How transition credits can derisk the nation’s switch to green energy
- February 11, 2025
For the world to make a successful energy transition, it will need tens of trillions of dollars in investments—and that’s a price tag many emerging market and developing economies (EMDE) cannot afford. At the 15th Assembly of the International Renewable Energy Agency (IRENA), Department of Energy (DOE) Undersecretary Rowena Guevara appealed to global leaders and energy decision-makers to help bridge the financing gap.
“We need to lower the costs for capital for renewable energy developers. We need to find a way for multilateral developmental partners to fund the private sector with [a] lower cost of capital,” Guevara said. “For the energy transition to be just, we need to [be] able to afford the electricity generated from renewable energy.”
The price of going green
“Sixty percent of our electricity is based on coal,” Guevara shared with participants of the IRENA Ministerial Roundtable on Scaling up Finance to Support the Energy Transition in EMDEs. For a successful energy transition, Guevara said the Philippines needs to “connect the retirement of our coal plants with the buildup of renewable energy (RE).”
A stable and affordable power supply is crucial to economic growth. “Coal is base load. You cannot replace it with a solar power plant that is intermittent,” Guevara shared. “So, you have a solar power plant and possibly a battery in order to become somewhat an intermediate or base load to replace the coal.”
According to Guevara, coal-powered electricity in the Philippines costs P3.50 per kilowatt hour (kWh), while solar power alone is at P4.50/kWh. Coupled with an energy storage system (ESS) like a battery, the cost of solar power goes up to about P7.00 to 8.00/kWh, more than double the price of coal.
Reliance on coal is a stark reality not only in the Philippines but in most of Asia, which is responsible for 50% of global greenhouse gas emissions—a third of which is from coal-fired power plants. The Asian coal industry generates nearly 60% of power in the region and employs 6.4 million workers. According to the International Energy Agency (IEA), coal plants in Asia are also relatively young, being less than 15 years old on average compared with more than 40 years in North America.
Given all these statistics and realities, how can we ensure an affordable, secure, and people-centered transition away from coal power?
(Also read: Coal Consumption and Demand Forecast in 2025)
Financing a just transition
Why are the owners of coal-fired power plants (CFPPs) reluctant to shut down their coal plants earlier than planned and make the switch to green energy? High capital cost, inflexible regulatory environments, and young coal plants with significant remaining asset value.
To derisk energy transition and accelerate the retirement of CFPPs, Guevara called for the use of transition credits.
These are a new kind of carbon credit that monetizes the carbon that was reduced through a coal plant’s early retirement. According to The Straits Times, each credit represents “one tonne of planet-warming emissions that is prevented from being released.” Coal plant owners can then sell these transition credits to governments and companies so they can mitigate their own carbon emissions.
(Also read: Renewable Energy Market begins full commercial operations)
“CFPPs cost a lot of money to build and their financing is based on investors being paid back over a period of 30, 40, maybe 50 years,” Charlie Pool, head of carbon insurance at Howden, explained. “If you shut plants early, investors can’t recover that huge upfront cost. Transition credits are designed to bridge the gap and compensate investors for lost earnings.”
Last December 2023, the Monetary Authority of Singapore (MAS) announced the launch of the Transition Credits Coalition (TRACTION). Backed by nearly 30 members from financial institutions, carbon service providers, foundations, and multilateral development banks, TRACTION identifies the obstacles and solutions for transition credits as a financing instrument for the early retirement of CFPPs in Asia.
“Transition credits can cover costs that private and concessional capital cannot cover, such as lost revenues to plant owners, the premium associated with investing in replacement assets, such as battery storage, and the just transition costs,” a spokesman for the Rockefeller Foundation, a TRACTION partner, explained.
TRACTION is focusing on three areas of work:
- Support the generation of high-integrity transition credits
- Enable the scalability of transition credit transactions
- Bolster buyers’ confidence and trust in transition credits
The initiative has launched two pilot projects in coal plants in the Philippines, one in South Luzon and the other in Misamis Oriental.
“These are the kinds of financing that we think must be scaled up for the EMDEs (emerging and developing economies),” Guevara said to fellow IRENA participants.”We need to lower the cost of capital for renewable energy developers in the Philippines, because the private sector are the ones driving the energy sector.”
“At the end of the day, for energy transition to be just, people like us in the Philippines should be able to afford the electricity of renewable energy,” Guevara continued. “For that to happen, we hope our partners across this table would be able to address the financing gap.”
Sources:
https://www.irena.org/News/articles/2025/Jan/IRENA15ALiveBlog
https://www.youtube.com/live/LTeHlJwHyN0?si=M_zHuStvxjt9moEr
https://www.mas.gov.sg/development/sustainable-finance/transition-credits
https://www.bis.org/review/r230606f.htm
https://www.iea.org/reports/coal-in-net-zero-transitions/executive-summary
