Coal plant exit hurdle looms in Southeast Asia as $135b capital remains unrecovered, IEA says

Utilities sit on stranded assets, delaying retirements and extending repayment cycles.

Southeast Asia’s (SEA) coal-fired power sector still holds $135b in unrecovered capital as of 2025, creating the largest financial barrier to early plant retirement in the region, according to an International Energy Agency (IEA) report.

It described unrecovered capital as the portion of initial investment that remains unpaid through plant operations before closure, leaving utilities and investors exposed to losses if plants retire ahead of schedule.

The regional figure forms part of a wider global challenge, with nearly 80% of the world’s operating coal fleet, or 1,700 gigawatts (GW), still carrying a combined $1.3t in unrecovered investment.

The report linked SEA’s exposure to the region’s relatively young coal fleet.

Across developing Asia, more than 1,450 GW of coal capacity has been added since 2000, whilst around 80% of coal plants in the region remain under 20 years old.

The IEA noted that coal fleets in Indonesia and Vietnam are younger following a build-out that accelerated in the mid-2010s.

It added that the remaining technical life of these plants creates long-term emissions and financial lock-in, complicating efforts to accelerate coal retirement without financial support.

High levels of capital tied to existing assets, combined with financing costs and contractual obligations, make coal transition strategies unattractive for many emerging market economies.

Long-term power purchase agreements that guarantee revenue and offtake further increase the cost of early closure, the agency said.

The report warned that forced retirements without mechanisms to address unrecovered capital could place pressure on the balance sheets of state-owned utilities across SEA.

To address the gap, the report identified transition credits as a potential revenue source to support early retirement by converting verified emissions reductions into cash flow.

It also cited the South Luzon Thermal Energy Corporation transaction involving ACEN Corporation in the Philippines as an example of an equity buy-out structure designed to shorten a coal plant’s operating life.

Under the transaction, the plant was transferred to a special purpose vehicle with a target retirement date of 2040, reducing its technical life by half.

The report said transition credits are under consideration to advance closure to 2030.

The IEA said transition credits alone would not close the financing gap and that blended finance structures involving multilateral development banks and international public finance remain necessary to reduce project risk and attract private capital.