The South Luzon project is one of the pilots. The 246MW coal plant, which will be retired in 2030, will be replaced with a 400MW mid-merit solar power plant with battery storage, an Acen spokeswoman told The Straits Times.
Mid-merit plants can adjust their output throughout the day depending on electricity demand.
The capital investments are estimated at US$1.5 billion (S$2 billion), said the spokeswoman, adding that the electricity output from the renewable energy facility will be equivalent to the amount generated by the coal plant. Solar energy generated by a solar farm may not reach its maximum output throughout the day due to rain or cloudy weather.
“It takes around three years to build a plant of this scale, hence construction is expected to start by 2028 or earlier,” she added.
For the second pilot, the ADB said it has been appointed by the Philippines to retire a 200MW coal plant in Mindanao five years early in 2026. The current power-purchase agreement for the plant ends in 2031, although the plant has a technical life up to 2046.
A spokesman for the Rockefeller Foundation, also one of MAS’ Traction partners, said: “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 just transition entails protecting the rights of workers and communities in the green transition. This could involve retraining or upskilling coal plant workers, for example.
Q: How should these credits be priced?
Acen’s outlook on the transition credit pricing is based on Singapore’s carbon price, which will be set at between $50 and $80 per tonne by 2030, said its spokeswoman.
“While it is still early in the development of the pilot initiative, Acen is optimistic that the transition credits can be viable at these pricing levels,” she added.
Mr Mikkel Larsen, a carbon market expert and an executive director of Singapore-based carbon exchange Climate Impact X, estimates that for a start, the pilot projects could possibly cost around US$30 per tonne of emissions.
But to scale up the phase-out of the rest of the region’s coal plants, the price of these credits could go up to US$40 to US$50 per tonne, he added.
Given the region’s relatively young fleet of coal plants, the early phase-out of each one could cost around US$20 per tonne, while building the replacement renewable energy plant could add another US$20, taking into account the infrastructural changes needed to manage grid instability.
The just transition element will add further to the cost, he added. This can include reskilling workers, for example.
Acen’s spokeswoman told ST that capital to build the renewable plant will come from investors such as Acen, and potential partners. This will include bridge capital that will be refinanced by future proceeds from transition credits.
She noted that if the plant is to be retired by 2030, the crediting will happen between 2031 and 2040.
Potential buyers of the credits include the Singapore Government and carbon tax-liable companies which can use the credits to offset up to 5 per cent of their taxable emissions; provided that the credits meet certain eligibility criteria.
For this to happen, both the Singapore and Philippine governments must enter into a bilateral carbon credit trade agreement, in which both sides agree that emissions reductions are not counted twice.
This means that if Singapore buys transition credits from the Philippines, this same amount of emissions must be “added back” to the Philippines’ inventory.
A memorandum of understanding was signed by both countries earlier in August for this purpose.
ADB senior markets development advisory specialist Dion Camangon told ST that it is supporting the Philippine government to build capacity and set up the arrangements to authorise cross-border carbon transfers, in parallel with the development of a carbon market policy framework.
Q: What will be done to ensure that the credits truly benefit the climate?
To ensure investor confidence, the transition credits’ methodology must be able to address and mitigate potential risks, particularly surrounding the permanence of the plant’s closure, said DBS chief sustainability officer Helge Muenkel.
The two largest carbon accreditation agencies – Gold Standard and Verra – are developing their own standards for transition credits, which can be applied to the two pilot projects under Traction.
Referring to the South Luzon coal plant, Mr Frederick Teo, the chief executive of GenZero, noted that there are several transition credit methodologies in development, but none has been finalised.