean transition in support of 1.5C clima

13、te goals Mitigates major risks to coal workers and communities These guidelines aim to be pragmatic,setting a framework to largely mitigate risks,demonstrate positive climate outcomes,and drive transparency needed to inform decision-making.They focus on when and where CTM financing is credible,witho

14、ut delving into how transactions would be structured.We could envision two uses of these guidelines:1.As a tool to assess and demonstrate the credibility of specific transactions.For example,funders,financial institutions,and coal plant owners could use these guidelines to support their engagement o

15、n CTM transactions informing negotiations or the design of CTMs or to communicate how specific transactions help accelerate a just energy transition.2.As the foundation for the development of more detailed methodologies and standards.This could include future certification of CTM transactions,inclus

16、ion of CTMs in sustainable finance taxonomies or principles,i methodologies for CTMs to generate carbon offsets,or to support financial institution reporting on their involvement in CTM transactions(e.g.,in financial institution transition plans or climate-related reporting).ii Although many of thes

17、e applications will require additional specificity or adaptation of the guidelines,the guidelines can provide a framework for working through key issues future standards would need to address.Climate Bonds Initiative,Climate Policy Initiative,and RMI developed these guidelines through a consultative

18、 process and expect them to further evolve with both CTM experience and stakeholder needs.Through conversations with experts and stakeholders from public,private,and civil society institutions,we identified the main areas where clearer guidance is needed to mitigate risks and advance the use of CTMs

19、(see Exhibit 1).iii We then iterated on the type of guideline that could address the identified issues.The guidelines proposed in this working paper present one approach for addressing these challenges.Rather than propose a gold standard for CTMs,we have sought to develop consensus on an initial fra

20、mework to provide social license,clarity,and environmental integrity for coal plant owners,funders,and other stakeholders to make near-term progress on CTMs.By providing the space for deals to move forward,we hope to enable the necessary learning that can inform future CTM standards and frameworks.i

21、 Including jurisdiction-level sustainable finance taxonomies or public finance principles,such as the Equator Principles or International Financial Corporation Performance Standards,among others.ii Additional guidance on metrics for financial institutions to report their involvement in CTM transacti

22、ons could help address the challenge that a CTM could increase a financial institutions financed emissions in the short term,despite contributing to real economy decarbonization.iii This included consultations with governments,public and private financial institutions,and nongovernmental organizatio

23、ns across Organisation for Economic Co-operation and Development(OECD)and non-OECD countries.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|5 The CTM guidelines are organized into four stage gates,with specific recommendations under each.Each of the stage gates addresses a key issue,including(1

24、)the need and value of finance in enabling a coal transition;(2)positive climate impact in support of 1.5C temperature goals;(3)support for a just transition from coal to clean energy;and(4)transparency and accountability to nonfinancial outcomes.As collective experience with CTMs grows,we expect th

25、e guidelines to better calibrate the balance between stringency and pragmatism.For many of the identified challenges,we have contextualized our recommended guidelines within a spectrum of ambition(see Exhibit 1).Many of the recommendations represent a minimum bar for credibility and climate alignmen

26、t,which may be increased over time.We approached this work with a view that enabling positive transactions can go a long way in creating the necessary proof points and demonstrating that capital can be mobilized for the coal transition.As these proof points are established,many of the guidelines wil

27、l need to ratchet up their ambition to support achievement of 1.5C temperature goals.To that end,we have identified several areas for future work.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|6 GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|7 2.Managing the reputational risks of CTMs Phas

28、ing out unabated coal-fired power is one of the most important levers to decarbonizing the economy.Already,leaders across the public and private sectors are recognizing the need to turn off the tap and halt the construction of new coal-fired power stations,leading to a significant slowing of the coa

29、l pipeline.1 However,to limit warming to 1.5C and avoid the most severe impacts of climate change,we must also urgently manage the phaseout of existing coal power plants.Recent commitments and action from government pledges,utility commitments,and financial institution engagement on managed phaseout

30、 has signaled strong momentum to phase out coal globally.iv2 Last years Glasgow Climate Pact further underscored this momentum,marking the first time“phasing down”unabated coal was included in an international climate deal.3 Owners,operators,investors,and public entities setting policy and regulatio

31、ns are increasingly expected to build on these commitments to set clear Paris Agreementaligned transition plans.CTMs,or financial mechanisms that support an accelerated,managed transition from coal to clean energy(see Box 1),can be critical tools for turning coal phaseout commitments into action.Tho

32、ugh the costs of renewables are falling rapidly,many coal-fired power plants remain profitable around the world.An estimated 93 percent of coal plants operate in markets where regulation or contractual structures allow the costs of coal to be passed on to ratepayers,taxpayers,or other public stakeho

33、lders creating relative certainty of returns for coal plant owners.4 In other markets,new renewables have yet to undercut the costs of existing coal.CTMs,alongside policy,can help enable a managed transition of such coal plants:winding down obligations,supporting regulatory and financial stability b

34、y mitigating value destruction,and protecting communities and workers from negative impacts of an accelerated coal transition.CTMs are garnering significant interest worldwide.In the United States,ratepayer-backed bond securitization has enabled regulated utilities to retire and replace uneconomic c

35、oal with cleaner,cheaper energy.5 In emerging markets,major coal economies like South Africa and Indonesia are negotiating blended finance deals to support a managed transition from coal to clean energy.Meanwhile,multilateral development banks are laying the groundwork to roll out comprehensive coal

36、 transition programs,such as the Asian Development Banks Energy Transition Mechanism(ETM)or the Climate Investment Funds(CIFs)Accelerating Coal Transition(ACT)Investment Program.Private-sector coal plant owners and financial institutions have also begun piloting transactions,with ACEN Corporation in

37、 the Philippines recently reaching financial close on a deal to accelerate the retirement of its remaining coal plant.6 Although CTMs are gaining momentum,they also carry key risks that could undermine their ability to deliver on their intended outcomes.These risks,if not managed,could pose major re

38、putational challenges and barriers to the mobilization of capital for CTMs.To support the near-term progress on CTM deals,these guidelines provide a framework to address:Risks that the CTM transaction does not deliver positive climate outcomes,including the risk that the transaction does not result

39、in real emissions savings or that it undermines environmental integrity,including the achievement of long-term climate goals(e.g.,by encouraging further investment in coal or replacement of retired coal with new fossil fuels)iv Following commitments at the 2021 United Nations Climate Change Conferen

40、ce(COP26),over 87 percent of the global coal fleet was covered by a climate commitment,such as a commitment to coal phaseout or net-zero emissions,based on an RMI analysis of climate commitments using Global Energy Monitor data.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|8 Social,environment

41、al,and economic risks to coal workers,communities,and regional governments if a just transition that helps mitigate negative impacts is not prioritized,planned,and implemented effectively Reputational risks attached to the optics of providing financing to coal plant owners,even if this financing hel

42、ps support decarbonization in line with broader 1.5C goals Box 1:A note on definitions for financing a coal transition Coal transition mechanisms(CTMs)refer to the broad types of financial mechanisms that aim to accelerate a managed transition of coal-fired power plants that have remaining fair valu

43、e to their owners.v Although other complementary activities,including investments in clean energy resources or a just transition,are likely required for a managed and just coal transition,these activities do not need to be financed by the CTM directly.vi7 In this working paper,CTMs refer to mechanis

44、ms that involve participation from the financial sector(i.e.,CTMs do not include policy mechanisms that solely disburse taxpayer funds).Examples of CTMs include ratepayer-backed bond securitization or managed transition vehicles such as an ETM.CTM transactions are the specific deals to transition an

45、 identified coal unit or portfolio of units.Public Service Company of New Mexicos(PNMs)issuance of a ratepayer-backed bond to retire units 1 and 4 of its San Juan Generating Station(SJGS)is an example of a ratepayer-backed bond securitization transaction(see case study at the end of this working pap

46、er for details).Coal phaseout refers to the phaseout of unabated coal-fired power generation,through retirement or complete retrofitting of plants to produce clean generation.Coal phasedown refers to strategies to reduce emissions from existing coal plants through ramping down utilization(e.g.,repur

47、posing)or retrofitting to reduce emissions(e.g.,co-firing),but still entails unabated coal combustion.Coal phasedown strategies can support the end goal of phasing out unabated coal power in line with climate targets,for example by supporting the integration of renewable generation.Coal transition r

48、efers to the collective process of managing the coal-to-clean transition and ultimate phaseout of unabated coal in line with 1.5C goals.It can include both coal phaseout and coal phasedown strategies for individual assets,which collectively enable a managed phaseout of unabated coal-fired power gene

49、ration.v The scope of this working paper is limited to financing mechanisms that accelerate the transition of coal for power generation.It does not include coal use for heat or combined heat and power applications.vi For example,just transition investments may come from other sources or financing to

50、ols.CIFs ACT Indonesia Country Investment Plan gives an example of how the activities and their financing may be considered in their Indicative Financing Plan.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|9 3.A framework and guidelines for evaluating the credibility of CTM transactions The CTM

51、 guidelines are organized into four stage gates that address(see Exhibit 1):1.Coal plant eligibility:Is it credible to provide transition finance for the coal plant?2.Coal transition pathways:Does the coal transition pathway proposed by the transaction support 1.5C goals?3.Social protection:Does the

52、 transaction include a plan and provisions to support a just transition?4.Accountability:Does the transaction provide transparency and accountability to outcomes?The following sections describe each stage gate in more detail putting forward recommended guidelines within each before providing several

