Summary

China’s 2021 pledge to halt overseas coal financing marked a major shift in global energy dynamics. While the commitment to support low-carbon infrastructure under the Belt and Road Initiative (BRI) was widely welcomed, over 67 Chinese-backed coal-fired power plants (CFPPs) remain operational across Asia. This includes 16 in Pakistan, Sri Lanka, and Bangladesh, and 51 in Southeast Asia. Vietnam and Pakistan have received sizeable investments from China state-owned enterprises (SOEs) in building and operating CFPPs.  However, both countries have indicated willingness to explore early CFPP retirement as part of future plans. CSV worked together with Green Finance & Development Center (GFDC) to analyse industry conditions in Pakistan and Vietnam to explore potential options on how China SOEs can support accelerated CFPP retirement in these countries.

Approach

CSV, together with GFDC, conducted a study on potential pathways for a China-led early CFPP retirement in Pakistan and Vietnam using financial mechanisms available to the Chinese government and its SOEs. This study culminated in an article released to the public in October 2023. In completing the study, the team undertook the following processes:

1. Due diligence and plant-by-plant analysis. Operating and financial data at both the industry and plant level were collected for Pakistan and Vietnam. The coal-fired power plants selected for analysis, with ages as of 2023, include the following:
   • in Vietnam:
     • Thang Long Power Station (circulating fluidised bed, 600 megawatts, 5 years old)
     • Quang Ninh 1 (subcritical, 600 megawatts, 13 years old)
     • Hai Phong Thermal Power Station 2 (subcritical, 600 megawatts, 10 years old)
   • in Pakistan:
     • Engro Thar Coal-Fired Power Plant (subcritical, 660 megawatts, 3 years old)SSRL Thar Coal-Fired Power Plant (subcritical, 1320 megawatts, newly commissioned)
     • Sahiwal Coal-Fired Power Plant (supercritical, 1320 megawatts, 6 years old)
       
       Respective country policies for CFPP operations for Pakistan, Vietnam and China were also analysed to understand barriers to early retirement in each market. Each CFPP in Pakistan and Vietnam was then assessed to determine which were best suited for early retirement (see Figure 1 (Summarised Selection Criteria) for the criteria used).
       
2. Financial and Scenario analysis. Each plant was assessed using Net Present Value (NPV) and Enterprise Value (EV) under three financing structures: Business-as-Usual (BAU), where the plant operates until the end of its life; Asset Refinancing, which involves raising capital now and retiring the plant when the debt matures; and Renewable Energy (RE) Bundling, where proceeds are reinvested into renewables and the plant is retired early. These approaches were evaluated against three global economic scenarios: BAU, where energy security is prioritised and fossil fuel subsidies remain in place; Choosing Your Allies (ALLIES), where regional blocs support green transitions while balancing economic and political interests with moderate trade barriers; and Ministry of the Future (FUTURE), where the global economy prioritises climate action, renewable energy dominates, and fossil fuel financing declines. Initial results from financial projections, including NPVs, were reviewed, iterated and analysed through a decision tree:

Figure 1: Sample Chinese SOE decision making tree

Once initial financial projections were set, additional scenario analysis was conducted based on the following potential financing structures and global economic scenarios:

Key Findings

1. Renewable energy bundling was the scenario that generated the highest value
   Across all six CFPPs, the RE Bundling structure paired produced the highest enterprise value. This confirms that early retirement is not only environmentally beneficial but also financially sound. Financing through their Power Purchase Agreements (PPAs) throughout their end of life yields the least Enterprise Values (BAU). In many cases enterprise value was maintained when compared against BAU despite the additional capital expenditure required for new RE, for example Engro Thar achieved an enterprise value of $2,034m under the ALLIES scenario compared with $2,044m BAU enterprise value.
2. Refinancing at lower rates improves the viability of early retirement
   To facilitate early CFPP retirement, refinancing CFPPs at slightly-to-moderately lower than market rates (by 1-4%) in return for accelerated CFPP retirement and RE deployment is needed. This can generate positive NPV and EV compared to BAU. In addition, the perceived higher risk of operating CFPPs in the long run translates to higher discount rates reducing the value of future cashflows in BAU. This demonstrates how China-funded CFPPs can be supported to transition in a financially viable manner.
3. Smaller, inefficient plants offer quick wins
   Targeting smaller and older plants first allows for manageable transitions and builds replicable models for larger CFPPs. Shutting down plants with less efficient carbon intensity technologies increases the avoided carbon emissions. CFPPS using Pulverised Coal (PC) or subcritical Circulating Fluidised bed (CFB) should be prioritised for shutdown. Prioritising smaller plants would simulate a more realistic CFPP transaction without compromising a country’s energy supply.
4. China’s SOEs can lead the transition
   By leveraging blended finance and developmental institutions, Chinese SOEs can retain value, reduce exposure to stranded assets, and catalyse renewable energy deployment.

Impact and next steps

The study provides a replicable framework for China-led coal phase-out strategies in BRI countries. It demonstrates that:

• Early retirement is feasible and financially sound
• Transition finance can be mobilised through Chinese SOEs
• RE Bundling can accelerate clean energy deployment

These insights are informing ongoing discussions with policymakers, investors, and utilities in Pakistan and Vietnam. The next phase will focus on structuring actual transactions and mobilising concessional finance to implement the proposed pathways.

Lessons Learned

• Local context matters: Transition strategies must reflect national energy needs and political realities
• Finance is a catalyst: Innovative structures like RE Bundling can unlock early retirement
• Speed and sustainability must align: Accelerating coal exit must be economically viable and socially inclusive

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