Firing Down: The Role of Asset Management Companies in Early Retirement of Coal-Fired Power Plants

To meet the 1.5C warming threshold of the Paris Agreement, total coal-fired power generation needs to be reduced by 70 percent by 2030 and by 96 percent by 2050. The 2023 United Nations Climate Change Conference (COP28) signaled the “beginning of the end” for the fossil fuel era, and prioritized a swift, fair transition with significant emissions reductions and increased financial support. However, effectively financing and managing the phase-out of coal power poses a broad challenge that demands a comprehensive and coordinated approach.

How can asset management companies (AMCs), with expertise in handling non-performing assets, apply their experiences to scale up and expedite the process of early retirement of coal-fired power plants?

A new policy brief by Ying Qian explores the role of AMCs in the early retirement of coal-fired power plants by examining AMCs’ capabilities in supporting transition management and financing issues as compared to other early retirement mechanisms and programs. Qian maps the business process for AMCs to deal with financially viable and nonviable coal-fired power plants and outlines policy recommendations for how multilateral development banks (MDBs) can integrate AMCs into distressed debt resolution efforts.

Policy recommendations:

On the policy level

• Government agencies and MDBs can encourage AMCs who are already working on a country’s distressed debt resolution to include coal-fired power plant early retirement projects in their portfolio as part of distressed debt-for-climate swap initiatives. 
• MDBs, in partnership with government agencies, can provide crucial support to AMCs through technical assistance, facilitating knowledge-sharing to help improve governance and transparency of AMCs, and promoting the replication of best practices across countries.

On the operational level

• Government agencies and MDBs should allow AMCs to participate in early retirement projects under Climate Investment Fund Accelerating Coal Transition Investment Program (CIF-ACT) and Energy Transition Mechanism (ETM) funded programs, as well as in individual cases directly financed by MDBs. 
• In the future, if MDBs establish their own AMC subsidiaries, such subsidiaries should develop coal-fired power plant early retirement plans as one of their main products, and work with country-level AMCs on actual transactions in member countries.

AMCs, drawing on their expertise in managing non-performing loans (NPLs) and transitioning to financial intermediaries, are well-positioned to expedite early retirement initiatives for coal power. Operating in a market-driven and bottom-up manner, AMCs can significantly enhance the speed and scale of global efforts in this regard. Their proficiency in asset management, financing and change management complements the administrative and top-down approaches adopted by other initiatives.