June 20, 2025 – Hong Kong
Climate Finance Asia (CF Asia) has released a groundbreaking policy brief, “Economic and Financial Drivers of Coal Phase-Out in Asia,” offering insights into the financial and structural challenges slowing the retirement of coal-fired power plants (CFPPs) across developing Asia. The brief calls for urgent policy and financial reforms to accelerate the coal phase-out.
This is the first study in Asia to combine plant-level interviews with CFPP operators in Bangladesh, Indonesia, Malaysia, and Pakistan, alongside consultations with financial institutions in China, Japan, and multilateral development banks (MDBs).
Key Findings
- Coal dependency remains high: In 2023, coal accounted for nearly 60% of electricity generation in Indonesia, 43% in Malaysia, 18% in Pakistan, and 8.5% in Bangladesh.
- Barriers to transition include:
- Policy uncertainty and lack of long-term coal retirement strategies
- Credit risk and low bankability of transition projects
- Inflexible power purchase agreements (PPAs)
- Limited access to affordable renewable financing
- Country-specific challenges:
- Bangladesh struggles with financial risks and outdated grid infrastructure.
- Indonesia is constrained by electricity subsidies and coal price controls.
- Malaysia struggles with high decommissioning costs and rigid PPAs.
- Pakistan faces high decommissioning costs and investment risks.
Recommendations
For Policymakers:
- Reform subsidies and implement carbon pricing (Indonesia)
- Reform PPAs and expand concessional financing (Malaysia)
- Introduce tax incentives and align energy planning with climate goals (Pakistan)
- Strengthen financial capacity and build inclusive workforce transition programs (Bangladesh)
For Financial Institutions:
- Engage in blended finance to improve project bankability
- Develop transition-aligned instruments like transition bonds and sukuk and sustainability-linked loans
- Strengthen internal capacity for ESG and impact tracking
- Collaborate with governments and MDBs to expand the pipeline of investable projects
“This research shows that with the right mix of policy clarity, sovereign guarantees, and innovative finance tools, we can unlock capital and accelerate the shift to clean energy,” said Alan To, CEO of Climate Finance Asia.
“Solutions must be tailored locally. With the right financial and economic tools in place, Asia can lead the shift to a resilient, low‑carbon future,” added Farhad Taghizadeh-Hesary, Chief Economist and lead author.
The policy brief is part of a broader research project, accompanied by a full-length report: “Economic and Financial Pathways for Accelerating Coal Power Plant Transition: Evidence from Asia.”