The Launching of “Indonesia Sustainable Finance Outlook 2023”

Jakarta, October 17, 2022 – Institute for Essential Services Reform (IESR) launched its latest flagship report titled Indonesia Sustainable Finance Outlook (ISFO) 2023. This report is part of the Indonesia Energy Transition Outlook (IETO) which will be launched in December 2022. ISFO 2023 specifically discusses the development of energy transition financing in Indonesia. In his opening remarks, IESR Executive Director, Fabby Tumiwa stated that Indonesia needs massive and drastic transformation steps to ensure that we are in line with the Paris Agreement target, which is to limit the earth’s temperature to 1.5 degrees.

“In 2030 we have to cut 45% of emissions at 2010 level. For that, massive and drastic transformation efforts must be made. Especially by the G20 countries which are responsible for 85% of the world’s total GHG emissions. Indonesia is ranked 7th as an emitting country originating from the forest and land sector, and energy,” explained Fabby.

A study by IESR and the University of Maryland shows that in order to comply with the 1.5-degree temperature increase limit, the entire capacity of PLTU in Indonesia, totaling 44 GW, must be terminated by 2045. In the period 2022 – 2030, 9.2 GW of PLTU must be retired. The remaining capacity will be phased out until 2045.

IESR estimates the cost to close 9.2 GW of the coal-fired power plant during 2022-2030 at $4.6 billion. Early retirement of all coal-fired power plants in 2045 with an average age of 20 years requires $28 billion, this cost for stranded asset compensation and decommissioning costs.

Farah Vianda, IESR’s Green Economy Program Officer and one of the authors of ISFO 2023 explained that the financing situation for the energy transition in Indonesia is still very low.

“We still lack funding to achieve our renewable energy targets by 2025, to halt coal operations, and to mitigate transition risks,” he said.

Farah added that technically the limited availability of public funding (APBN) and the existence of government policies that support the use of fossil energy sources make financial and investment mobilization for the energy transition quite difficult, in terms of financial institutions themselves there are still few policies that support financial institutions to support transition financing energy.

Ichsan Hafiz Loeksmanto, Lead Author of ISFO 2023, highlighted one of the sustainable financing instruments, namely the carbon tax. According to Ichsan, although he has planned to implement a carbon tax, and a cap & trade mechanism on 92 coal-fired power plants in 2022, the carbon tax revenue is not earmarked. This means that the use of carbon tax revenues has not been devoted to financing climate change mitigation and adaptation efforts.

“The government needs to ensure the allocation of carbon tax revenues for climate mitigation & adaptation, and social safety nets. In addition, there is also a need for public transparency regarding payment of carbon taxes and carbon transactions,” explained Ichsan.

Fransiska Oei, Head of Legal & Regulatory Study Development at Perbanas, said that local financial institutions need at least two supports. First, for financing risk management and capacity building support for risk analysis for renewable energy projects.

“The bank’s ability to analyze the feasibility of the renewable energy project is still lacking, we are trying to work with other organizations (ex: USAID) to understand the risks and their mitigation, besides that maybe we also need regulatory support to ease the prudential banking regulation for this renewable project,” said Fransiska.

Lutfyana Larasati, Senior Analyst of Climate Policy Initiatives, stated that in the future there should be more eligible projects to be included in green bonds or green sukuk. PBI 24 of 2022 has provided greater space for banks and financial institutions to contribute to green financing, especially in projects funded by green bonds and green sukuk.

“We need to synchronize the indicator criteria for the green taxonomy so that there are more (green) projects that are eligible to receive public funding, either through green bonds or green sukuk,” said Lutfyana.

Radian Nurcahyo, Assistant Deputy for Maritime Law and Agreements, Ministry of Maritime Affairs and Investment emphasized that energy is the driving force of the economy. Therefore, the investment for this energy transition must continue to be mobilized.

“The Ministry of Finance has issued blended finance schemes such as the energy transition mechanism and country platform for funding sources for phasing down coal power plants, the SDG Indonesia one platform as green energy development to achieve NZE 2060,” explained Radian.

Bisnis | Financing Indonesia’s Coal Phase Out Still Lacking, IESR Suggest

The Institute for Essential Services Reform (IESR) proposes a financing structure for an early retirement program for coal-based steam power plants (PLTU) combined with a new renewable energy (EBT) investment plan. The proposal is to accommodate the policies of several countries and international financial institutions that cannot fund the early retirement program for the fossil energy-based PLTU.

