ADB’s Energy Transition Mechanism launches at COP26
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ADB’s Energy Transition Mechanism launches at COP26

Photo by AndreaADB licensed under CC BY-SA 4.0

Asian Development Bank has launched the long-awaited energy transition mechanism for clean energy transition in Southeast Asia, starting with Philippines and Indonesia

The development bank today (3 November) announced the partnership at COP26 alongside the governments of the Philippines and Indonesia to establish the ETM.

The ETM is a funding vehicle to phase out coal while scaling up renewables in Southeast Asia. It consists of 2 facilities – coal retirement facility and clean energy financing facility.

The multilateral targets to raise a total of $3-5 billion funding for the 2 facilities, a person involved told IJGlobal. The Japanese government has committed a grant of $25 million as the first seed financing for the mechanism.

The mechanism is also eyeing to tap the newly-announced Global Energy Alliance for People and Planet (GEAPP), which aims to unlock $100 billion climate financing in Africa, Asia, and Latin America, IJGlobal can confirm. Anchor philanthropic organisations of GEAPP include Rockefeller Foundation, IKEA Foundation, and Bezos Earth Fund.

IJGlobal has heard that the multilateral might also look into other organisations such as Amazon, co-founder of the Climate Pledge, and Bill & Melinda Gates Foundation.

The multilateral plans to launch a 2-3 years pilot phase to accelerate the retirement of 5-7 coal-fired power plants in both countries. The ETM will raise required financial resources and facilitate investment in alternative clean energy options.

The multilateral aims to raise targeted capital by Q1 2022 and launch a pilot case among the 2 countries by Q3 to Q4 2022, IJGlobal was told.

The partnership will focus on the following:

  • a joint feasibility study focusing on an optimal business model for each pilot country

  • bringing together concessional resources from donor governments and philanthropies in close coordination with global climate change-focused funds

  • leveraging large amounts of commercial capital to trigger a decisive shift toward decarbonisation

ADB will support the 2 governments in establishing policies and business conditions for the improvement of the programme's governance, carbon reduction and just transition goals.

ADB will also form an advisory group with NGOs and civil society groups. The development bank will also provide technical assistance for reskilling and the livelihood development of affected workers and communities.

At full scale, the ETM is expected to retire 50% of the entire coal fleet, with a combined capacity of 30GW, in the Philippines, Indonesia and possibly Vietnam, during the next 10-15 years. If achieved, the funding vehicle will help cut 200 million tonnes of CO2 emissions per year.

ADB has completed a pre-feasibility study on the ETM, which is now undergoing a full feasibility study, including finalising the financial structure, identifying potential coal plants for pilot programmes and designing transition activities.

ADB in September (2021) signed a $1.5 million contract with a group of advisers – KPMG, Mott MacDonald, and Pinsent Masons – to conduct feasibility studies on the ETM.

In October (2021), IJGlobal shared insights about the proposed mechanism with project insiders and market observers.

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