With Financing Help, Indonesia to Retire its Coal Power Plants

The G20 forum is a starting point for Indonesia to take steps to shut down its coal power plants. A number of initiatives have been agreed to support Indonesia as it undertakes this endeavor.

A truck unloads palm shells to be mixed with coal at the Sintang Coal Power Plant in Sintang district, West Kalimantan, on Tuesday (12/10/2021). The facility is one of several power plants that uses co-firing, using large palm shells as biomass that saves costs of up to 10percent on coal.

BADUNG, KOMPAS – The cost of energy transition in the power generation sector, which is dependent on fossil fuels, will not be cheap. However, a number of collaborative initiatives kick-started at the Group of 20 Summit have given Indonesia the financial support it needs to begin the process of shutting down its coal power plants to prove its seriousness in reducing carbon emissions.

The funding sources are the Just Energy Transition Partnership (JETP) that combines US$20 billion (Rp 310 trillion) from public and private financing partnerships, as well as $500 million, equivalent to Rp 7.7 trillion, from the Energy Transition Mechanism (ETM). The two initiatives were launched on the sidelines of the G20 Bali Summit in Nusa Dua, Badung regency.

Indonesia received funding from the United States and Japan through the JETP. Meanwhile, the ETM is being provided with the support of multilateral development banks such as the Asian Development Bank (ADB), Islamic Development Bank (IsDB), and the World Bank (WB).

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Through the JETP, the Indonesian government would be working with teams from the US and Japan over the next six months, developing an investment plan to accelerate its zero emissions target in the nation's energy sector to achieve its goals 10 years earlier in 2050 from 2060 previously, Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan told a press conference in Nusa Dua on Tuesday (15/11/2022).

Luhut did not disclose which power plants would be retired earlier than scheduled under the JETP scheme. However, the government was targeting shutting down 5.2 gigawatts (GW) of its coal power plants. The public-private financing scheme would cover a period of 3 to 5 years involving grants, concessional loans, guarantees and private investments.

KOMPAS/HENDRA A SETYAWAN

Coordinator Maritime Affairs and Investment Minister Luhut Pandjaitan (right) holds a press conference on Tuesday (15/11/2022) with John Morton, climate counselor to the United States Secretary of the Treasury, on the sidelines of the G20 Summit in Nusa Dua, Bali. The Indonesian government announced the results of a cooperation deal with the US and Japan, which have agreed to help the country with its energy transition through the Just Energy Transition Partnership (JETP), with initial pledge of US$20 billion to retire its coal power plants early.

“We have a lot to do in [the next] six months. We have an idea of what this partnership will be like, but it will take time to finalize. [In terms of] the schedule of its termination, the portion of the loan will we get, how profitable will be the interest rate we will get, all of that will be discussed later," said Luhut.

He added that Indonesia presented four conditions during the negotiation stage. The first was that any energy transition policy would not disrupt Indonesia's economic growth. Second, support should be in the form of low-cost technology. Third, any energy transition must be done at the appropriate time. Finally, the loans provided must come from countries with good credit ratings.

"I continue to emphasize this: Do not disrupt our economic growth. We have to be careful and do this [energy transition] gradually. It is not an easy job, but I am sure we can achieve the target that we want," Luhut said.

A number of G20 heads of state have also voiced their support for the initial steps in the energy transition.

According to John Morton, climate counselor to the United States Secretary of the Treasury, the goal was to use the $20 billion public-private funding cooperation to reduce carbon emissions by up to 300 megatonnes in 2022-2030 and by more than 2 gigatons in 2022-2060.

"The real work has just begun. We have six months to think about a comprehensive plan to direct this incoming investment within a 3-5 year target," said Morton, who appeared at the joint press conference with Luhut.

A number of G20 heads of state have also voiced their support for the initial steps in the energy transition. US President Joe Biden said Indonesia had shown great ambition in realize the JETP partnership.

"It shows how a country can reduce emissions and develop renewable energy, but also create quality jobs and protect people's livelihoods," Biden said.

Activists from the Indonesian Forum for the Environment (Walhi) hold up posters and objects during a protest rally on Tuesday (1/11/2022) in front of the Japan Embassy in Jakarta. The activists were protesting the Japanese government for promoting through its energy investments technologies such as hydrogen and ammonia co-firing, carbon capture and storage (CCS), and the use of liquefied natural gas (LNG), which they deemed were false solutions for tackling climate issues.

Pilot Project

In addition to the JETP, the government received funds from the ETM to administer "lethal injections" to its coal power plants, with the 660-megawatt (MW) Cirebon-1 in Cirebon, West Java, to be the first to be retired.

Finance Minister Sri Mulyani Indrawati said the pledges thus far totaled $500 million, equivalent to Rp 7.7 trillion. The amount, she added, would eventually be increased to $4 billion, with the funds to be mobilized to shutting down all 15 GW coal power plants by 2060.

Sri Mulyani said the funding program would be used as a benchmark by every stakeholder interested in developing new and renewable forms of energy to replace the fossil energy that still dominated energy consumption in Indonesia.

...any efforts to retire a coal power plant or to develop new and renewable energy should be done in such a way that they would not harm Indonesia's energy security.

“All stakeholders, whether [donors], multilateral development banks, bilateral [cooperation], or the private sector, will be subject to the same regulatory schemes for things like how much money is needed, who will pay, and where they can contribute," she said.

At the same time, even though the energy transition had become a necessity, any efforts to retire a coal power plant or to develop new and renewable energy should be done in such a way that they would not harm Indonesia's energy security.

"This has to be a win-win solution. A win-win for [state electricity company] PLN from a financial perspective, a win-win for the community in terms of clean and cheap energy, and a win-win for the world, because doing so will allow us to reduce carbon emissions," Sri Mulyani said.

ADB's presentation stated that the Cirebon-1 coal power plant was chosen as the first candidate for early retirement under the ETM was because it met the age criteria and had the right financial structure for refinancing.

Up to 30 million tonnes in carbon emissions can be reduced by shutting down the Cirebon-1 coal power plant 15 years earlier than scheduled, or the equivalent of removing 800,000 cars from roads. Financing for the Cirebon-1 early retirement project comes from funds managed by the ADB. Meanwhile, the number of financial and philanthropic institutions that have expressed intent to donate continues to grow.

The #CleanIndonesia civil society movement has responded positively to this "tidal wave" of funding. However, the organizations in the movement also noted that any investments through the JETP and ETM facilities must be managed in a transparent and participatory manner.

Tata Mustasya, the climate and energy campaign coordinator at Greenpeace Southeast Asia, said the JETP facility should not be used to justify the continued use of coal power plants in a "greener" way.

Tata also highlighted the ambiguous government regulations issued so far in promoting its energy transition efforts.

"This funding [scheme] should strictly prohibit all new coal power plants and provide disincentives in the coal sector. There needs to be clear regulatory support to increase the development of renewable energy and to push for reform from PLN," Tata said.

Meanwhile, Asia Trend program manager and researcher Andri Prasetiyo expressed concerns that funding through international cooperation could place a heavier burden on Indonesian debt. Funding schemes that drew heavily on commercial loans could burden the energy transition in developing countries.

According to Andri, climate financing schemes such as the JETP should involve grants and soft loans, and not commercial loans that could burden the government with new debt.

"I am worried that the JETP may fail to support the most critical elements of a just transition if the scheme turns out to be more debt-intensive and does not provide a sufficient portion of grants or soft loans for developing countries," he said.

This article was translated by Prasiddha Gustanto.