Read more on Bisnis.com.

Energy Transition Development in the Southeast Asia Region

press release

Jakarta, 1 August 2022 – Achieving the renewable energy mix target of 23% in 2025 in the Southeast Asian region needs strong collaboration among the countries to support the sustainable energy transition and shift the fossil fuel investment into renewable energy.

It was confirmed by Fabby Tumiwa, Executive Director Institute for Essential Services Reform (IESR) on the webinar ‘The State of Southeast Asia Energy Transition’ (29/7). According to him, Southeast Asia is growing to become a region that is entitled the second largest powerful economy in Asia after China so the energy demand will continually increase in the future.

“Many countries in the Southeast Asia region still relied on fossil energy such as coal, gas, and oil. Meanwhile, Southeast Asia is a region that is vulnerable to the impact of the climate crisis. Collaborative measures of transition from fossil into renewable energy in this region may give significant contributions toward global efforts to achieve the Paris Agreement target,” he said.

Indonesia itself has a 23% target for renewable energy mix in 2025 and 31% in 2030. Nonetheless, according to Handriyanti Puspitarini, the IESR study found that if there was no policy change, then Indonesia would only achieve 15% of the renewable energy mix in 2025 and 23% in 2030.

“If we look at the trend from 2013-2021, the renewable energy market has increased though in slow progress. In the meantime, according to the IESR study, Indonesia has technical potential in renewable energy for more than 7.000 GW. Meanwhile, the utilization only reaches 11,2 GW,” Handriyanti explained. 

She examined the duration of permission matters and the complexity of the mechanism for procuring renewable energy projects in Indonesia makes investors reluctant to invest in Indonesia.

“Indonesia needs to increase its political aspect, policy and financial regulation to encourage the massive development of renewable energy, especially based on the results of IESR study, public awareness of the energy transition and climate change begin to increase,” she said.

On the other hand, in 2021, the commitment to increase the renewable energy mix in Malaysia had been conveyed by the Ministry of Energy and Mineral Resources Malaysia through Malaysia’s Energy Transition Plan until 2040.

“Malaysia increased the renewable energy mix target from 20% in 2025 to 31% in 2025 and 40% in 2030. Malaysia’s commitment would no longer establish a new CFPP to achieve carbon neutrality as soon as possible by 2050,” explained Anthony Tan, Executive Officer (Sustainability & Finance), All Party Parliamentary Group Malaysia on Sustainable Development Goals (APPGM-SDG) at the same occasion.

However, according to him, the Malaysian government also needs to encourage energy efficiency and holistic sustainable transportation planning.

“Malaysia needs a holistic national energy policy. Besides, Malaysia must develop or change National Automotive Policy to become a holistic National Transport Policy to reduce the utilization of fossil energy in the transport sector,” said Antony.

Vietnam’s commitment to achieving zero emission in 2050 was also conveyed by Nguyen Thi Ha, Sustainable Energy Program Manager at Green Innovation and Development Centre (GREENID). She explained that Vietnam was committed to ceasing the 7-8 GW CFPP operation to support decarbonization in the energy system by increasing the renewable energy mix on offshore wind turbines by 11,7 GW (9,7%) in 2030 and 30 GW onshore wind turbines (10,5) in 2045. The Solar Park itself will achieve 8,7 GW (7,2%) in 2030 and will increase by 20,6% in 2045.

To achieve zero emission, it will need significant investment in the energy sector, transportation, agriculture, and industry.

“According to the World Bank study, the required total financing for decarbonization is approximately USD 114 million in 2022-2040,” Thi Ha explained.

Vietnam has also planned a new strategy to develop an environmentally friendly transportation system.

“Even from 2025, Vietnam will commit to replace 100% of its buses with electric buses and equip it with supportive infrastructure for Vietnam’s electrification of the transportation system,” said Thi Ha.

Power plants in Vietnam are dominated by 57% of coal in 2020, along with a renewable energy mix of 21% in 2020.

Bert Dalusung, Energy Transition Advisor Institute for Climate and Sustainable Cities (ICSC) said that for the first time the Philippines has a clear plan for renewable energy development.