53、 illustrative case studies to show how the guidelines could apply to different CTM types and market structures.3.1 Stage gate 1:Is it credible to provide transition finance for the coal plant?The first stage gate aims to identify when finance would be an appropriate tool to support a coal plant tran

54、sition.It addresses major challenges related to the provision of finance to support a coal transition,including moral hazard,optics challenges of providing financing to coal plant owners,and non-additionality.Though the guidelines are focused on the plant level,they could apply to a portfolio of coa

55、l plants in a transaction.For example,they could help funders assess whether finance would credibly support the transition of the whole portfolio of coal plants put forward by a coal plant owner or just a subset of those plants.Notably,the guidelines do not provide a framework for prioritizing or se

56、quencing the transition of a fleet of coal-fired power plants.This prioritization will be highly context-dependent and likely managed by governments,system operators,and regulators(see Box 2).An area for future expansion of the guidelines could be to assess CTM transactions against country-specific

57、coal transition plans.Box 2:Planning,prioritizing,and sequencing the transition of a coal fleet The guidelines provided in this working paper offer minimum requirements for a coal plant to receive transition finance.Our aim is to ensure that the guidelines do not exclude any plants that would give c

58、lear,evidenced climate benefits from applying a CTM.Several other factors will play an integral part in the design and negotiations of CTMs,their specific transaction structure and price,and the sequencing or prioritization of projects.In their prefeasibility study for the application of the ADBs ET

59、M,Carbon Trust,Asia Group Advisors,and Climate Smart Ventures exemplify one approach to prioritize the transition of coal units across Indonesia,Vietnam,and the Philippines.In their multicriteria approach,they consider energy security,cost,and carbon impacts of plant retirements.8 Similarly,the Univ

60、ersity of Marylands Center for Global Sustainability and the Institute for Essential Services Reform deep dive into Indonesias coal fleet to consider not only emissions reductions but also the cost and social benefits of retirement on air quality,public health,and water security against the costs of

61、 stranded assets,decommissioning,employment transition,and state coal revenue losses.9 Carbon Tracker,as part of its support for the Climate Action 100+Net Zero Company Benchmark,has also created an approach for developing coal phaseout schedules that agree with regional climate-aligned power demand

62、 schedules,based on factors such as a plants economics,age,technology,and efficiency.10 TransitionZero has also created an open-source Coal Asset Transition database tool,which considers data for 211 coal units in Indonesia against selected Sustainable Development Goals.11 GUIDELINES FOR FINANCING A

63、 CREDIBLE COAL TRANSITION|10 Guideline 1 Challenge:The provision of finance to support the transition of existing coal plants could lead to moral hazard,distorting investment decisions in new coal plants by creating a potential expectation that financing from a CTM could be available in the future.G

64、uideline 1:The financial close or final investment decision of the coal plant is prior to December 2021,following agreement on the Glasgow Climate Pact.One way to mitigate moral hazard risk is to set a threshold for coal plant eligibility.These guidelines propose an eligibility threshold based on wh

65、ether a coal plant reached financial close or final investment decision prior to the Glasgow Climate Pact.This threshold leaves nearly all coal capacity operating or under construction eligible today(see Exhibit 2),though would increasingly restrict the eligibility for future coal plants.vii The Gla

66、sgow Climate Pact,agreed by United Nations Framework Convention on Climate Change parties in November 2021 at the United Nations Climate Change Conference(COP26),marked the first time that language on the need to phase down coal globally was included in an international climate deal demonstrating st

67、rong international consensus that coal has no role in a Paris Agreementaligned future.Additionally,COP26 provided a venue for several announcements on coal transition financing programs,including the Just Energy Transition Partnership(JETP),ACT Investment Program,and ETM.The establishment of these p

68、rograms created an expectation that CTMs may be introduced in several markets.Both conditions create an important threshold to mitigate moral hazard.These guidelines set a threshold based on financial close or final investment decision for three reasons.First,construction times for thermal plants sp

69、an an average of four years but could be much longer for some coal vii Exhibit 2 assumes plants that started construction after January 2022 reached financial close after December 2021 unless public information provided evidence of an earlier financial close date.This proxy likely overestimates inel

70、igible capacity.This exhibit excludes captive power plants.The exhibit is based on an RMI analysis using Global Energy Monitor data.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|11 plants.12 In tying eligibility to financial close,rather than commercial operation date,these guidelines recogniz

71、e both the value sunk in coal plants under construction and the potential liability coal plant owners may face if they abandon development during construction.Second,financial close represents a clear legal milestone,making it less gameable compared with a threshold tied to a specific stage in the c

72、onstruction process(e.g.,only allowing eligibility of coal plants that are X percent complete).Third,a threshold tied to financial close would help incentivize countries and utilities to address coal plants in earlier stages of the pipeline that do not yet have significant financial or contractual o

73、bligations.Guideline 2 Challenge:Financial institutions and funders face optics challenges of providing financing to coal plant owners,particularly if coal plant owners are not aligning their businesses,strategies,and investments with a climate-aligned future.Guideline 2:The coal plant owner has an

74、entity-level commitment to no new coal power plant development or procurement globally,beyond plants that have reached financial close or final investment decision.Beyond ensuring emissions savings at a transaction level(see stage gate 2 below),the credibility of CTM financing may also depend on a c

75、oal plant owner putting in place entity-level climate commitments and transition plans.At a minimum,we recommend a CTM only support the transition of coal plants whose owners have a commitment to no new coal power plant development or procurement globally,beyond plants that have reached financial cl

76、ose or final investment decision.viii This includes a commitment to not extend the life or increase the capacity of any existing coal-fired power stations.A no-new-coal commitment would address moral hazard risks at an entity level,as well as the major optics challenges and potential emissions leaka

77、ge risks of utilizing a CTM to support the transition of a coal plant whose owner is actively building new coal power plants.To reduce leakage risks,at a minimum,we recommend the boundary of the no-new-coal commitment is transparent and ideally set at the company level(parent versus subsidiary)that

78、encompasses the electricity sector emissions of the parent entity.For example,funders could face reputational challenges if they finance the transition of a coal plant owned by a subsidiary whose parent company is continuing to build coal power plants in other markets.Although we recommend a no-new-

79、coal commitment is the minimum entity-level commitment that would support credible CTM financing today,entity-level commitments and transition planning are a strong area for future ratcheting of ambition.Financial institutions and funders increasingly expect real economy companies and organizations

80、to set climate-aligned emissions targets and develop transition plans.As these expectations increase,credible target setting and transition planning is likely to influence access to and costs of transition finance and other services.The same is true for CTMs,where transition plans can help validate

81、assumptions of coal transition pathways,demonstrate the alignment of the coal transition pathway with the coal plant owners strategy,and show a coal plant owner is committed to a low-carbon transition.Moving forward,we recommend coal plant owners have in place commitments and develop transitions pla

82、ns as soon as possible and at the latest by 2030 that would minimally include:viii Abated coal may be considered where abatement technologies have been built into the project design and will deliver emissions intensities aligned with the definition for clean generation(100 grams g CO2 equivalent CO2

83、e per kilowatt-hour kWh).GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|12 Short-,medium-,and long-term emissions commitments that cover entity-level emissions from generation and,when applicable,purchased power that are aligned with 1.5C temperature targets with little to no overshoot Credible

84、 forward-looking transition planning focused on capital expenditure or integrated resource/electricity system planning,with transparent assumptions about costs and externalities A commitment to coal phaseout aligned with its entity-level emissions commitment and a forward-looking coal phaseout plan

85、that supports achievement of that commitment Holistic transition planning that supports the achievement of climate targetsix Guideline 3 Challenge:If funders provide transition finance to coal plants that would have been retired without a CTM,no additional climate benefit would result from the trans

86、action,undermining the mechanisms additionality and objectives as a climate finance instrument.Guideline 3:The fair value of the coal plant is positive at the time of the proposed coal transition.Although defining additionality could involve assessing the impact of the transaction across several met

87、rics(e.g.,impact on supporting a just transition or mitigating energy burden for electricity customers),we recommend at a minimum that climate additionality be shown by demonstrating the fair value of a coal plant is positive at the time of the proposed coal transition(see Exhibit 3 for an overview

88、of several fair value methodologies).x Fair value is already reported by many coal plant owners and can capture the key cases where finance could provide value to accelerate a managed coal transition(see Exhibit 4).xi Providing financing to plants with negative value also raises the risk that CTMs a

89、re perceived as subsidizing the coal industry,creating further optics challenges around transactions.ix Organizations such as the Glasgow Financial Alliance for Net Zero,Task Force on Climate-Related Financial Disclosures,Climate Bonds Initiative,Climate Policy Initiative,Climate Action 100+,the OEC

90、D,and the Assessing Low Carbon Transition Initiative are developing robust frameworks for defining credible transition plans and targets.x The International Financial Reporting Standards(IFRS)defines fair value as the price that would be received to sell an asset or paid to transfer a liability in a

91、n orderly transaction between market participants at the measurement date.In effect,it is the market value of a coal asset for an owner based on market and regulatory conditions.Although the fair value approaches proposed here would incorporate both forward-looking and historic data,on their own the

92、y would not be able to assess whether an asset previously had a fair value below zero.This static approach could result in situations where,due to decreases in coal demand and prices or through the transfer of fuel supply contracts,CTMs enable previously negative-value plants outside the transaction

93、 to achieve a positive fair value.xi Most power sector utilities and coal plant owners in developed and emerging markets submit regional or international financial reporting to financial regulators using local generally accepted accounting principles or IFRS,which includes an assessment of assets he

