Collaboration Fuels ACEN’s Pioneering Coal-to-Clean Energy Shift in the Philippines

With a global climate crisis increasingly threatening human security, we must accelerate the shift towards clean energy technologies and phase out of the use of coal in electricity generation, second only to oil in the global energy mix.  Yet continued high use of the fossil fuel jeopardizes global climate ambitions, with over 95% of coal consumption worldwide occurring in countries that have pledged to achieve net zero emissions, according to the International Energy Agency.

A secure transition to a coal-free energy use fuel requires that we bring along all those who rely on coal today for their living and consumption.  On this agenda, Asian energy providers have, in many ways, been leading in finding innovative paths towards realizing a ‘net zero’ future where sustained and affordable access to electricity is guaranteed and where people whose employment is currently tied to fossil fuel-driven value chains can continue to earn a living.

ACEN, the listed energy platform of Ayala group, is leading the charge in the energy transition and enacting initiatives for early coal retirement in the Philippines and around the region. The company successfully implemented the world’s first market-based Energy Transition Mechanism, which reached a financial close in November 2022. 

The transaction involved the divestment and early retirement of the 246MW South Luzon Thermal Energy Corp. (SLTEC) coal plant and its transition to cleaner technology by 2040 when the coal-fired power plant (CFPP) completes 25 years of operations.  As the operating life of CFPPs typically reaches up to 50 years, the groundbreaking ETM initiative potentially reduces up to 50 million tons of carbon emissions (or ~2 million mtCO2 per year over 25 years).

While the 2040 CFPP retirement plan is laudable, global energy players need to take aggressive climate action to mitigate further damage. With this in mind, there is a need for proper mechanisms to encourage and incentivize the retirement of CFPPs in the region. 

This mechanism comes in the form of Transition Credits (TC). TCs are high-integrity carbon credits granted to projects that enable the early retirement of CFPPs and their replacement with clean energy while ensuring a just transition.

To this end, ACEN has fostered partnerships with the Rockefeller Foundation’s Coal to Clean Credit Initiative (CCCI) and the Monetary Authority of Singapore (MAS) to pilot the use of TCs for the early retirement of coal plants.  This collaborative effort aims to accelerate SLTEC coal plant transition to cleaner energy by 2030, ten years earlier than what was committed, which is already an aggressive retirement schedule. The accelerated transition could avoid up to 19 million tons of carbon dioxide (CO2) emissions. 

CCCI’s draft methodology, currently under review by Verra to assess SLTEC’s eligibility for carbon financing, found that the project meets the eligibility criteria and decommissioning by 2030 would only be possible with carbon finance.

Carbon finance would be required to cover three categories of cost: (1) replacement of foregone cash flows from the CFPP, (2) subsidy to ensure affordability of clean and reliable energy replacement (i.e., renewables integrated with energy storage), and (3) the just transition of affected communities and workers, as well as the responsible decommissioning of the CFPP.

The just transition initiative brings important lessons that should be shared globally. That’s why I am grateful for the support of the Business Commission to Tackle Inequality (BCTI) as we navigate the complex challenge of sustainable energy transition in the Philippines.

The commission comprises 80 global leaders committed to addressing inequality and fostering inclusive markets where companies can thrive in a sustainable and responsible manner. This shared effort is guided by 10 actionable steps that businesses can take today, highlighted in the BCTI flagship report. Being able to team up with a global cohort of frontrunners who share the imperative of putting people at the heart of what we do, elevating the conversation together, and learning from each other’s experiences and successes has been invaluable. 

As the energy industry moves towards greener operations, a people-centered transition is crucial, where impact on workers and local communities that have traditionally relied on the fossil fuel economy for their livelihoods are considered and supported through this change. 

We recognize that those affected must continue to have a decent livelihood and that no one is left behind.  At the SLTEC plant, around 200 workers will be impacted, each with their own circumstances.  This requires planning and investing in the right resources to ensure appropriate reskilling, redeployment, education, and new routes for employment and entrepreneurship.

To succeed, we need to understand the human, emotional, and psychological impacts of such transformation on the affected people and reflect that in our plans.  It is a complex process that needs to be supported by adequate listening and dialogue mechanisms.  We know that the workers at the plant have a very strong work ethic and pride in what they do to provide energy to a country that has sometimes struggled with sufficient energy supply.  We want to honor that pride while shifting the workforce to the clean energy of the future.

The workers at the SLTEC plant are part of a larger community that relies on a just transition. We recognize that the early retirement of the SLTEC plant could have significant economic and social impacts on the workers and the community. Therefore, when businesses consider repurposing assets and future land use, they also need to consider the implications for the broader community and how we can best address them. To that end, engagement with community members to listen to their concerns and perspectives is a crucial step in transition.

Ambition alone isn’t enough for a people-centered transition. Strong alignment with multiple stakeholders is essential.   This includes engaging affected communities and workers to ensure a just transition, shareholders and financial partners to preserve value, carbon financiers for viable initiatives, and government and policymakers to serve the common good. Collaboration with organizations like the Rockefeller Foundation, CCCI, and MAS supports a system-wide approach, while global platforms like the World Economic Forum and WBCSD help leverage key learnings. We are fortunate to have the opportunity to work with and rely on trusted partners to realize our common aspiration to accelerate the energy transition.

“We all breathe the same air and are in this together, whether we would like it or not.”

Ensuring greater equity and inclusion starts with a keen awareness that we tackle climate change and air quality issues not for their own sake but because they threaten people’s health, well-being, and security.  These factors have to be at the center of how we address climate and nature-related challenges, not afterthoughts.  We have found that this focus on people can instill a bias for action among the key leaders of an enterprise.

With that foundation, you can permeate a sense of passion across the organization and embed it in the corporate culture so that the work becomes impactful and begins to make a real difference in people’s lives.  What I know for sure is that we are all in this together.

— Eric Francia is the president and chief executive officer of ACEN Corporation and serves on its board of directors.  He is also a senior managing director and member of the management committee of Ayala Corporation.

This insights article was first published by Carbonwire under the link https://carbonwire.org/carbon-voices/collaboration-fuels-acens-pioneering-coal-to-clean-energy-shift-in-the-philippines.