Energy Transition Mechanism

Asia and the Pacific can only realize its climate goals if it pursues a transition away from coal-based energy in the near term. To accelerate this transition in the region, ADB is working with regional and international partners to support, study, and pilot a scalable Energy Transition Mechanism (ETM).

In the Spotlight

The Challenge

The battle against climate change will be won or lost in Asia and the Pacific. If emissions from existing coal power plants are not addressed, the region will fail to meet the Paris Agreement targets.

Global greenhouse gas emissions

over 50%

of global greenhouse gas emissions
originate in Asia and the Pacific
Annual global emissions from coal-fired power plants

25%

of annual global emissions
come from coal-fired power plants
Young coal-fired power plants are in Asia

90%

of young (≤ 20 years) coal-fired
power plants are in Asia

What is ETM?

ETM is a scalable, collaborative initiative developed in partnership with developing member countries (DMCs) that will leverage a market-based approach to accelerate the transition from fossil fuels to clean energy.

Public and private investments—from governments, multilateral banks, private sector investors, philanthropies, and long-term investors—will finance country-specific ETM funds to retire coal power assets on an earlier schedule than if they remained with their current owners.


 

The Benefits of ETM

ETM has the potential to be one of the biggest carbon reduction programs in the world. It will be a win for the climate, a win for local communities, and a win for developing economies. It will significantly shorten the life of legacy coal-fired power plants and unlock new investments in sustainable and renewable energy. 

Accelerate climate action

Countries participating in ETM will be able to reach more ambitious emissions targets than under their current commitments.

Reduce energy costs

Speeding up the retirement of coal-fired electricity will increase the demand for clean energy by 2-3 times, lowering overall energy costs in the long run.

Drive investment

ETM will help unlock or “crowd in” investment in cost-effective renewable generation and support and enable clean technologies, such as smart grids, hydrogen, and electric vehicles.

Provide a scalable model

ETM has the potential to be scaled up to other parts of Asia and the Pacific, as well as Latin America and Africa, which could drive significant reductions in global emissions.

 

The Importance of Safeguards and a Just Transition

ADB’s work on ETM will prioritize safeguards and a just transition, including high level consultations to avoid adverse impacts on the environment and people, and a commitment that the move toward renewable and sustainable economies will leave no community, industry, or worker behind.

Key Stakeholder Engagement Activities

Country / Location Event Date Relevant Materials
Philippines – Manila Third Stakeholder Engagement Meeting on the Philippines’ CIF ACT Investment Plan 12 Mar 2024
Indonesia – Cirebon Stakeholder consultations on the early retirement of Cirebon-1 coal-fired power plant 26 Feb - 2 Mar 2024

Last update: 7 Mar 2024

The Cirebon MOU

ADB is in discussions with Cirebon Electric Power (CEP) and partners in Indonesia to explore the early retirement
of the first coal-fired power plant under the ETM program.

First Power Plant Acquisition

On November 14, ADB signed an MOU with CEP, PT PLN (Persero), Indonesia’s state-owned power utility; and the Indonesian Investment Authority (INA), to begin discussions for the early retirement of Cirebon-1, a 660 megawatt (MW) coal-fired power plant in West Java. The existing Power Purchase Agreement (PPA) with PLN expires in 2042. The MOU represents a major breakthrough for ADB’s ETM, which seeks to use blended finance to help Asia and the Pacific accelerate the retirement or repurposing of power plants that use coal and other fossil fuels and replace them with clean energy.

Cirebon-1 was chosen for several reasons. Firstly, it has the right combination of an interested owner, being a middle-aged plant, and having a financial structure that was suitable for refinancing. Secondly, the project company already has an active corporate social responsibility program, is engaged with the community, and is therefore suited to ensure the coal plant will be retired with strong just transition considerations. While each ETM transaction will have specific characteristics, ADB believes this is a great model case that can be replicated with other independent power producers.

ADB and partners are aiming to finalize a transaction for Cirebon-1 in the first half of 2024. The deal would likely see the plant retired seven years earlier than scheduled, which would save significant carbon dioxide emissions.