94、ld.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|13 Measuring the fair value of coal assets can be complex.Fair value assessments often incorporate current and future market and regulatory conditions,which can be subject to volatility and speculation.As a result,fair value assessments can be i

95、nherently subjective,and each valuation approach brings specific misvaluation risks.Given the benefits and misvaluation risks of different approaches,the appropriate fair value methodology will depend on market and ownership structures,and the quality and availability of financial reporting data.Exh

96、ibit 4 presents general recommendations on how standard IFRS valuation methodologies may be applied in different GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|14 market contexts,but ultimately valuation approaches may be specific to transaction negotiations and assets.xii Price discovery mecha

97、nisms such as reverse auctions may also support effective valuation in some contexts but may not be appropriate for certain markets or transaction types(see Box 2).13 Box 3:The potential use of reverse auctions to value early retirement of coal plant assets Reverse auctions are a price discovery mec

98、hanism that can support the efficient allocation of finance through CTMs.Auctions help competitively value coal plant assets by incorporating market participants expectations for future economic value while encouraging competition to push down the acceptable cost of retirement.The auctions allow“sel

99、lers”(i.e.,coal plant owners)to place bids for the prices at which they are willing to retire their coal plant early,competing over the lowest acceptable prices.The auction may then set a clearing price or clearing capacity(gigawatts GW)under which the most competitive prices clear the market and re

100、ceive CTM financing to enable their decommissioning.Public bodies have traditionally run reverse auctions,working as a tool that can help allocate the disbursal of public funds.In Germany,the Federal Network Agency(Bundesnetzagentur BNetzA)has run four rounds of reverse auctions,clearing almost 9 GW

101、 of Germanys coal capacity.14 Although the auctions are considered successful in setting a market price and accelerating the coal transition,critics argue that the first round of auctions facilitated the closure of modern,cleaner plants,leaving dirtier lignite plants to continue pointing to the impo

102、rtance of auction design.15 Reverse auctions may not be well suited to all situations.16 Successful auctions will depend on:1.A supportive state and regulatory environment committed to coal transition,ensuring supportive legal and regulatory frameworks for businesses engaged in the tendering process

103、es,effective energy security planning,and sufficient financial resources underpinning the auctions.2.Sufficient market participants to support effective competition;if there are too few coal plant owners in a jurisdiction,it will preclude effective competition in any reverse auction.3.Strong auction

104、 design to support long-term phaseout goals to ensure most coal plant owners are incentivized to seek decommissioning for each specific market and ownership structure(noting the challenges to early retirement caused by long-term power purchase agreements PPAs and Fuel Supply Agreements).xii A market

105、 value approach may be appropriate in any market context,but it is unlikely there will be sufficient comparable transactions to enable this approach.As CTMs become more common,this could change.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|15 GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION

106、|16 GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|17 3.2 Stage gate 2:Does the transactions proposed coal transition pathway support 1.5C goals?A managed phaseout of coal may entail several different plant-level transition pathways,from the direct phaseout of the plant and replacement with cle

107、an generation to more complex phasedown pathways.Although many of these transition strategies can support emissions savings and a 1.5C-aligned trajectory for the power sector,each may carry different climate risks.The guidelines under this stage gate aim to provide sufficient backstops to mitigate t

108、hese risks while providing flexibility to system operators and regulators to plan a coal transition that supports energy security and economic development objectives(see Exhibit 5).Guideline 4 Challenge:Coal plant owners and funders face increasing expectations to achieve emissions reduction commitm

109、ents(see guideline 2),and CTM transactions will need to support the end objectives of achieving a 1.5C future.Guideline 4:The CTM results in emissions savings compared with a case without the use of the CTM and has a backstopping commitment to phase out unabated coal combustion at the coal plant by

110、country-specific,1.5C-aligned coal phaseout deadlines.These guidelines propose that,at a minimum,CTMs show climate impact through the demonstration of positive absolute emissions savings over the expected lifetime of the coal plant compared with a case without a CTM.A simple emissions savings metric

111、 aims to avoid perverse outcomes that could arise if coal plant eligibility is further restricted(see Box 4).For example,restricting eligibility based on whether emissions savings at a transaction level are“large enough”could ignore other co-benefits that regulators and governments may wish to prior

112、itize,such as just transition,health,or power sector reliability impacts.Future work could explore whether specific emissions savings thresholds would be appropriate to lend further credibility to transactions.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|18 However,beyond positive emissions s

113、avings,at a minimum we also recommend that a CTM transaction have a backstopping commitment to phase out unabated coal combustion at the coal plant by country-specific,coal phaseout timelines.We propose these deadlines would be the earlier of a countrys coal phaseout commitment date or a country-spe

114、cific,1.5C-aligned coal phaseout date.In advanced economies,this could mean the coal plant retires at the latest by 2030,and in other countries by 2040,in line with the International Energy Agencys(IEAs)Net Zero pathway.17 The 1.5C-aligned deadlines may also be derived from other regional-or country

115、-specific pathways that are consistent with science-based pathways.xiii Although we do not require full 1.5C country-level coal transition planning and commitments for a transaction to move forward,it will be important to avoid possible emissions lock-in that would be incompatible with processes to

116、ratchet up climate ambition to achieve 1.5C targets.For example,a transaction would not be credible if it proposed to phase out the coal plant by 2060,because it would create risk of nonachievement of global climate goals.We have not proposed a specific methodology for quantifying emissions savings

117、in these guidelines.Instead,if a transaction can meet these guidelines,it likely can demonstrate qualitatively that it delivers long-term emissions savings and helps avoid the replacement of coal with other baseload fossil fuel generation.However,quantitative emissions savings methodologies are an i

118、mportant area for future work,particularly if CTM transactions will involve results-based carbon finance or generate carbon offsets.Coal plant owners and financial institutions may also wish to provide a quantitative estimate of emissions savings to lend greater transparency to the transaction.In th

119、ese cases,we suggest that emissions savings be estimated at a power system level to reduce emissions leakage.xiv Box 4:Alternate metrics to assess the climate impact of CTMs Below are other metrics considered through the consultation process.As more work and experience on CTM occurs,there may be a n

120、eed for additional metrics or thresholds tied to CTM credibility.Years retired early:A year-based metric may misrepresent climate impact for a few reasons.First,there is a wide variation in the capacity,emissions intensity,and utilization rates of coal-fired power plants.Retiring a large,inefficient

121、,baseload coal plant a few years early may provide a significantly larger climate impact than retiring a smaller plant with low capacity factor 10+years early.Second,an impact metric focused on years could disadvantage certain coal transition pathways,such as repurposing a coal plant for flexible op

122、eration.This pathway is more likely to be pursued in emerging markets with newer coal plants,creating a risk of global inequities in access to coal transition finance.However,a time-based approach may be applied in the future if a country or power sector has developed a coal transition plan that tak

123、es into account the factors mentioned(utilization,emissions intensity,etc.),and asset transition plans are assessed against this fleetwide plan.Setting minimum thresholds for emissions savings:At present,the guidelines require a demonstration of emissions savings greater than zero,without requiring

124、a threshold for how substantial these savings should be.Applying a higher emissions threshold may exclude some transactions that would otherwise deliver environmental,health,social,or power sector co-benefits,which may be a priority to a government or funder.Additionally,applying a single,top-down e

125、missions savings threshold would be difficult given the heterogeneity of the coal fleet and coal transition timelines.An area for future work could be to assess the credibility of coal plant transitions against country or regional asset-level coal transition plans.xiii For example,the University of

126、Maryland and Institute of Essential Services Reform conducted an analysis of Indonesias coal fleet and found that a 1.5C-aligned pathway could be achieved by phasing out unabated coal in Indonesia by 2050.xiv The emissions boundary should not change from the baseline to the CTM case(e.g.,a coal plan

127、t owner should not change the system boundary to allow it to simply divest from a coal asset).GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|19 Cost of abatement hurdle rate:Although abatement cost will be an important metric to track,we have not recommended an abatement cost hurdle rate given

128、the other benefits a coal transition could provide.Discounting of emissions savings:Discounting could be appropriate,both to account for the uncertainty in future emissions savings and to incentivize greater near-term emissions savings.However,discounting also presents potential intergenerational eq

129、uity challenges(i.e.,prioritizing benefits to todays generation over future generations)and also raises questions about what an appropriate discount rate would be.This could be an area for future exploration,particularly if future emissions impacts will be monetized through results-based finance or

130、carbon finance approaches.Guideline 5 Challenge:Some coal transition pathways,such as repurposing coal plants for flexibility or co-firing of coal with other fuels,may reduce emissions but still entail unabated coal combustion continuing.These pathways pose a risk of backsliding and nonachievement o

131、f intended emissions savings.Guideline 5:The CTM transaction does not extend the expected lifetime for unabated coal combustion.There are several scenarios for the phasedown rather than immediate phaseout of coal,including repurposing coal plants for flexible(rather than baseload)use;partial carbon

132、capture,use,and storage(CCUS);and co-firing with biomass or ammonia.However,many of these options would require additional investment in the coal asset and a risk of continued unabated coal combustion.xv We recommend that a CTM not extend the expected lifetime for unabated coal combustion and that i

133、t fast-tracks cessation of fossil fuelbased activities of a plant.Exceptions may be considered if the transaction puts in place regulatory or contractual provisions that would effectively remove backsliding risk(e.g.,if a PPA contract for flexible operation would contractually limit offtake).Finally