“In this clean energy scenario, the Philippines is targeting a 30% and 50% share of renewable energy in the power generation mix by 2030 and 2040,” said Bert.

Bert added that the Philippines government realized that renewable energy would be a key element in the climate change agenda. Thus, citing President Ferdinand Marcos’ statement, the government will examine all transmission and distribution systems to accommodate the development of renewable energy and lower energy costs for consumers and industry. ***

The Webinar “The State of Southeast Asia’s Energy Transition” is available on the IESR Indonesia YouTube channel.

First-ever just transition plan for coal retirement in Indonesia finds a feasible pathway for a 2045 phase-out

press release

An accelerated plant-by-plant retirement strategy makes solidifying a 2045 coal phase-out target possible. 

Internationally assisted phase-out and a coordinated national approach will support Indonesia’s 2050 net-zero goal and a 1.5ºC global pathway.

Jakarta, Indonesia; Maryland, United States, August 2, 2022—A new first-ever analysis released today by the Center for Global Sustainability (CGS) at the University of Maryland and the Institute for Essential Services Reform (IESR) shows Indonesia can accomplish an accelerated coal phase-out by 2045 with international financial support. The analysis finds that Indonesia must decrease coal power generation by 11% over the next eight years and then ramp up retirement by over 90% before 2040 to retire the country’s 72 coal-fired plants. 

“Our analysis finds that through a just coal transition, Indonesia can take critical actions now that will set the country up for both an accelerated retirement and stronger international climate commitments before COP27,” says Ryna Cui from the Center for Global Sustainability, University of Maryland. “Meanwhile, the financing needed to implement a just coal power phase-out is estimated at 27.5 billion US dollars, which requires strong domestic effort and international support.”

Though Indonesia has committed to ambitious goals of reaching net-zero by 2060 or earlier, and phasing out coal in the 2040s with international assistance, their continued reliance on coal for both domestic energy and foreign exports presents challenges. But with the structured plant-by-plant retirement schedule showcased in this report, Indonesia can head to COP27 this November and signal to the world its commitment by setting a strong and feasible target to phase out coal power by 2045. 

The framework developed in this paper starts with developing pathways for national 2050 net-zero emissions and then structuring clear plant-by-plant retirement pathways through an integrated modeling approach. The retirement schedule is constructed based on an individual plant’s technical, economic, and environmental performance. 

“This analysis offers a detailed plant-by-plant retirement timeline that is financially feasible based on our systematic assessment of the benefits and costs of implementing a just, rapid coal-to-clean energy transition,” says Fabby Tumiwa, Executive Director of IESR. “First, we find that Indonesia can rapidly phase out coal and meet domestic and international goals, but importantly we find that they can do so in a way that benefits the public health and economy.”  

An accelerated retirement will cost over $32 billion through 2050, but the positive benefits from avoided coal power subsidies and health impacts amount to $34.8 and $61.3 billion—2-4 times larger—than the costs of stranded assets, decommissioning of plants, employment transitions, and state coal revenue losses. 

“Indonesia has adopted climate targets in line with international commitments. Today’s paper presents a pathway to help reduce over 2,600 MtCO2 emissions through a coal phase-out,” says Nathan Hultman, Director, Center for Global Sustainability at the University of Maryland. “This contribution will reap significant benefits for not only the Indonesian people but the world; new approaches to international financial support will likely be a critical component to achieve the most rapid transition possible.”

“To realize a 2045 coal phase-out and its economic and societal benefits, the Indonesian government must adopt strong policies that build on political and social momentum towards a clean energy transition,” says Raditya Wiranegara, Senior Researcher, Institute for Essential Services Reform (IESR). “But it is not on Indonesia alone to implement such an accelerated plan. As we head into COP27 in Egypt, where all eyes will be on finance, adaptation, and loss and damages, the international finance community must step up to help deliver on these goals.” 

Responding to this study, Andriah Feby Misna, Director of Various of New and Renewable Energy, said that early retirement of coal phaseout has become the government’s concern towards net zero emissions 2060.

“According to government modeling, the coal phase out will still last until 2056, while encouraging early retirement of coal phaseout outside PLN could be in 2050. If we want to speed it up in 2045, more in-depth calculations are needed,” she says.

Feby said that the government is currently designing a roadmap for early retirement for coal-fired power plants. According to her, the IESR and CGS studies at the University of Maryland can be harmonized with studies currently being carried out by the government. She continues, if there is international assistance, it is hoped that the early retirement of the coal-fired power plants can be accelerated.

