Exploring Early Termination of Coal Power Plant Operations

press release

Jakarta, November 15, 2023 – The government is taking steps on Presidential Regulation (Perpres) No. 112/2022 concerning the Acceleration of Renewable Energy Development for Electricity Supply by drafting a road map for the operational termination of coal-fired power plants. The Institute for Essential Services Reform (IESR) views preparing a road map for the early termination of coal power plant operations as a first step to encourage renewable energy development. Furthermore, after the road map is determined,  the government should prepare a regulatory framework that can support the implementation of a financing structure or scheme for the operational termination of coal-fired power plants in Indonesia.

Deon Arinaldo, Program Manager of Energy Transformation at IESR, mentioned that there have been several proposed structures for terminating coal-fired power plants (CFPP) operations, such as write-offs or deletion of CFPP assets from company records because they are considered no longer economical or for example, spin-offs, namely the sale of assets to a new company to manage these assets with a shorter operating period. In addition, according to him, the government needs to make several pilot projects for the termination of the ongoing CFPP operations, such as the Cirebon CFPP, as a proof of concept and provide certainty to PLN and Independent Power Producers (IPP) as CFPP asset owners.

“Apart from a clear scheme or structure in the early termination of coal-fired power plant operations, a mechanism is also needed to allocate the funding obtained from the early termination of the power plant to renewable energy plants. The current regulations in Indonesia do not allow this. Therefore, it is necessary to conduct a thorough study and propose changes to allow the use of renewable energy funding, which is cost-effective, for retiring CFPP assets,” Deon said at the Enlit Asia panel discussion entitled “Leapfrogging to NZE: Accessing ASEAN readiness to retrofit or early retire coal fleets” (15/11).

Deon sees that a significant amount of work still needs to be done concerning the early retirement of CFPP. Some of the tasks include ensuring a legal framework that explicitly states that the early termination of CFPP operations is part of the country’s energy transition policy aimed at reducing emissions. Additionally, there needs to be regulations that permit modification of the power purchase agreement (PJBL) and other related tasks.

“It is even better if the strategy at the CFPP is part of an energy transition effort that wants to integrate renewable energy on a large scale to reduce GHG emissions. If the goal is like that, CFPP assets will be optimized to ensure renewable energy can enter the electricity mix quickly and cheaply. For example, instead of waiting to be retired, CFPP can be operated flexibly to help maintain system stability and reliability as the mix of intermittent solar and wind power increases,” Deon added.

Draft CIPP Targets 44 Percent Renewable Energy Mix by 2030

Jakarta, November 2, 2023 – The government has released the draft of the Comprehensive Investment and Policy Plan (CIPP) in the Just Energy Transition Partnership (JETP) for public consultation on Wednesday (1/11/2023). 

The Institute for Essential Services Reform (IESR) has acknowledged some changes in the CIPP document, particularly the significant increase in the renewable energy mix target to around 44% by 2030, up from 34% in the JETP joint statement last year. However, the CIPP includes establishing a net zero emissions (NZE) target in the electricity sector by 2050. This does not align with the Paris Agreement, which calls for phasing out fossil generation by 2040.

Furthermore, the emission reduction target was focused solely on power plant emissions within the PLN grid, rather than addressing emissions from the overall power sector, to 250 million tons of carbon dioxide equivalent in 2030. This figure does not include the emission reduction target from captive power. If combined, the total peak emission target is much higher than projected during the JETP negotiation last year. Furthermore, the previous draft had a plan to end the operation of coal-fired power plants with a total capacity of 5 GW, but it was removed due to unclear funding sources from the IPG.

IESR assesses that eliminating the plan of early retirement of coal power plants will make it difficult for Indonesia to achieve its net-zero target in 2050 and increase the renewable energy mix after 2030. In the current JETP scenario, emission reductions are achieved by reducing the utilization of coal power plants. Therefore, to achieve the new target of 44% renewable energy mix in 2030, there should be an increase in the flexibility of PLN’s coal power plant operations, and a review of private coal power plant contracts, as well as regulatory support for accelerating the development of renewable energy in Indonesia. The renewable energy development plan, which gives a large portion to geothermal power plant (PLTP) and hydropower (PLTA) and adjusts PLN’s priorities, can pose a risk in achieving this target, considering the development period of geothermal power plant (PLTP) projects, which takes 8 to 12 years and hydropower, which can take 6 to 10 years.

“The elimination of the plan to early retire the operation of 5 GW of coal-fired power plants before 2030 due to the lack of funding support is regrettable. This makes Indonesia’s JETP even further away from the Paris Agreement target. Based on the results of the IESR study, to achieve the previous peak emission target of 290 million tons of carbon dioxide, it is necessary to end 8.6 GW of coal-fired power plants in PLN’s electricity network by 2030. For this reason, it is necessary to conduct further dialog with IPG to explore blended finance with a matching fund scheme where funding for early retirement of CFPP comes from additional funds above IPG’s commitment and is equalized with funds from State Budget and other sources,” explained Executive Director of IESR, Fabby Tumiwa.