134、,we recommend that investments in co-firing with biomass,ammonia,or retrofitting with CCUS meet sustainable investment guidelines in order to demonstrate their credibility(e.g.,that biofuel,among other things,must be sourced from a sustainable feedstock).18 Guideline 6 Challenge:The generation lost

135、from coal plants that have been phased down or phased out may be replaced with higher-emitting assets across the local generation system,resulting in emissions leakage.Guideline 6:If the coal plant is not retired and replaced with a portfolio of clean resources that provides equivalent electricity s

136、ervices,long-term emissions savings are demonstrated through power-sector-level decarbonization commitments and plans.xv This guideline would not apply if the coal plant was fully retrofitted to burn clean fuels in line with the thresholds set in guideline 6.For example,CCUS that results in emission

137、s below 100 grams of CO2e/kWh would not be subject to this provision.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|20 Mitigating leakage risk through retirement and replacement of coal generation with clean resources One way to mitigate emissions leakage risk is to pursue a phaseout and replac

138、ement strategy,where the coal plants generation is replaced with a portfolio of clean resources that provides equivalent electricity services within the electricity system.We suggest that this replacement could be based on historical dispatch(e.g.,real utilization of coal capacity),rather than namep

139、late capacity,to account for the reality that many coal plants have utilization rates well below their nameplate capacity.These replacement resources could include new resources dispatched elsewhere on the local grid(e.g.,clean generation or demand-side energy efficiency or battery storage that redu

140、ces the systems generation needs at a level equivalent to the coal plants electricity provision)or retrofits of the original plant to run on a different type of energy source(e.g.,renewable power or,where it meets the below thresholds,burning clean fuels).xvi We also recommend coal plant owners and

141、funders demonstrate replacement resources would be dispatched at a similar level as the retired generation(e.g.,through an assessment of expected dispatch based on clearing prices in wholesale markets).In these guidelines,“clean resources”are defined as resources with a life-cycle emissions intensit

142、y of 100 grams(g)CO2 equivalent(CO2e)per kilowatt-hour(kWh)or less,in line with the European Union(EU)Taxonomy for Sustainable Activities.19 Although the EU recommended this threshold based on an assessment of the energy resources that would substantially contribute to the blocs goal of net zero by

143、2050,we adopt it in these guidelines for several reasons.First,this approach is increasingly accepted as a threshold within the international financial sector and in other government criteria for sustainable projects.Second,it is technology and fuel agnostic but would effectively prevent the CTM fro

144、m directly financing the replacement of the coal plant with other fossil-fueled power plants without significant CCUS investment.In todays cost environment,such an investment is unlikely to prove economic.The Intergovernmental Panel on Climate Change estimates the life-cycle emissions from all renew

145、able energy sources range from 6 to 180 g CO2e/kWh,with the median across technologies falling well below 100 g CO2e/kWh.In contrast,life-cycle emissions associated with natural gas with CCUS range from 90 to 370 g CO2e/kWh,with the lower range representing high rates of carbon capture and low upstr

146、eam methane leakage.Third,it would limit retrofits based on other fuels to cases with significant levels of co-firing and to fuels with low life-cycle emissions(e.g.,upstream emissions from biomass or ammonia production would need to be low).Life-cycle emissions from biopower are wide ranging,from l

147、ess than 200 g CO2e/kWh to over 750 g CO2e/kWh,depending on the sustainability of the biomass source.20 Where there is a lack of data on the life-cycle,or upstream,emissions of the specific replacement capacity,a benchmark of the highest 10 percent of emitters with that technology would mitigate the

148、 risk of underestimating life-cycle emissions.xvii Mitigating leakage risk though long-term climate commitments and planning Although direct retirement and replacement of a coal plant with clean resources is one way to mitigate leakage risk,it may not be practical from an investment or power system

149、reliability perspective.For example,a system operator or regulator may prefer to repurpose the plant for flexibility(e.g.,to support renewable integration),xvi Demonstrating direct one-to-one replacement is not practical due to differences in dispatch or provision of other grid services such as anci

150、llary services,but bringing on an equivalent volume of clean resources could provide relative comfort that major emissions leakage issues are managed.The replacement generation need not be developed by the existing coal plant owner but could be done through a partnership with another company.For exa

151、mple,Earthrise Energy has acquired power plants in the United States to transition to clean generation.xvii This benchmark is consistent with policies such as the EUs Carbon Border Adjustment Mechanism.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|21 dispatch grid resources in the interim(e.g.

152、,if the system is over capacity),or mothball the plant before fully decommissioning it(e.g.,if energy security is a concern).In these cases,we recommend,at a minimum,a power-system-level decarbonization commitment,and in some cases electricity resource plans would be needed to support the credibilit

153、y of long-term emissions savings.While these commitments would not necessarily be expected to be fully aligned with 1.5C to receive support from a CTM today,such a commitment would support a ratcheting process to achieve 1.5C ambition over time.xviii This could include a demonstration that power sec

154、tor emissions are decreasing:In wholesale electricity markets,the existence of a legally binding commitment or law that codifies a commitment to reduce medium-and long-term power system emissions(e.g.,Germanys Climate Action Law)and a power-sector-wide commitment to no new unabated coal beyond plant

155、s that have reached financial close.In regulated electricity markets,a commitment to reduce medium-and long-term power system emissions,a long-term(10-to 20-year)integrated resource plan(IRP)or equivalent power-sector-level plan that details how the power system will be developed to meet projected e

156、lectricity demand and climate targets,and a commitment to no new coal development or procurement beyond plants that have reached financial close.To be credible,these guidelines suggest that any new gas investments proposed in a regulated utilitys resource plans would demonstrate that new gas investm

157、ents are aligned with the utilitys climate targets,shown through long-term planning and reasonable cost assumptions.xix We also recommend the resource plan include a credible analysis of alternative options that demonstrate that there is no economically and technically feasible clean energy alternat

158、ive that meets energy security and access objectives.This would ideally include(1)a demonstration of the services needed on the grid,how natural gas would meet these,and at what capacity factor compared with other resources;(2)an assessment of the cost of system operation with the proposed gas inves

159、tment,including a sensitivity to higher gas prices,compared with other resources;and(3)an assessment of any new complementary gas infrastructure(e.g.,liquified natural gas import facilities,pipelines)that would be required to support the proposed plants,and the necessary power sector demand and resu

160、lting capacity factors that would be needed to justify this investment.See Box 5 for the guidelines overarching approach to mitigating coal-to-gas switching risks.Box 5:Mitigating risks of financing coal-to-gas switching through CTMs These guidelines generally aim to mitigate the risk that a CTM dir

161、ectly supports the replacement of coal-fired power generation with natural gas generation within the transaction itself.Particularly given the upstream emissions of natural gas and the lock-in risk of building out new natural gas infrastructure,supporting new natural gas investment on an energy basi

162、s directly through a transition finance instrument like a CTM could pose significant credibility issues.As a result,the guidelines address natural gas at two levels:At a transaction level,where there is a direct replacement of the coal generation with other energy resources,preventing the replacemen

163、t of coal with gas on an energy basis by:Setting a threshold for the emissions intensity of replacement generation at 100 grams CO2e/kWh on a life-cycle emissions basis.This would include any new investment in greenfield generation or any retrofitting investments to transition a coal plant to a new

164、fuel or energy technology.This technology-xviii In line with guideline 2,we would recommend a 1.5C-aligned power-system commitment and plan would be in place by 2030 at the latest.xix This could include gas plants being retired on a timeline consistent with the entitys climate targets or having cred

165、ible plans to transition them to net zero.The latter case would be grounded in transparent and reasonable assumptions about the cost of net-zero retrofitting technologies.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|22 neutral threshold would exclude any natural gas that does not have high ra

166、tes of carbon capture and low upstream emissions.At a power system level,where the coal plant may not be directly replaced by new generation,bringing scrutiny to new gas investments outside of the transaction through a demonstration that:New natural gas investments will be aligned with power sector

167、decarbonization goals Natural gas is necessary from a power system reliability,energy security,and access standpoint Alternative clean resources have been assessed,which would likely rule out new gas investments in many markets based on economics alone 3.3 Stage gate 3:Does the transaction include a

168、 plan and provisions to support a just transition?Beyond climate outcomes,a credible transaction would also ensure social protection for stakeholders negatively affected by a coal transition.Just transition plans can help ensure the coal plant owner,in partnership with governments,community members,

169、and other stakeholders,mitigate critical impacts of the coal plant transition on affected stakeholders.Guideline 7 Challenge:The transition from coal to clean energy creates social,environmental,and economic risks,potentially destroying value for local communities,workers,electricity customers,regio

170、nal governments,and other stakeholders.Guideline 7:The coal plant has a just transition plan to mitigate impacts on workers,electricity customers,and the local community.Without thorough planning and adequate resources,the transition from coal-fired power to clean energy can harm workers and familie

171、s who depend on fossil fuels for livelihoods and destroy value for local governments,communities,and supply chains.21 In contrast,a well-planned transition has the potential to attract investments that support economic growth and diversification,leveraging new opportunities associated with a transit

172、ion.A just and equitable transition ideally follows key guiding principles:identifying the actors that may be negatively impacted by a coal transition(recognition justice),including affected stakeholders in the decision-making process(procedural justice),distributing the burdens and benefits equitab

173、ly(distributional justice),and repairing any harm during the process(restorative justice).22 To confirm that the coal plant transition is“just,”it is essential to mitigate key social,environmental,and economic risks and impacts for end consumers of electricity,local communities,and regional governme