To hear from authors, global experts, and policymakers about this new analysis, tune into CGS and IESR’s webinars on Wednesday, August 10, 2022: Financing a Just Coal Phase-Out in Indonesia.

Download the report to learn more about a financing strategy for Indonesia’s coal phase-out.

The research behind this report was funded by Bloomberg Philanthropies. ***

Coal Funding Discontinued, Southeast Asian Countries Must Plan the Energy Transition Measures

press release

Jakarta, 1 August 2022 –Climate mitigation actions by encouraging the use of renewable energy have led countries that fund coal-fired power plants (CFPP) to shift their investment to renewable energy. This transformation will bring implications and challenges that need to be worked on by the countries that have been the destination for fossil energy investment in Southeast Asia.

China, Japan, and South Korea are the top three countries that fund fossil energy projects in Southeast Asia. As much as 123 GW CFPP operated outside China gained financial support or even Engineering, Procurement, and Construction (EPC) support from China. Those fossil energy projects were developed within the last two decades. In September 2021, President Xi pledged to support the developing countries that carry out an energy transition to renewable energy. He also said that China would no longer fund CFPP overseas. Ever since it was declared, as much as 12,8 GW of coal that had been planned to develop was canceled.

Moreover, several companies and domestic financial institutions in China also ended funding coal projects, such as the Bank of China (BOC) which gave up on funding coal mining and new CFPP overseas, except for the projects that had signed the loan agreement, or Tsingshan Holding Group, a major player in the industrial zone overseas, especially in the steel industry, announced that it would not establish new CFPP abroad.

Isabella Suarez, an analyst, at the Center for Research on Energy and Clean Air at the webinar ‘The State of Southeast Asia Energy Transition’ held by the Institute for Essential Services Reform (IESR), explained that for the first time, President Xi’s statement was formulated within China domestic policy. Besides, there is also a progressing narrative to develop together the green development implementation within Belt and Road Initiatives framework.

According to Isabella, what China needs to do to ensure the implementation of its promise is to determine the period and its achievement target. 

“On the other hand, the countries that have received fossil energy project funding need to begin the cancellation of CFPP development and infrastructure & network efficiency, and implement the green development within Belt and Road Initiatives,” said Isabella.

Aside from China and Japan, Dongjae Oh, Program Lead for Climate Finance Solutions for Our Climate (SFOC) explained that South Korea has also become the third largest country in the world that funds CFPP projects. As much as 87% (USD 8,6 million) of the coal downstream funding from South Korea was allocated to Southeast Asia (2011-2020).

In April 2022, the South Korean President declared to stop the new funding for CFPP projects overseas. However, according to Dongjae, South Korea still relied on other fossil energy such as oil and gas.

“If we compare the coal funding that only reaches USD 10 million, oil and gas funding can reach USD 127 million within 10 years,” said Dongjae.

Indonesia becomes one of the largest beneficiaries of oil and gas industries from South Korea. This investment will make the Southeast Asia region shift its energy into oil and gas.

Dongjae added that if it is the case, the Southeast Asia region will fail to achieve the Paris Agreement target as the gas emits a significant amount of greenhouse gas emissions. Besides, sustaining fossil energy using CCS will only increase the energy price.

“The South Korean government and Southeast Asia have to cooperate in intensifying the termination of coal operations and accelerate the transition into renewable energy. On the other side, South Korea must stop coal and gas funding or investment, considering renewable energy prices are getting cheaper,” Dongjae asserted.

Lisa Wijayani, Program Manager Green Economy IESR said that the funding ending in fossil energy from China and South Korea was a concrete step to supporting energy transition globally.

“Indonesia is supposed to benefit from this chance to expand renewable energy development. A clear policy of green taxonomy and green investments should be able to attract investors to shift their funding into the green sector such as renewable energy,” she said. ***

The Webinar “The State of Southeast Asia’s Energy Transition” is available on the IESR Indonesia YouTube channel.

Preparing the Workforce That Will Be Affected by Reduced Demand of Fossil Energy

Jakarta, July 6, 2022 – The global commitment to reduce the use of fossil energy, as well as the increasing climate ambitions of coal-using countries such as China, Japan, South Korea, the United States, the European Union and South Africa have caused global coal demand to fall significantly.

