THE phaseout of coal-fired power plants in the Philippines would lead to $10 billion in stranded assets, according to the World Bank.
This is under the Accelerated decarbonization scenario (ADS) which aims to achieve the goal of reducing annual carbon dioxide (CO2) emissions by 80 percent by 2040.
The World Bank said given the amount of stranded assets this could cause, the Philippines should be more proactive in finding ways to resolve this problem.
“The phasing down of this capacity would take place from 2028 to 2040 under the ADS as dictated by the goal of achieving 80 percent annual CO2 emissions reduction by 2040,” the World Bank said.
“Given the large financial cost of the stranded assets in accelerated decarbonization, active pursuit of solutions needs to start early,” he added.
Based on the study, in order for the country to achieve the 80-percent annual emissions reduction by 2040, less than 3 gigawatts (GW) of coal- fired power should be in operation in 2040 under ADS.
This is significantly less than 14 GW that could remain under the Current Policy Scenario (CPS). The CPS, the World Bank said, is similar to policies in the Philippine Energy Plan (PEP) 2020-2040 but also adjusted to a lower GDP growth rate.
Currently, the World Bank said, the Philippines coal-fired power plants (CFPPs) is at 11 GW as of 2020. These CFPPs are young and majority of these were commissioned only in 2010.
The cost of these stranded assets are on top of the total system cost of the ADS which is estimated at $133 billion. This is 6 percent higher than the $125.4 billion cost of the CPS.
While this is true, the World Bank said, pursuing ADS would generate substantial global benefits. If the country pursues ADS, the global environmental damage cost of CO2 emissions would only be $35 billion under ADS, than $51 billion under CPS.
Locally, the environmental damage could also be lower under the ADS. The World Bank estimated that this could be at $9.8 billion under ADS but $14.5 billion under CPS.
“It is also in the interest of the global community, particularly the developed countries, to support the Philippines in pursing an accelerated energy transition pathway by sharing some of the incremental financial burdens,” the World Bank said.
AMRO’S view
However, ASEAN+3 Macroeconomic Research Office (AMRO) earlier said the Philippines is among the countries that are at low risk for stranded assets among ASEAN+3 economies.
The report explained that stranded assets would include natural resources such as fossil fuel reserves left in the ground and investments in infrastructure or properties that would never be fully utilized due to the transition to net zero.
AMRO said these will no longer be utilized due to government regulation, technological change, or evolving societal norms and consumer behavior to respond to a country’s aim to shift to clean energy.
Based on data from the Degree of Exposure to Stranded-Asset Risk index for 2019, the country’s index score is 0.3, which is lower than most ASEAN+3 economies and higher than Japan at 0.29 and Singapore at 0.15.
AMRO explained that the index indicator ranges from 0 to 1, where 0 is the lowest exposure and 1 is the highest exposure.