174、nts.In addition,it is imperative to support continuity of livelihood for workers through either pension support or alternative employment(including reskilling,retraining)to maintain the well-being of the local community.It is also important to ensure that women,young people,and other underrepresente

175、d or marginalized groups are included in just transition planning,and that they can access training and capacity-building opportunities.These groups can often be particularly vulnerable to negative shifts in economic circumstances and interruptions in access to infrastructure and services.Coal plant

176、 owners,in partnership with other stakeholders,have a major role to play in supporting a just and equitable coal transition.These guidelines focus on applying just transition principles at the asset level where coal plant owners are likely to have greater influence with a strong focus on protecting

177、workers(direct GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|23 and indirect,formal and informal),direct beneficiaries,and local communities from the negative social and environmental impacts of an accelerated coal transition.This asset-level focus may not capture all the necessary aspects of

178、the just transition,particularly any economic,induced,and/or systemic impacts on broader communities,end consumers,regions,or nations.As a result,they do not indicate an exhaustive list of all actions that would be needed to support a broader just transition in coal regions.Many of these broader imp

179、acts will likely need to be also managed by governments and regulators.The just transition activities in these guidelines do not necessarily need to be financed entirely in the transaction or undertaken directly by the coal plant owner alone.The coal plant owner can and is encouraged to undertake ac

180、tivities in collaboration with governments,nongovernmental organizations(NGOs),civil society,and international development partners.Ensuring coordination,particularly with regional or national governments,in turn can also help minimize the risk of missing any systemic impacts that may occur due to m

181、ultiple asset closures in a region and support policy-level just transition provisions.xx Finally,these just transition guidelines build on an existing body of work on just transition expectations for corporations.23 We recognize that we are both in the early stages of learning about effective just

182、transition planning and implementation,and that there will never be a one-size-fits-all approach.As the Sharm El Sheikh Guidebook for Just Financing released at COP 27 further reveals,the innovative financing mechanisms needed to accelerate a managed coal phase out will take different forms,hence th

183、ese guidelines will need to be updated as we learn more about CTMs in practice.24 As a result,the recommendations below provide initial guidance on what a credible asset-level just transition plan may include.Unlike previous guidelines,they outline broad features of just transition plans,without sug

184、gesting specific standards.Components of asset-level just transition plans Provide advance notice of coal plant closure and communicate clear timelines for phaseout:Advance notice is critical to allow sufficient time for planning and engagement,particularly because many just transition investments w

185、ill be needed before the decommissioning process begins.These guidelines recommend that coal plant owners allow at least six months from the time of announcement to the first step of decommissioning.Engage in stakeholder consultations and dialogues:A just transition will require coal plant owners to

186、 engage in early and sustained dialogue and consultations with affected stakeholders.We recommend this social dialogue focus on understanding potential impacts of the coal transition and achieving a degree of consensus on the coal plant owners asset-level just transition plan.A credible social dialo

187、gue would be inclusive,engaging women,youth,and vulnerable groups.These groups are often underrepresented in senior management positions with decision-making influence in the energy sector and coal transition,and data concerning the impacts of the transition on them is often limited.Focusing on dive

188、rsity in the dialogues can support the data collection and evaluation of gender-and minority-related risks of the coal transition,supporting businesses broader pushes to incorporate womens and vulnerable groups rights.With affected workers including formal,informal,any relevant union or labor bodies

189、,and contracted workers both employed directly by the coal plant or in any mines that rely on the coal plant as the primary off-taker discussions could cover social protection,including a plan for mitigating worker impacts and for providing decent jobs.xxi This could include the timeline for plant c

190、losure,relief or redundancy packages,and reskilling/retraining of workers,as applicable.xx For example,adoption of international labor standards as laid out by the International Labour Organization.xxi Stakeholder dialogue for mine mouth coal plants in particular should include coal miners who are l

191、ikely to be affected by the plant closure.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|24 For communities,engagement could include discussions about timeline and process for coal plant closure,remediation process,plans for site repurposing,and environmental and health risk mitigation strategi

192、es.Engagement is likely to look different depending on the context.In some cases,engagement could focus more strongly on soliciting comments and gaining buy-in on existing plans;in others,a coal plant owner may be going to the local community to define various options for a transition plan.Finally,c

193、oal plant owners would be expected to disclose the expected impacts of the transition and their just transition plan to local and regional governments,which will be important to support broader regional just transition planning.Conduct impact assessments:In partnership with government and regulators

194、,these guidelines recommend that coal plant owners commit to conduct environmental and social impact assessments of the coal plant closure on its workers,direct supply chain workers,and communities.Social impact assessment areas that coal plant owners could be expected to lead are on the impact to i

195、ts workers including any distributional or gender-specific impacts across its workforcexxii and its supply chain(e.g.,impact on mines for mine mouth plants,where the plant is the major off-taker).Additionally,coal plant owners could consider assessments related to the social impacts of reclamation,r

196、emediation,or new construction projects including the risks of gender-based violence from additional short-term workforce.xxiii Environmental assessments that a coal plant owner could be expected to lead include environmental needs related to remediation of the site,or potential negative environment

197、al impacts of the replacement generation or proposed use of the coal plant site after decommissioning.Integrated utilities could also be expected to assess and report on impacts to ratepayers,including any distributional or energy access impacts(see Box 6).Assessments that a government is likely to

198、lead,but a coal plant owner could be expected to support through data disclosure and collaboration,include socioeconomic impact assessments especially at a regional/provincial level(e.g.,retrenchment,loss of tax revenues,multiplier effects in the economy,opportunities for economic diversification,an

199、d gender-and minority-specific impacts)and identification of key gaps in policies(e.g.,social protection,labor standards,or diversification).Report on and develop plans to minimize adverse impacts on communities:These guidelines recommend coal plant owners develop impact mitigation plans in collabor

200、ation with communities,government,and other stakeholders when possible using a data-driven approach based on impact assessments.At a minimum,credible plans would include a site audit and plan to ensure a safe site and closure process,as well as a process for monitoring environmental and other health

201、 and safety impacts throughout the decommissioning process.More robust monitoring processes,including of other social and economic impacts,are encouraged and may be critical considering they can attract future investments to support economic diversification and leverage opportunities associated with

202、 transition.Box 6:Mitigating impacts of the coal transition on energy burden In addition to providing a just and equitable transition for workers and communities,a credible coal transition would also mitigate the impacts of the coal transition on electricity customers.Although protecting customers w

203、ill likely be a key tenet for both the credibility and political feasibility of CTMs,we have not included it as an explicit guideline because it may be difficult for certain coal plant owners and funders to prove how a CTM mitigates impacts on energy burden(i.e.,the onus of proof may be outside of w

204、hat a coal plant owner can reasonably influence).Despite not including it here,we believe energy burden is critical,and in most cases still addressed through other outlets:xxii For example,female and vulnerable group employment may be concentrated in jobs requiring low science,technology,engineering

205、,and mathematics(STEM)skills,which are more vulnerable to a shift in automation and may be less transferable,or are underrepresented in senior management positions where decision-making takes place.xxiii In many cases,mitigating these impacts is likely to be a shared responsibility across coal plant

206、 owners and governments.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|25 For regulated utilities:In the recommended social,economic,and environmental assessments above,we propose that a regulated utility would need to assess and report on the CTM transactions impact on energy burden,access,and

207、,when possible,distributional effects on electricity customer costs.A regulator is likely to include provisions to help ensure ratepayer impacts are minimized,as is the case in robust securitization legislation in the United States.25 For IPPs in regulated markets:A regulator would almost certainly

208、be involved in the negotiations of a CTM transaction with an IPP,approving the canceling or renegotiation of PPA contracts.Regulators are unlikely to approve transactions that result in excessive additional energy burden compared with the case of accelerated retirement without a CTM.Based on additio

209、nal deals that move forward,future CTM certification standards or guidelines could incorporate energy burden as an explicit guideline if needed.Support relief and reskilling opportunities to affected workers:In negotiation and consultation with workers and labor unions,coal plant owners could be exp

210、ected to develop a worker transition plan that would support access to jobs,facilitate redeployment through retraining(e.g.,reskilling for affected workers,educational support,career counseling and job placement resources,relocation support for displaced coal workers),and provide relief support(e.g.