As one of the largest coal exporting countries in the world, Indonesia needs to pay close attention to this. Coal contributes a lot to national non-tax revenues (PNBP), for coal-producing regions, the role of coal commodities for regional income can be very large.

The Institute for Essential Services Reform (IESR) tries to see the implications of the policy of eliminating coal use and the global and domestic climate on the Indonesian economy, especially for workers in the sector through the study “Redefining Future Jobs: Implication of Coal Phase-Out to the Employment Sector and Economic Transformation in Indonesia’s Coal Region”.

This study also aims to see opportunities for economic transformation in coal-dependent areas and provide better welfare for workers. Julius Christian, the author of this study, explained that data from the Ministry of Energy and Mineral Resources showed that in 2020 there were 167,380 workers in the coal mining sector. Demographically, these workers are on average under 40 years old, so they will still be of productive age in the next 10 years.

“In terms of the workforce, because most of them are young, there is an opportunity to conduct training in preparation for entering other industries,” said Julius.

Preparing for economic transformation after the coal economy era is full of challenges but must be done. This is to anticipate the demand for coal which could drop more drastically. Fabby Tumiwa, Executive Director of IESR stated that if the countries of the world had more ambitious climate action to pursue the Paris agreement targets, there would be a 20% reduction in coal demand by 2030, 60% by 2040 and 90% by 2050.

“This decline in production must also be anticipated because it will definitely affect the absorption of labor in the coal sector,” Fabby reminded.

Hendra Sinadia, Executive Director of APBI ICMA (Indonesian Coal Miners Association), also added that to target workers who are potentially affected, it is necessary to map coal reserves by company.

“So that the transformation process is effective and efficient, we can map the reserves for each company so that we can see how long their operating life will be. For small companies, maybe in 2030-2040 their operational period will be finished so it can be prioritized for their workers to receive training,” explained Hendra who was present virtually at the focused group discussion launching the study “Redefining the Future Job”.

IESR: Indonesia Needs Economic Transformation in Coal-Produced Regions

press release

Jakarta, 11 July 2022The demand for coal as a long-term energy source is predicted to decrease significantly. This trend is affected by stronger climate commitment from coal-imported countries to shift into renewable energy. Institute for Essential Services Reform (IESR) in its study even said that if the government’s commitment to reducing emissions was following the Paris Agreement to achieve net-zero emission by 2050, then in 2045, coal would no longer be utilized in Indonesia’s energy system. It demands the government’s commitment to preparing the economic transformation and employment for regions whose income is dominated by the coal sector.

Fabby Tumiwa, Executive Director of IESR said that the enhancement of emissions target in Nationally Determined Contribution (NDC) from countries that utilize coal, such as China, Japan, South Korea, United States, Europe Union, South Africa, and other countries, will affect the reduction to fossil energy projects’ funding. Referring to the Paris Agreement, if whole countries adopt a more aggressive coal phase-out, then in 2030, coal production will drop by 20%, 30% in 2040, and 90% in 2050.

“This production reduction should be anticipated due to the impact on employment and will also affect the national and coal-produced regions’ income. This threat is quite serious considering coal-produced regions do not have many choices for their economic alternative while carrying out post-coal mining economic transformation will take a long time. Now is the time to make a transformation and prepare the foundation to conduct post-coal mining and post-coal power plant economic transformation. The failure to succeed in economic transformation will not only cause a higher unemployment rate but also the decline in economic competitiveness,” said Fabby.

He added that coal-produced regions need to be supported with a particular national policy. IESR even recommended this issue should be prioritized and included in forming RPJMN 2024-2029.

Julius Christian, the author of the IESR study titled Redefining Future Jobs: The implication of the coal phase-out to the employment sector and economic transformation in Indonesia’s coal regions urged the central and coal-produced regions in Indonesia to anticipate the possibility of income reduction and employment opportunities for the workers from the coal sector.

“Collaboration between the central and regional government will be an important note in preparing the long-term economic strategy to realize a more diverse economic structure and no longer depend on coal,” Julius explained.

In 2020, there were approximately 250.000 workers who directly worked in the mining sector. These workers, in general, are aged under 50 years old. Therefore they still could be prepared with various types of training to shift to other employment sectors. Besides, the government also needs to prepare the allowance and social safety net to anticipate the rapid decline in coal demand.

