Financing the Modernisation of Power Systems Beyond Coal

Coal is a central component of power systems in Southeast Asia, even as governments have committed to reducing coal‑related emissions. Rapid electricity demand growth, alongside coal’s role in system adequacy, reliability and energy security, complicates efforts to accelerate coal transitions. Recent volatility in international gas markets has reinforced the short‑term economic and security value of existing coal assets, adding complexity to national transition strategies. The region’s young coal fleet also implies substantial long‑term emissions if plants continue operating at current utilisation rates.

Against this backdrop, new approaches are being explored to support coal transitions while maintaining secure and reliable power systems. This report examines the potential role of transition credits as a market‑based instrument to support coal transitions in Southeast Asia. It analyses the scale of emissions from existing coal fleets, options to reduce emissions from operating plants, and considers the investment and power system planning challenges of replacing coal generation while maintaining essential system services. It also reviews project‑based and emerging jurisdictional approaches to transition credits, focusing on methodologies for the early retirement of grid‑connected coal plants and their replacement with clean energy.

By examining these issues from a power system, investment and carbon markets perspective, the report aims to provide a clearer understanding of coal transition strategies and outlines recommendations for countries that may choose to explore transition credits as an option to reduce the role of coal in their electricity mix.