211、,temporary wage differential,pension or health care support or guarantees,and relocation support for displaced coal workers,among other things).xxiv These activities need not be undertaken directly by the coal plant owner itself,but may be done in partnership with governments,unions,NGOs,or other or

212、ganizations in line with social and diversity goals.The expansion of renewable energy and the related need for skilled workers can provide an opportunity to increase the number of women and other underrepresented groups in the energy sector.Although it is difficult to ascertain the impact on induced

213、 employment because of the coal plant operations,coal plant owners may also engage with the local community through experts to establish and record the level of induced employment and its contribution to the local economy.Conduct remediation and reclamation:A critical component of the just transitio

214、n process is remediation and reclamation of the coal plant site.Remediation refers to removal,reduction,or neutralization of hazardous material,waste,and other substances from a site,while reclamation is the process of converting the site to a state it can be redeveloped for other productive uses.At

215、 a minimum,these guidelines suggest coal plant owners develop and implement a remediation plan that ensures a safe site for the community(e.g.,cleanup of hazardous materials or other contaminants)and includes information about how remediation activities will be financed.Beyond ensuring safety for th

216、e community,the extent of the remediation and reclamation would be determined by the planned use of the site and availability of financing and local regulation,and be agreed upon with local communities.The stakeholder consultation process would ideally involve a discussion about future redevelopment

217、 goals for the site,which would inform the extent of cleanup and reclamation to be done.The coal plant owner and any other counterparties responsible for remediation,reclamation,and any replacement construction may be expected to mitigate for the risks of gender-based violence and other health risks

218、 associated with construction and heavy industry projects,for example,through the provision of education,community support groups,and legal services to workers and the community.xxiv Retraining plans ideally should be developed in tandem with local governments and informed by economic development an

219、alyses to identify gaps and opportunities for job creation and diversification.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|26 3.4 Stage gate 4:Does the transaction provide transparency and accountability to outcomes?Financial institutions and regulators are likely to require specific disclos

220、ure from coal plant owners based on their needs and local regulation.As a result,we focus on the public reporting that can help increase transparency and reduce the reputational risks of transactions.These guidelines put forward a recommendation for minimum public reporting but also suggest that add

221、itional reporting would lend further credibility to transactions.Finally,we recommend that CTM transactions,at a minimum,put in place governance,incentive,or recourse mechanisms that help ensure the achievement of intended climate and social outcomes.Guideline 8 Challenge:Providing financing to coal

222、 plant owners can create reputational risks if the transaction does not provide confidence and build trust that it results in positive climate outcomes while protecting affected stakeholders from major impacts of the coal transition.Guideline 8:The transaction provides transparency and an accountabi

223、lity mechanism to climate and social outcomes.The below recommendations are focused on the minimum information that would provide transparency to the public about a CTM transactions climate and social impact.They include disclosure against some of these guidelines,as well as on the governance and in

224、centives to ensure the CTM transaction delivers on intended climate and social outcomes(see Exhibit 6).These disclosures would be reported in addition to any reporting requirements specific to instrument types(e.g.,reporting requirements for sustainability-linked or other labeled instruments).Althou

225、gh we recognize that additional reporting could bring greater costs to coal plant owners,public reporting beyond these guidelines is encouraged,because it would lend further transparency to transactions,mitigate reputational risks,and ultimately enable the scale-up of CTMs.GUIDELINES FOR FINANCING A

226、 CREDIBLE COAL TRANSITION|27 4.Next steps and future work This working paper lays out an initial framework for assessing CTM transactions.In the guidelines current form,we hope they can be an engagement tool for informing the design of pilot CTM deals,supporting the creation of metrics or plans for

227、broader CTM programs,and enabling funders and coal plant owners to demonstrate the GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|28 credibility of transactions.However,we welcome further evolutions to these guidelines and recognize they are only the beginning of a broader scope of work needed

228、to advance credible CTMs.This could include:Developing a standard for certifying CTMs as sustainable finance instruments,which would likely require more detailed,objective,technical criteria against which to assess transactions Applying guidelines to assess coal deals against country-specific coal t

229、ransition plans,including emerging investment plans that are being developed by major coal economies Development of methodologies for the credible generation of carbon offsets from CTMs,including standards for estimating and monetizing emissions savings from CTMs,and the role of offsets in enabling

230、credible transactions to move forward Informing and supporting metrics for financial institution reporting on CTMs,enabling financial institutions to credibly demonstrate their provision of financial services to coal plant owners in support of the coal transition 5.The guidelines in practice:Illustr

231、ative examples across market and instrument types The following cases(see Exhibit 7)offer examples of how these guidelines would apply to transactions in specific markets.They include one backward-looking example of a ratepayer-backed bond securitization transaction in the United States,a hypothetic

232、al sustainability-linked bond transaction in Indonesia,and an illustrative case for an IPP.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|29 Exhibit 7 Summary of how the guidelines would apply in three cases Case Type of owner CTM type and coal transition pathway Role of finance Key considerati

233、ons across the CTM guidelines Early retirement of the San Juan Generating Station units 1 and 4 in the United States (actual deal)Regulated investor-owned utility in the United States (Public Service Company of New Mexico PNM)Ratepayer-backed bond securitization to enable the early retirement of coa

234、l units and replacement with clean generation Enabled the early retirement of coal units that were insulated from competition and were provided regulated returns Reduced costs for electricity customers by enabling replacement of coal with cheaper clean energy and through the refinancing of the coal

235、units with a lower-cost bond Unlocked financing for worker retraining and relief and community transition support Deal goes above and beyond guidelines:Securitization is overseen by a regulator,and the securitization legislation in New Mexico requires provisions that often exceed these guidelines(e.

236、g.,reducing energy burden,disclosure,just transition).Additionality(Guideline 3):Case shows it may not be appropriate to assess additionality or early retirement against existing plans or commitments,because these commitments may be based on the ability to leverage CTMs.Just transition(Guideline 7):

237、Decision on replacement resources underscores the role of stakeholder engagement in informing resource planning and replacement resources.Ultimately,replacement resources were based on multiple criteria beyond cost,including local investment in communities,climate impact,and economic development pot

238、ential.Early retirement of a fleet of coal units in Indonesia(illustrative deal)Regulated state-owned utility Perusahaan Listrik Negara(PLN)Sovereign sustainability-linked bond(SLB)to enable the early retirement of coal plants without immediate replacement in a market with excess capacity Could enab

239、le the early retirement of coal that is insulated from competition and provided regulated returns Could likely reduce electricity system costs by refinancing the coal plant with a lower-cost bond Plant eligibility(Guideline 1 and Guideline 3):Although SLBs generally do not require disclosure on proc

240、eeds,the guidelines would require transparency on any coal assets that would be transitioned using finance raised through the SLB.No new coal commitments(Guideline 2):These guidelines would entail PLN and/or the Indonesian government to address plants in early stages(not yet GUIDELINES FOR FINANCING

241、 A CREDIBLE COAL TRANSITION|30 reached financial close)and close loopholes related to future coal development.Additionality(Guideline 3):Case study underscores that it may not be appropriate to assess fair value and NPV at a plant level,and remaining balance may be more appropriate for regulated uti

242、lities.Electricity planning(Guideline 6):Because the coal plants will not be fully replaced with clean generation,electricity planning(e.g.,through a robust Electricity Business Plan RUPTL)and decarbonization commitments would help validate emissions savings through the transaction.Repurposing of an

243、 IPP-owned coal plant under a PPA(illustrative deal in a generic market)IPP with a PPA with a single buyer Managed transition vehicle,where a special-purpose vehicle(SPV)acquires the coal plant from the IPP and repurposes it for flexibility,reducing its overall dispatch /capacity factor and retiring

244、 it early Enables emissions savings and early retirement of a coal plant that was otherwise protected under a long-term PPA Backsliding risk(Guideline 5):Backsliding risk in this case would be mitigated by ensuring the new PPA term is less than or equal to the original term.Leakage risk and electric

245、ity planning(Guideline 6):Because the coal plant generation will not be fully replaced with clean generation,power system resource planning and decarbonization commitments would help validate emissions savings through the transaction.Just transition(Guideline 7):Just transition responsibilities will

246、 likely be shared across the IPP and SPV,given the transfer of ownership of the plant.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|31 5.1 Ratepayer-backed bond securitization in the United States Utilities in the United States have used ratepayer-backed bond securitization for decades,most re

247、cently applying the financial tool to support the early retirement of coal plants in regulated electricity markets.PNM,a regulated utility in New Mexico,utilized securitization to retire units 1 and 4 of its SJGS following the passage of New Mexicos Energy Transition Act(ETA),which authorized the us

248、e of securitization for coal phaseout.Based on these guidelines,the PNM SJGS deal met and exceeded recommendations for a credible CTM transaction.Stage gate 1:Is it credible to provide transition finance for the coal plant?Guideline 1:The financial close or final investment decision of the coal plan

249、t is prior to December 2021,following agreement on the Glasgow Climate Pact.The SJGS units began operation between 1973(Unit 1)and 1982(Unit 4).Most coal units in the United States would be eligible under this guideline.Eighty-eight percent of coal-fired capacity in the United States was built betwe

250、en 1950 and 1990,with a capacity-weighted average age of 39 years for operating coal facilities.26 Guideline 2:The coal plant owner has an entity-level commitment to no new unabated coal power plant development or procurement globally,beyond plants that have reached financial close or final investme

251、nt decision.In its 202040 IRP,PNM put forward a plan“to enable our transition to a carbon-free goal that eliminates coal from our portfolio at the end of 2024 so that we can begin serving our customers with 100 percent coal-free electricity.”27 This commitment covers PNMs emissions from generation a

252、nd is largely aligned with 1.5C temperature targets for the United States.28 Guideline 3:The fair value of the coal plant is greater than zero at the time of the proposed coal transition.As a coal plant owned by a regulated utility,where the local regulation and implementation ensures PNM an agreed

253、upon return on investment or cost recovery,the remaining plant balance(verified by the regulator,New Mexico Public Regulation Commission NMPRC)is the most appropriate valuation approach for the CTM.In its application for the financing order,PNM requested permission to abandon SJGS units 1 and 4 and

254、securitize$360.1 million in costs,which includes$283 million as the remaining plant balance(or undepreciated investment)for the two units.29 In New Mexicos ETA,abandonment costs are limited in total to the lower amount of$375 million or 150%of the undepreciated investment in the facility being aband

255、oned as of the date of abandonment.Abandonment costs may include up to$30 million that may be collected for plant decommissioning and mine reclamation costs,up to$20 million for severance and job training for employees losing their jobs as a result of the abandoned facility and any associated mine t

256、hat only services the abandoned facility,and the undepreciated investment on the utilitys books.Stage gate 2:Does the coal transition pathway proposed by the transaction support 1.5C goals?Guideline 4:The CTM results in emissions savings compared with a case without the use of the CTM and has a back

257、stopping commitment to phase out the coal plant by country-specific coal phaseout deadlines.Guideline 5:The CTM transaction does not extend the expected lifetime for unabated coal combustion.Guideline 6:If the coal plant is not retired and replaced with a portfolio of clean resources that provides e

258、quivalent electricity services,long-term emissions savings are demonstrated through power-sector-level decarbonization commitments and plans.These guidelines all relate to the impact of the CTM on emissions and the future energy provision proposed by PNM and therefore can all be considered together.