“Coal workers are one of the most impacted groups from this coal decline. However, currently, the workers have not realized the risk they will be facing and have not been included in all energy transition discourse,” added Julius.

Ronald Suryadi, a researcher at IESR who is also writing the report Redefining Future Job, also said that economic transformation needs to be addressed for Indonesia’s provinces that its Gross Regional Domestic Product (GRDP) is mainly gained from the coal sector, such as North Kalimantan that produces 48% national coal supply, South Kalimantan (32%), South Sumatra (9%), North Kalimantan (3%), and Central Kalimantan (3%).

“A gradual economic transformation is not only needed to mitigate the resulting impact, but also to achieve an economic structure that can keep up with the current development in the future,” said Ronald.

IESR pushes for an inclusive planning and strategy formulation process by involving the affected groups, especially the workers and the community around mining areas. The purpose is that economic transformation will be carried out sustainably and correspond to people’s needs. For instance, economic transformation in the coal area can be carried out by modernizing the agricultural sector. Besides, the government also needs to strengthen the existing main industries with a high multiplier effect, such as the food and chemical industries. In addition, the preparation to establish an economy that is centralized on services can be implemented by building infrastructure, restoring the environment, and intensifying human resources.

The IESR study ‘Redefining Future Jobs’ can be downloaded at https://s.id/FutureJobs. ***

Is Indonesia’s Plan on Phasing Its Coal-based Generation Fleet Ambitious Enough?

In the early 90s, a blackout was a common phenomenon in Indonesia. Most of the time, it occurred without further notice from the utility company, PLN. It was even worse for those living outside Java and Sumatra islands. Having been born and bred in Kalimantan, I have witnessed this within the neighbourhood close to where I lived. Almost every household there has an electric generator as a backup for when a blackout is happening. However, the situation changed when the government began ramping up power generation installed capacity throughout the late 90s, spearheaded by the utilisation of coal-fired power plants (CFPPs).

The massive development of these power plants were driven by the abundance supply of inexpensive domestic coal. Consequently, the cost of generation became cheaper than other forms of electricity generation, including natural gas-fired power plants. The development was further propelled by the electricity law no 30/2009, replacing the old law no 15/1985, which allowed private participation in the sector. In Indonesia, the deployment of CFPPs were carried out through three government-backed programmes, namely 35,000 MW and Fast-Track Programme phase 1 & 2. To date, the generation from these power plants contributes to around 65% of Indonesia’s electricity supply. The aIt is not surprising then that one third of Indonesia’s CO2 emissions comes from the sector.

Compounded with the falling cost of renewable electricity generation, the CFPPs would eventually lose their economic competitiveness. This is a situation that is not exclusive within the global context, but also within the Indonesia context. Recent study by BNEF and IESR has projected the falling cost of generation from solar PV to even below the new CFPPs by 2023. By 2040, solar PV cost of generation would be lower than the short marginal running cost (SMRC) of existing CFPPs. Upon realising that, the government has recently published a plan on retiring 9.2 GW of its CFPP fleet by 2030. 5.5 GW of the fleet will be retired early, whilst the rest, i.e. 3.7 GW, will be replaced with renewables. The plan will indeed see the CFPPs off from Indonesia generation mix by 2060. Whilst the initiative is very much appreciated, the plan itself is still quite far from being compatible with the 1.5°C pathway as rectified in the Paris Agreement. The question arises on how to then make the plan more compatible with the pathway.

According to IESR analysis, by keeping what the government has planned, the retirement program could still be made compatible with the pathway. Considering all the economic and societal impacts, the 1.5°C-compatible retirement pathway will see around 21.7 GW of the CFPP fleet, owned by PLN and IPP, to be retired between 2031 – 2040. Between 2041 – 2045, around 12.5 GW of the CFPP fleet will be retired. The analysis also shows that the accelerated CFPP retirement is feasible and beneficial. With the rapid departure of the CFPP fleet from Indonesia generation mixture, the analysis found out that the avoided coal power subsidies and health costs are actually 2 – 3 times larger than the costs on stranded assets, decommissioning, employment transition and state coal revenue losses. It is anticipated that the retirement cost from the accelerated retirement is estimated to be 4.3 billion USD by 2030 and 28 billion USD by 2045. These seemingly large chunks of cost will certainly need significant international support, despite the larger benefits gained in the long run.