Should a deal be agreed to, the financing is expected to be a blended structure, including both concessional capital and capital from ADB's Private Sector Operations Department. The concessional funds will likely include donor-supported funds from ADB’s ETM Partnership Trust Fund as well as a portion of the recently approved Indonesia allocation from the Climate Investment Fund’s Accelerating Coal Transition window. The transaction structure is not yet finalized and a number of financial entities and philanthropies have expressed interest in participating in the transaction. ADB hopes to finalize a deal by the end of 2023.

ETM is committed to accelerating the retirement or repurposing of coal-fired power plants and replacing them with clean energy. ADB and PLN have agreed to develop a plan for the replacement power that would be lost when this plant is retired. Several renewable technologies, as well as distribution and transmission system upgrades, are being considered. As renewable energy and battery storage costs continue to decrease, there is optimism that replacement electricity can be done at a cost that is equal to, or lower, than contracted tariffs. Key considerations will include the fact that the existing plant provides baseload power, contrasted with solar and wind technologies that provide power only when the sun shines or the wind blows.

ADB is in discussions with a number of coal-fired power plant owners in Indonesia and the Philippines about exploring early retirements but cannot provide more details at this time due to non-disclosure agreements. ADB is also working with a number of stakeholders, including Indonesia’s sovereign wealth fund, INA, as well as industry associations, to find other potential transactions that can accelerate the transition from coal and other fossil fuels to clean energy.

What People Are Saying about ETM

  • Sri Mulyani Indrawati

    "The Government of Indonesia, together with the Asian Development Bank has launched the ETM Initiative in COP26 in Glasgow. Since then, we have taken a step toward making this ETM a reality. Throughout 2022, we worked closely with ADB to build consensus with other relevant government and state-owned enterprises, especially PLN. We are working relentlessly to establish the Indonesia ETM Country Platform, a framework that will mobilize financial resources and support from international partners including multilateral, bilateral, philanthropist, and private sector groups to make “just and affordable energy transition” as the focal point for this ETM Country Platform."

    Sri Mulyani Indrawati
    Minister of Finance, Indonesia
    G20 ETM side event, 14 Nov 2022, Indonesia

  • Kentaro Ogata

    "ADB has made remarkable progress since COP26, and I would like to commend the ADB team’s efforts so far. I also would like to express my heartfelt congratulations on the significant progress toward energy transition in ETM partner countries. A remarkable example is the recent announcement by Indonesia on the early retirement of Cirebon 1 under the ETM support. This is a historical step in the Asia-Pacific Region, ETM has the potential to be a game changer in energy transition in Asia-Pacific Region."

    Kentaro Ogata
    Deputy Vice Minister for International Affairs,
    Ministry of Finance, Japan
    COP27, 17 Nov 2022, Egypt

  • Janet Yellen

    "We want to applaud the work of the ADB. They've helped to create innovative products in climate finance. At last year's COP I attended the announcement of the ADB's energy transition mechanism and it's truly gratifying to see the progress since then, to build out concrete approaches to creating blended finance solutions that make decommissioning of coal plants a viable investment for private investors alongside the necessary renewable energy deployment."

    Janet Yellen
    Secretary, Department of the Treasury,
    United States of America
    G20 ETM side event, 14 Nov 2022, Indonesia

  • Anna Lührmann

    "ETM is really an innovative approach to address the elephant in the room—coal. Coal-fired powerplants represent the world’s single largest source of emission. Without accelerating the phaseout of coal, we will not be able to meet the objectives of the Paris Agreement. Kickstart finance is important so that ETM can implement and learn from its first pilots before fully scaling up."

    Anna Lührmann
    Minister of State for Europe and Climate,
    Federal Foreign Office, Germany
    COP27, 17 Nov 2022, Egypt

  • Glen Pearce-Oroz

    "The Energy Transition Mechanism has so much potential. Part of what I heard during the launch in Glasgow, was precisely the struggles and challenges that governments were willing to take on, but also requesting for that support that needs to be delivered by the global community. And through this mechanism, there is a chance of delivering that support to these countries."

    Glen Pearce-Oroz
    Senior Director of International Relations and Special Projects, Sustainable Energy for All (SEforALL)
    COP27, 17 Nov 2022, Egypt

  • Simon Harford

    "I want to pay tribute to the role of the Asian Development Bank who are showing true leadership and innovation in this space, along with other partners."

    Simon Harford
    CEO, Global Energy Alliance for People and Planet (GEAPP)
    G20 ETM side event, 14 Nov 2022, Indonesia