259、As established by NMPRC decisions in Case No.19-00018-UT GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|32 and Case No.19-00195-UT,PNMs proposed retirement of the plants and replacement with a portfolio of clean resources with equivalent electricity services for SJGS(650 megawatts MW of solar p

260、hotovoltaics PVs,300 MW of storage,and 15 MW of demand response)was approved by the NMPRC.The transaction did not propose the extension of the lifetime of either plant,and the clean resource replacements are expected to have life-cycle emissions intensity of 100 grams CO2e/kWh or less.This is in lin

261、e with the emissions restrictions set in Section 62-18-10 of the ETA that for utilities that receive the securitization bonds,energy procured with a PPA for terms of at least two years and dedicated to serving retail customers shall not emit an average of more than 400 pounds(181 kg)of CO2 per megaw

262、att-hour MWh by 2023,and not more than 200 pounds(91 kg)of CO2/MWh by 2032.PNM states that in the two years between 2021 and 2023,the replacement of SJGS with carbon emissions-free resources will decrease PNMs carbon intensity by more than 50 percent,from over 800 lbs/MWh to 400 lbs/MWh.Their modeli

263、ng demonstrates the emissions savings as a result of the securitization and closure of the plant.PNMs 2017 IRP mentioned the potential closure of the SJGS units,well before the final passage of the ETA in 2019.However,the inclusion of the early retirement of SJGS was the result of an agreement(as pe

264、r NMPRC Case No.13-00390-UT)with NMPRC that PNM would present the most cost-effective portfolios under both a scenario where SJGS continues to operate beyond 2022 and where SGJS completely shuts down after June 30,2022.PNMs final application for the closure of SJGS came through the ETA securitizatio

265、n transaction described above.Therefore,it is appropriate to attribute the emissions savings to the transaction(i.e.,it is unlikely SJGS would have been proposed for retirement if PNM did not expect the securitization legislation to proceed).Additionally,PNMs commitment to closing its coal plants by

266、 2024 as per their 2020 IRP is in line with the IEAs Net Zero pathway.Stage gate 3:Does the transaction include a plan and provisions to support a just transition?Guideline 7:The coal plant has a just transition plan to mitigate impacts on workers,electricity customers,and the local community.The tr

267、ansaction includes several just transition components to mitigate impacts on workers,electricity customers,and the local community.The ETA requires advance notice to the communities at a minimum through the publication of the financing order and consolidated application.PNM filed its Consolidated Ap

268、plication for the Abandonment,Financing and Replacement of the San Juan Generating Station Pursuant to the Energy Transition Act in July 2019.PNM discussed its potential intention to close the SJGS units in its 2017 IRP,which was also made public.PNM engaged Regional Economic Models,Inc.to analyze t

269、he economic and demographic impacts of retiring the SJGS.The abandonment of the SJGS will include decommissioning of the SJGS plant and facilities,and reclamation of the coal mine that provides fuel for SJGS.The financing order includes decommissioning and reclamation costs of$28.6 million.PNMs prop

270、osed financing order under the ETA includes provisions to support economic diversification and development for communities,as well as relief and reskilling opportunities to affected workers.This includes$20 million for job training and severance for employees at SJGS and the coal mine,$1.8 million f

271、or the Energy Transition Indian Affairs Fund to assist tribal and Native people in the affected community,$5.9 million for the Energy Transition Economic Development Assistance Fund to develop an economic diversification and development plan for the affected community,and$12.1 million for the Energy

272、 Transition Displaced Worker Assistance Fund to assist displaced workers in the affected community.Each of these three funds requires public input through recommendations from the affected community and a public planning process with at least three public meetings in the affected community.GUIDELINE

273、S FOR FINANCING A CREDIBLE COAL TRANSITION|33 Stage gate 4:Does the transaction provide transparency and accountability to outcomes?Guideline 8:The transaction provides transparency and an accountability mechanism to climate and social outcomes.Although PNM,through public documentation submitted for

274、 the ETA and their 2020 IRP,would have met the minimum recommended disclosure under these guidelines,the provisions and required disclosures in the ETA are far more extensive(see Box 7).Under the ETA,PNM was required to submit a Consolidated Application for the Abandonment,Financing and Replacement

275、of SJGS including the essential mechanisms needed to assure investors to secure a favorable bond credit rating;detailed breakdown of costs allowed to be securitized,including abandonment costs,financing costs,and transition assistance costs;details on what must be included in the application for a f

276、inancing order(see Box 7)and the finance order itself;and how replacement resources should be procured.30 The ETA also includes a state pledge of noninterference or nonenforcement,agreeing that it shall not take or permit any action that impairs the value of energy transition property.Box 7:Financin

277、g order application(Section 62-18-4)An application for a financing order shall include:1.A description of the facility the utility proposed to abandon 2.An estimate of the energy transition costs,including severance pay and job training expenses,costs not previously collected for plant decommissioni

278、ng and mine reclamation,and an estimate of financing costs 3.An estimate of the amount of energy transition charges necessary to recover costs 4.A description of the proposed adjustment mechanism 5.A memorandum with supporting exhibits from a securities firm that the proposed issuance satisfied curr

279、ent published AAA rating or equivalent rating criteria of at least one nationally recognized statistical rating organization for issuances similar to the proposed energy transition bond 6.A commitment by the utility to file information about the description of the final structure and pricing of the

280、bonds,updated financing costs and payment amounts,and an updated calculation of the energy transition charges 7.An estimate of the timing of the issuance and term of the energy transition bonds;scheduled final maturity for each bond shall be no longer than 25 years 8.Identification of plans to sell/

281、transfer interest in energy transition property,including identification of an assignee,and demonstration that the assignee will be a financing entity wholly owned,directly or indirectly,by the qualifying utility that will be initially capitalized by the qualifying utility in such a way that equity

282、interests in the financing entity are at least 0.5%of the total capital of the assignee 9.Identification of ancillary agreements that may be necessary or appropriate 10.A description of the proposed ratemaking process to recover or refund any difference between the costs financed by the bonds and th

283、e actual costs 11.A description of proposed ratemaking method to account for the reduction in utilitys cost of service associated with amount of undepreciated investments being recovered by energy transition charge 12.A statement from the utility committing that it will use commercially reasonable e

284、fforts to obtain the lowest energy transition charges consistent with prevailing market conditions at the time of pricing of energy transition bonds and the structure and terms of the energy transition bonds An application for a financing order may include:1.New requests for approvals for new resour

285、ces necessitated by abandonment of facility 2.Deferral for approval of new resources to a separate proceeding,provided that the application identifies adequate potential new resources sufficient to provide reasonable and proper service to retail customers 5.2 Sovereign sustainability-linked bond to

286、support the transition of PLNs coal fleet Next,we consider the hypothetical case of a sovereign sustainability-linked bond(SLB)issued by the government of Indonesia,which could be used to support the transition of several of the state-owned utilitys GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITIO

287、N|34 coal plants.We assume a structure where the sovereign would on-lend or allocate funding raised through the SLB to the state-owned utility,Perusahaan Listrik Negara(PLN).PLN is a vertically integrated regulated utility that owns generation assets and controls system operation.In the example belo

288、w,we focus on how such a transaction could meet the climate and social guidelines,rather than stipulating how an SLB would be structured financially(e.g.,sustainability key performance indicators KPIs,step-up or bond pricing,role of blended finance).This case is conceptual,offering a vision for what

289、 deals could look like from the perspective of these guidelines;they are not based on future expected deals in the country.Stage gate 1:Is it credible to provide finance to support the transition of the coal plant?Although SLBs are general purpose instruments without a strong requirement about use o

290、f proceeds,meeting these guidelines would require the government of Indonesia,in agreement with PLN,to provide transparency about which coal assets it intends to transition using finance raised through the SLB.These proposed assets would then be assessed against the guidelines below.Guideline 1:The

291、financial close or final investment decision of the coal plant is prior to December 2021,following agreement on the Glasgow Climate Pact.To assess eligibility under these guidelines,PLN and the government of Indonesia would provide information to demonstrate to funders that the final investment deci

292、sions of plants it would like to transition through the SLB were prior to December 2021.The majority of PLNs coal fleet representing about 44 percent of Indonesias existing coal capacity was built in the last decade,with about 87percent of its planned and operating coal plants operating or under con

293、struction as of 2022.xxv31 Guideline 2:The coal plant owner has an entity-level commitment to no new unabated coal power plant development or procurement globally,beyond plants that have reached financial close or final investment decision.As funding is raised at a sovereign level and allocated to P

294、LN,climate commitments and planning could be at the sovereign and/or utility level.For PLN commitments,the guidelines suggest the boundary be set at the parent-company level to include PLNs various power generation subsidiaries.At a minimum,these guidelines recommend that the Indonesian government a

