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. ​

Refinancer perspective

The refinancer's role is to reduce the coal plant's cost of capital by paying the initial investor the remaining value of the coal plant's loan, refinanced at a new interest rate. The refinancer then assumes ownership of the coal plant by paying the initial investor the present value of its future expected equity cashflows, discounted at the sponsors' cost of equity at the point of refinancing. Essentially, the refinancer assumes ownership of the coal plant by buying out the owners.

In this retirement mechanism, international public or development finance institutions that want to assist developing economies decarbonise their energy sectors - like multilateral development banks - can be potential refinancers.

The initial investors' expected net present value (NPV) is the refinancer's upfront investment in the transaction. After refinancing, the refinancer continues to operate the coal plant, receiving the same nominal cashflows that would have been received by the initial investors.

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