Key findings

1. Refinancing is a critical enabler for an accelerated CFPP transition. By increasing leverage and reducing the cost of debt to below current market rates (as they were in 2024), refinancing enhances the financial viability of retiring the archetype CFPP ahead of Chile’s 2030 coal phase-out target – bringing closures forward by 3 years. This approach offers asset owners a strong financial case to begin transitioning away from coal earlier, and an opportunity to invest in low-carbon technologies.
2. Repurposing the CFPP site to Synchronous Condenser and BESS would present a financially viable transition pathway for CFPPs. Adopting grid-forming and grid-supporting technologies, particularly synchronous condensers and BESS offers, a practical transition option. This approach allows asset owners to maintain or improve returns post-CFPP operations, maximise use of existing plant and transmission infrastructure, and provide employment opportunities while supporting long-term system needs. However, their development depends on market mechanisms that enable or incentivise their development (e.g., future infrastructure tenders). In the Managed Phase-out (MPO) with Battery Energy Storage System (BESS) scenario, the combination of refinancing and repurposing allowed the plant to retire in 2035, saving five years in total, three from refinancing and two from repurposing. This scenario achieved the highest emissions reduction among the repurposing options at 33%. Although the Equity Internal Rate of Return (EIRR) was positive, it remained below the BAU benchmark, indicating that while economically viable, it may require additional incentives to be competitive.
3. Transition credits may further accelerate and increase ambition in CFPP phase-out. Transition credits can bridge the financial gap between business-as-usual and the higher upfront costs of cleaner alternatives. Particularly in commercially challenging cases, the potential of transition credits prompts the need for establishing enabling mechanisms in Chile, such as a domestic carbon and Article 6 framework, the adoption of whitelisted methodologies for sovereign buyers, and the signing of bilateral agreements with potential sovereign buyers. The MPO with Transition Credits scenario offered the most accelerated retirement, bringing the closure date forward to 2030 and reducing the remaining life to just five years. It saved a total of ten years—three through refinancing and seven through transition credits—and achieved the highest emissions reduction of all scenarios at 67%. While the EIRR was not specified, the substantial emissions savings and shortened timeline suggest strong potential if supported by appropriate market mechanisms.
4. Co-firing with green ammonia would not be financially viable despite its technical potential. Uncertain high capital and fuel costs could limit the viability of ammonia co-firing as a transition strategy. IPPs have also raised concerns about complex logistics and supply uncertainty, citing challenges in ensuring stable and scalable delivery. Based on the assumptions considered, while co-firing can reduce emissions, it would not create additional value nor significantly accelerate the transition timeline.
5. Different financing structures and approaches can be explored to finance and activate the transition. Multiple financing structures can be explored to bridge the requirements of the IPP and potential capital providers, as well as their ability to participate and their exposure to the coal asset and the renewable energy project. The inclusion of transition credits as an option for creating additional years saved can also crowd in a new set of partners that can finance the transition.