Profit and Revenue from Coal to Accelerate Energy Transition

Jakarta, 30 June 2022  As the largest contributor to greenhouse gas (GHG) emissions, coal-fired power plants (CFPP) need to be retired before 2050 and completely substituted with renewable energy. The dominance of CFPP in Indonesia in the electricity sector, amounting to 66% of the electricity mix, should be gradually reduced. Government can use the momentum of rising coal reference prices (HBA) to USD 342/ton in June 2022 by preparing an energy transition mechanism.

The Institute for Essential Services Reform (IESR) views the government and PLN’s plan to maintain CFPP by utilizing clean coal technology, such as supercritical and ultra-supercritical steam power plants, as unacceptable relative to other means to reduce global emissions, such as renewable energy technologies. The direct emission range of CFPP in Indonesia is 800-1200 kgCO2e/MWh, depending on the existing technology. Even the operation of the best CFPP ultra-supercritical technology still produces direct emissions of >700 kgCO2e/MWh, higher than other fossil generators such as gas. It also does not have a significant impact on reducing the national grid emission factor, which is already at ~900kgCO2e/MWh. A strategy using Carbon Capture and Storage/Carbon Capture, Utilization, and Storage (CCS/CCUS) technology will also not significantly reduce GHG emissions and instead have an expensive investment with a low success rate.

“PLN needs to calculate technology options in making the energy transition. CCS/CCUS technology to this day is still quite expensive. The IEA estimates this carbon capture technology to cost $120 per tonne of CO2 or $0.12/kg. The utilization of CCS/CCUS technology will significantly increase the cost of steam power generation, approximately $0.08 – 0.1/kWh. Considering this cost, it is more affordable to close the CFPP early and replace it with solar power plants plus utility-scale batteries. It has a more competitive economy than the CFPP with CCS/CCUS,” explained Fabby Tumiwa, Executive Director of IESR. 

Furthermore, highlighting the use of CCS in two steam power plants at PetraNova and the Boundary Dam in the US, which have not been able to reduce carbon emissions as originally designed, IESR believes that the reliability of using CCS in steam power plants has not been proven. In addition, the life cycle emissions of CFPP with CCS are still relatively large due to the increase in the use of coal to support CCS operations in CFPP. tested

To meet domestic needs only, the government often implements Domestic Market Obligations (DMO) that have dilemmatic consequences.

“Coal supply to the domestic market is limited to a maximum price of USD 70/ton. On the other hand, the renewable energy tariff policy still refers to the Minister of Energy and Mineral Resources Regulation 50/2017 which limits the buying and selling rate of renewable energy to 85% of the Basic Cost of Electricity Supply (BPP). Here, one of the obstacles in the energy transition is the forcing of renewable energy to be cheaper than BPP whose value is dominated by coal power plants with the support of the USD 70/ton DMO regulation,” said Deon Arinaldo, Program Manager of Energy Transformation at IESR.

The coal DMO policy has created an uneven playing field for renewable energy. If the government does not implement the DMO, the price of electricity generation from coal power plants can reach 14-16 cents/kWh if the coal price of 324 USD/ton is continued. This means that without the support of regulations, electricity generation from renewable energy is already cheaper than coal-fired power plants. DMO policies distort the economics of energy generation because they are not based on actual costs. Moreover, it provides a disincentive for companies to accelerate renewable energy that is cheaper and profitable in the long term.

Deon said that the economics of energy generation is calculated from the investment and operating costs that are averaged over the lifetime. When comparing fossil energy and renewable energy, the investment price of renewable energy is expensive at the beginning, but the investment costs will show a predictable downward trend and accelerate with the right policy support. In contrast to fossil energy, which is highly dependent on operational costs, the volatility is very high.

“It is necessary to watch the impact on the cost of electricity generation so that the DMO tariff cannot be revoked because CFPP is already dominant in the electricity system. Preferably, profits and non-tax revenue (PNBP) from the coal mining sector can be partially diverted to encourage the energy transition by gradually reducing the dependence of the electricity system on CFPP and fostering the development of renewable energy. An effective mechanism to take advantage of this will require coordination from the Ministry of Finance, MEMR, and the Ministry of SOEs as well as relevant stakeholders such as PLN and the coal industry,” explained Deon.