IESR also highlighted the CIPP document that has not considered the termination of captive CFPP operations operated by utility companies outside PLN.

“The challenges of captive power plants vary depending on the industry they supply. However, there is already a basis for Presidential Regulation 112/2022, which requires a 35% reduction in emissions and an end of operations by 2050. Therefore, emission reduction strategies and early termination of operations for captive power plants and other business areas need to be reviewed immediately,” said Deon Arinaldo, Program Manager of Energy Transformation, IESR.

Policy reforms and increased commitment from policymakers and stakeholders are crucial in implementing CIPP, which aims for a 44% renewable energy mix by 2030. Indonesia’s renewable energy capacity of 12.6 GW needs to be increased by 62 GW to reach around 75 GW of renewable energy capacity in 2030.

“The procurement process of existing renewable energy plants is still constrained in several ways. Often, this is due to project preparation, including grid connectivity studies, land acquisition, and the completion of relevant permits before the auction process. In Indonesia, this is still a burden on developers, making renewable investment prospects accessible only to certain ‘players’. Policy reforms that emphasize efficiency and ease in the renewable energy plant procurement process are necessary if the capacity expansion target is to be achieved,” said Raditya Wiranegara, Senior Analyst IESR.

Emission reduction efforts listed in this CIPP document also need to emphasize justice aspects by including community participation. Based on IESR’s various studies on mitigating the impact of energy transition in coal-producing areas, the government needs to increase the capacity of national and local government institutions in implementing energy transition and diversifying the economy to a more sustainable economy.

Capacity Building for Sub National Government in the Era of Just Transition

Jakarta, 26 October 2023 – The energy transition currently being discussed will have a significant impact on the use of fossil fuels such as coal. Various countries have committed to reducing the use of fossil fuels as one of the key actions in their energy transition. Fossil producing countries such as Indonesia need to be aware of this, because there will be a decrease in demand from the global market.

South Sumatra and East Kalimantan are the largest coal producing areas in Indonesia. Coal has become a key component in the economic growth of both provinces. In 2022, coal will contribute 30-35% to East Kalimantan’s GRDP and 15% in South Sumatra. These two provinces need a special strategy to get rid of economic dependence on coal. Stefan Boessner, a researcher at the Stockholm Environmental Institute (SEI) in the “National Workshop on a Just Transition: Building Government Capacity for a Sustainable Coal Transition in Indonesia” said that economic alternatives are available and can be developed.

“There have been examples of a region successfully diversifying its economy. The government will need capacity building support from the central government,” he said.

Stefan added that the Indonesian government has started to create a policy framework that will become the legal basis for the energy transition in Indonesia, such as a net zero emission target, regulations on the economic value of carbon, as well as a roadmap for early retirement for coal-fired power plants.

In preparing for this transition, development, economic and energy planning are very important. Involvement of various elements that will be affected by the transition become crucial.

Martha Jessica, Social and Economic Analyst at the Institute for Essential Services Reform (IESR) explained that one of the initial findings of the study currently being conducted by IESR is that there is a capacity gap between the central government and regional governments so that this transition planning is not considered optimal.

“To have a proper planning process, various superior/adequate capacities are needed by the government as the initiator (early actor) and catalyst of the energy transition,” said Martha.

Elisa Arond, SEI researcher, added that regional governments can play a crucial role in supporting a just transition agenda. To do all this, of course local governments will need a certain amount of support from the central government.

“They (sub-national governments-ed) need financial support from both the central government and international institutions, inclusive dialogue involving actors with diverse backgrounds, funding strategies, and transparent access to information about mine closure plans,” explained Elisa.

Tavip Rubiyanto, Associate Expert Policy Analyst as Coordinator of Energy and Mineral Resources, Directorate General of Regional Development, Ministry of Home Affairs, explained why currently the energy transition is not yet underway in the regions because regional authority is still limited.

“For this reason, the Ministry of Home Affairs has initiated the preparation of Presidential Decree no. 11 of 2023 to strengthen regional authority in carrying out government affairs in the ESDM sector, especially in the renewable energy sub-sector,” he said.

Brilian Faisal, representative of the South Sumatra Province Planning Office Bappeda, expressed the hope that the concept of a just energy transition must be related to access and infrastructure.

“In our regions we have not yet made derivative regulations from various regulations related to the energy transition because to make them we need to revise the RUED, which most of the authority is mostly in the MEMR sector,” said Brilian.

Wira Agung Swadana, IESR Green Economy Program Manager stated that this workshop was the right moment to prepare the RPJMN and RPJMD which must include the coal transition agenda.

“This transition requires several things such as planning and funding and must be included in the regional development agenda so that it can receive funding from the government,” said Wira.