295、nd/or PLN commit to no new unabated coal generation or expansion beyond coal plants that have reached financial close or final investment decision.This would apply to both coal plants developed by PLN and coal generation procured through IPPs.The Indonesian government has already pledged to stop bui

296、lding new coal plants beyond those in its pipeline.32,xxvi As a result,fulfilling these guidelines would mean PLN and the government of Indonesia commit to addressing coal plants in early stages of the pipeline and close any loopholes related to future coal power development in the country.Additiona

297、l entity-level commitments and plans would lend further credibility to the transaction.Already,Indonesia announced plans to phase out coal by 2056,and recently the finance minister publicly stated that Indonesia could move the phaseout date to 2040 if provided financial assistance from the internati

298、onal community.PLN also has a commitment to reach net-zero emissions by 2060.Guideline 3:The fair value of the coal plant is greater than zero at the time of the proposed coal transition.xxv RMI analysis based on Global Energy Monitor data.xxvi Indonesia recently passed a regulation that would permi

299、t new coal in some cases,including if it provides electricity to refineries or smelters,if it is a nationally strategic project,or if it can commit to cutting emissions by 35percent within 10 years of operation.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|35 Due to a decree from the Ministry

300、of Finance,PLN is provided timely cost recovery for its investments and operations because of its status as a public service company.33 Although electricity tariffs in Indonesia today do not fully cover PLNs cost recovery,PLN receives a monthly and quarterly subsidy from the government of Indonesia

301、to enable its cost recovery plus an agreed return on equity.34 As a result,CTM financing could add value by enabling the early retirement of plants that are insulated from competition and likely reduce the impact of an accelerated coal transition on electricity system costs(e.g.,by reducing the need

302、 for accelerated depreciation of the asset,which would likely lead to near-term spikes in PLNs required revenues,and/or by refinancing the coal plants remaining value with a lower cost of capital)(see Exhibit 8).xxvii xxvii Accelerated depreciation would entail PLN achieving cost recovery plus its a

303、greed upon return in a shorter period than the plants original depreciation schedule.The creation of a regulatory asset would enable PLN to retire the coal plant but also continue to keep the asset on its balance sheet,allowing it to recover capital costs from ratepayers and/or taxpayers even if the

304、 plant is no longer operating.GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|36 As a regulated utility,the fair value of PLN-owned coal plants is likely their net plant balance(i.e.,plants that have remaining useful life and undepreciated balance,on which PLN is still eligible for cost recovery

305、).To provide further credibility,the energy regulator,the Ministry of Energy and Mineral Resources Directorate General of Electricity,would ideally confirm remaining balances.Stage gate 2:Does the coal transition pathway proposed by the transaction support 1.5C goals?Several transition pathways woul

306、d be possible for PLN-owned coal plants.Here we consider a case where PLN has excess dispatchable capacity through approximately 2025,allowing it to retire coal capacity without immediate replacement and still maintain its reserve margin target.Guideline 4:The CTM results in emissions savings compar

307、ed with a case without the use of the CTM and has a backstopping commitment to phase out the coal plant by country-specific 1.5C-aligned coal phaseout deadlines Guideline 5:The CTM transaction does not extend the expected lifetime for unabated coal combustion Guideline 6:If the coal plant is not ret

308、ired and replaced with a portfolio of clean resources that provides equivalent electricity services,long-term emissions savings are demonstrated through power-sector-level decarbonization commitments and plans.In this case,we assume PLN would retire coal capacity,dispatch existing grid resources for

309、 several years,and invest in new clean generation once demand increases beyond its current supply(see Exhibit 8d).This pathway,while not immediately replacing lost coal generation with clean generation,provides PLN flexibility to manage its excess capacity challenge while reducing emissions and brin

310、ging forward the expected investment in clean generation compared with a case without a CTM.However,these guidelines recommend that PLN demonstrate that the transaction will result in emissions savings at an electricity system level by revising power-system-wide decarbonization targets and expanding

311、 detailed system-level planning to support their achievement.The outcome of these efforts will need to show when and how retired coal generation will be replaced by an increasingly decarbonizing grid.PLN could demonstrate credible transition planning through a revision of its Electricity Business Pl

312、an(RUPTL),which lays out the government and PLNs resource plans for generation,transmission,and distribution over 10-year periods based on projected energy demands.To meet these guidelines,the RUPTL would need to include transparency on planned capital expenditure and operations of its generation fl

313、eet to meet its climate targets.These guidelines recommend that any new planned investments in natural gas generation under the RUPTL would need to be aligned with PLNs climate targets and have transparency about the capacity factors,lifetimes,and role of natural gas in the power system.Further cred

314、ibility of gas in the RUPTL would be demonstrated through a comparison of alternatives that shows natural gas is the most effective solution to meet power sector reliability and energy affordability needs.In addition to the costs of natural gas to the electricity system,the analysis should ideally i

315、nclude an assessment of the necessary demand from the power system needed to justify and support any new gas infrastructure investments(e.g.,liquefied natural gas terminals or pipelines).Stage gate 3:Does the transaction include a plan and provisions to support a just transition?Guideline 7:The coal

316、 plant has a just transition plan to mitigate impacts on workers,electricity customers,and the local community.Meeting these guidelines would mean PLN,in collaboration with the government of Indonesia,develops asset-level just transition plans for any of the coal plants proposed for transition.This

317、would include engagement GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|37 processes,a commitment to develop impact assessments,and just transition plans for each of the coal assets it aims to transition.While this asset-by-asset approach would meet these guidelines,there is also likely benefit

318、 to PLN and the government of Indonesia developing entity-,provincial-,or national-level just transition frameworks alongside asset-level provisions.Given the importance of coal in Indonesias economy creating jobs across both the power and mining sectors,providing government revenues and spillovers

319、to local communities setting plans and frameworks at these levels could help capture any scaling opportunities that may come from transitioning a portfolio of coal plants(e.g.,in retraining programs),systemic impacts(e.g.,across regions or at a macroeconomic level),mobilization of resources(e.g.,for

320、 just transition programs rather than one-off investments),and support gender and social priorities(e.g.,improving understanding and evaluation of gender-and minority-related impacts of the energy transition).For example,in South Africa,where coal also plays a major role in the economy,a Presidentia

321、l Climate Commission led a centralized engagement process to drive consensus on a just transition framework for the country,while Eskom has partnered with the South African Renewable Energy Technology Centre to develop a retraining program that supports a just transition of coal workers.35 Furthermo

322、re,the government of Indonesias National Medium-Term Development Plan(RPJMN)202024 enlisted gender equality as an area that should be mainstreamed into Indonesias overall development strategy,alongside increasing work from PLN to support female empowerment in the energy sector.36 Effectively incorpo

323、rating gender and diversity goals into the economic and social assessments and implementation stages of the just transition plan may highlight an opportunity to improve the representation of both women and other underrepresented groups in the energy sector.Stage gate 4:Does the transaction provide t

324、ransparency and accountability to outcomes?Guideline 8:The transaction provides transparency and an accountability mechanism to climate and social outcomes.Finally,a credible transaction would follow the reporting guidelines outlined in this brief,as well as any reporting and governance guidelines f

325、or an SLB.xxviii In addition,the following characteristics would lend further credibility to the bond structure.Governance:While SLBs will have a governance and incentive structure as part of the mechanism,it will be important for SLBs that support coal transition to include KPIs tied to climate and

326、 just transition outcomes.Transparency on coal funding:While SLBs do not usually require reporting on use of proceeds,to provide transparency and credibility to the coal transition,the government of Indonesia could consider disclosing funding amounts allocated to the coal transition(e.g.,remaining p

327、lant balance,decommissioning costs)and the just transition,where relevant.5.3 Managed transition vehicle for an IPP Finally,we consider the hypothetical case of an SPV that would purchase and transition IPP-owned coal plants in a regulated market,reducing emissions through accelerated retirement and

328、/or repurposing of the coal assets it purchases.For this illustrative case,we explored the following scenario:xxviii For example,in line with International Capital Markets Associations Sustainability-Linked Bond Principles(https:/www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/June-2020/Su

329、stainability-Linked-Bond-Principles-June-.pdf).GUIDELINES FOR FINANCING A CREDIBLE COAL TRANSITION|38 The coal plant is a mine mouth plant owned by an IPP that is a multinational energy company,with both clean and fossil fuel generation exposure globally.The coal plant has a 30-year PPA t

330、hrough 2045.The managed transition vehicle will purchase the IPP-owned plant,renegotiate its PPA,repurpose the coal plant for more flexible operation reducing minimum offtake requirements under the PPA and retire the coal plant in 2035.Stage gate 1:Is it credible to provide finance to support the tr

331、ansition of the coal plant?Guideline 1:The financial close or final investment decision of the coal plant is prior to December 2021,following agreement on the Glasgow Climate Pact.To be eligible for financing under these guidelines,the coal plant units would need to have reached financial close prio

332、r to December 2021.Because units may be separate projects with different investors and PPAs,the eligibility date would be considered on a unit-by-unit,or PPA-by-PPA,basis.We have assumed a coal unit that began commercial operation in 2015,prior to Glasgow.Guideline 2:The coal plant owner has an enti

333、ty-level commitment to no new unabated coal power plant development or procurement globally,beyond plants that have reached financial close or final investment decision.These guidelines would recommend the IPP set a no-new-coal generation or expansion commitment.Given it is a multinational energy company,we recommend the IPP set its commitment at the parent level.Additional entity-level climate co