Asia's Coal-Retirement Financing Struggles to Turn JETP Pledges Into Closed Deals

Indonesia and Vietnam signed Just Energy Transition Partnership (JETP) deals in 2022, promising a combined tens of billions of dollars from wealthy governments and private lenders to retire coal plants early and replace them with renewables. Four years on, only a small share of that money has closed as actual transactions, and the mechanism built to do the hardest part of the job — buying out a working coal plant before its contract runs out — is still proving each step on a handful of pilot deals rather than at the scale the pledges implied.

The gap between announcement and disbursement is not unique to Southeast Asia; South Africa's 2021 JETP, the template both Indonesia and Vietnam's agreements borrowed from, has faced the same criticism from local unions and utilities. But the Southeast Asian deals carry a structural complication South Africa did not: most of the region's coal capacity is younger, was built within the last fifteen years under long power purchase agreements, and sits on balance sheets of state utilities that cannot simply write off the asset without a funding source to replace the lost capacity payments.

Why a working coal plant is hard to retire early

A coal plant that still has fifteen or twenty years left on its power purchase agreement is, from a lender's perspective, a performing asset generating predictable capacity payments regardless of how often it actually runs. Closing it before that contract term ends means someone has to cover the gap between what the plant would have earned and what an early shutdown leaves behind — the utility's outstanding debt, the take-or-pay obligations written into the original financing, and the fixed costs of a workforce that does not disappear the day the turbines stop.

State utilities in Indonesia and Vietnam typically cannot absorb that gap on their own. PLN, Indonesia's state utility, and EVN, its Vietnamese counterpart, both carry debt loads that rating agencies already watch closely, and taking on the liability of an early coal retirement without an external funding bridge would show up directly on their credit profiles. That is the specific problem blended finance is designed to solve: concessional loans and grants absorb the part of the cost a commercial lender would refuse to touch, while multilateral development banks and private capital cover the rest at market or near-market terms.

How the Asian Development Bank's pilot actually works

The Asian Development Bank's Energy Transition Mechanism, first tested through a pilot transaction with the South Luzon Thermal Energy Corporation coal plant in the Philippines, follows a simple structure on paper. A special-purpose vehicle raises capital — part concessional, part commercial — to acquire the coal asset or refinance its existing debt at a lower cost and a shorter repayment term than the plant's original contract allowed. The lower financing cost and shortened horizon are meant to make an earlier shutdown date financially workable for whoever ends up holding the asset, instead of running the plant to the end of its original decades-long agreement simply because that is what the debt requires.

In practice, structuring that vehicle takes far longer than the announcements suggest. Every early-retirement transaction needs an agreed shutdown date, a credible plan for what replaces the lost generation capacity, and — increasingly — a mechanism to monetise the avoided emissions through what the ADB and others have branded "transition credits," sold to buyers who want the carbon reduction without owning the plant. Getting all three to line up on a single deal, on a single coal asset, with a utility willing to sign, has turned out to be the slow part; the Philippines pilot itself took years to move from initial agreement to a workable transaction structure, well past the timeline its early advocates described.

Measuring whether it actually cuts emissions

Even where a transaction closes, verifying the emissions reduction is its own unresolved problem. A coal plant that was already running below capacity, or that was likely to be retired on a similar timeline anyway for economic reasons, does not deliver the same avoided-emissions value as one that would otherwise have run at full output for another two decades. Carbon-market auditors and NGOs that track these deals have pushed for stricter baselines — comparing the retired plant's actual dispatch history, not its theoretical capacity, against what would have happened without the transaction — precisely because an inflated baseline lets a transition-credit buyer claim reductions that were never really at risk.

There is a second, more practical version of the same measurement problem: what replaces the retired capacity matters as much as the retirement itself. If a coal plant closes and the grid operator leans harder on a neighbouring gas or coal unit to cover the shortfall, the net emissions benefit shrinks or disappears entirely. Financing packages increasingly try to bundle the retirement with a commitment to specific replacement renewable capacity and the transmission upgrades needed to deliver it, but that adds another set of counterparties, permits and construction timelines to a deal that was already difficult to close on its own.

The workforce and community funding gap

Coal retirement financing has concentrated overwhelmingly on the capital-markets side of the problem — buying out contracts, structuring special-purpose vehicles, pricing transition credits — and comparatively little on the workforce and community side that JETP documents describe as central to a "just" transition. Plant operators, contracted maintenance staff and, in Indonesia's case, coal-mining communities that supply the plants all face displacement on a timeline set by the financing structure, not by the availability of retraining programmes or alternative employment.

Labour groups involved in both the Indonesian and Vietnamese JETP processes have pointed out that the social components of the partnerships — retraining funds, transition allowances, local economic diversification grants — arrived later and in smaller amounts than the headline financing figures for plant retirement itself. That imbalance has become one of the more consistent criticisms of the JETP model as it has moved from South Africa to Indonesia and Vietnam: the mechanism is well developed for buying out an asset and considerably less developed for the people whose income depended on it.

What comes next

None of this has stopped governments and multilateral lenders from treating early coal retirement as a template worth repeating. The Philippines has signalled interest in extending the ADB mechanism beyond the SLTEC pilot to additional plants, and Indonesia's PLN has continued discussions over retiring the Cirebon-1 plant on a similar structure, even as both processes move slower than their initial announcements implied. Vietnam's version of the mechanism has lagged furthest behind Indonesia's, complicated by EVN's own financial position and by a domestic approvals process that has to weigh coal retirement against a power system already under strain from rising electricity demand.

The test for blended finance in the region is no longer whether the structure can work — the Philippines pilot showed it can, eventually. It is whether it can work fast enough, and at large enough scale, to matter for a coal fleet that is still, in aggregate, one of the youngest and longest-lived in the world.