Financial retirement mechanisms

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Carbon Tracker's Power Asset-Level Economics Model (CTI-PALEM) builds on our existing asset-level data to quantify the costs of using transition finance to expedite coal phaseouts​.

We cost coal retirements to support three key financial stakeholder groups when refinancing and making retirement deals. Using the tabs below, you can view data from the perspective of:

  • Initial investors: The initial equity sponsor and bank(s) that lent capital to construct the coal plant.

  • Refinancers: International public and/or development finance institutions that want to assist developing economies in decarbonising their energy sectors.

  • Donor/subsidy providers: Donors or sources of subsidy funding, like philanthropies or carbon revenues, that can provide additional payments to ensure refinancers meet their minimum return on investment in the case of early retirement. ​

Key takeaways

The four most influential factors affecting retirement costs are:

  1. Timing: Implementation timelines significantly impact retirement costs. The earlier refinancing occurs, the lower the subsidies required.
  2. Profitability: Due to coal plants in the Philippines having generally high levels of profitability, the costs of compensating for foregone profits in early retirement are also relatively high.
  3. Capital structure: Implementing transactions when the initial sponsors are still repaying their loans reduces the future retirement costs. However, the window of opportunity for debt refinancing in the Philippines is closing, as many of the coal plants’ original loans are soon reaching maturity.
  4. Macro conditions: Lower interest rate environments increase retirement costs because the refinancer's foregone future profits - which need to be subsidised - are less heavily discounted.

Retirement costs vary significantly across scenarios on this basis; 75% of scenarios result in retirement costs ranging between $6/tCO2 and $36/tCO2.

Regarding priority units: Older, subcritical coal units with the lowest levels of positive profitability and outstanding debt obligations should be prioritised for retirement to minimise costs. Retirement costs are cheaper if implemented during periods of higher interest rates.

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