How Important is it to Allocate State Funds to Early Retirement of Coal-Fired Power Plants?

Jakarta, October 24, 2023 – Accelerating the early retirement of coal-fired power plants (CFPPs) and establishing renewable energy-based power plants is crucial to achieving our energy transition targets. The government has released financing guidelines outlined in the Regulation of the Minister of Finance (PMK) Number 103 of 2023 to facilitate this process. This regulation aims to provide fiscal support for the energy transition in the electricity sector. It was put into effect on October 13, 2023. According to this regulation, the energy transition platform’s funding can come from the State Budget (APBN) and other legally recognized sources.

The Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, has expressed appreciation for a recent regulation. However, the issuance of the regulation was not unexpected, as the Energy Transition Mechanism (ETM) was established last year, with PT SMI appointed as the ETM Country Platform Manager by the Indonesian government. Additionally, the ETM framework stipulated that the state budget would provide the funding for the early retirement of coal-fired power plants.

“I think the PMK confirms it legally. Legally, this is possible, so it must be budgeted in the APBN. Referring to the PMK, there is also a clause stating that it is following the ability of the APBN. Matters regarding budget priorities and funding sources and others,” said Fabby Tumiwa at the “Energy Corner” event on CNBC Indonesia on Tuesday (24/10/2023).

Furthermore, Fabby Tumiwa emphasized the significance of early retirement of coal-fired power plants due to the threat of climate change. Indonesia is the seventh largest emitter in the world, releasing 1.24 Gt CO2e in 2022. Therefore, Indonesia needs to participate in reducing emissions. The energy sector is one of Indonesia’s significant emissions sources, with the majority coming from CFPP. Fabby hopes that by phasing out CFPP, Indonesia can contribute to the commitment to reduce emissions.

“Funding from APBN sources is required to make the termination of CFPP operation financially feasible. We aim to minimize debt, and using APBN funds can help keep the debt low and make the transaction more visible. However, funding for the retirement of a single CFPP is not limited to just APBN; other options are available depending on the transaction type. The inclusion of APBN funds can help reduce the cost of early retirement of coal-fired power plants,” said Fabby Tumiwa.

According to Fabby Tumiwa, terminating the operations of CFPP is a process that requires proper planning. The guidelines for the early retirement of coal power plants have been outlined in Presidential Regulation (Perpres) 112 of 2022. Fabby emphasized that not all CFPPs will be retired early, as some will end their contract period or economic lifespan.

“When deciding which CFPPs to retire early, several factors should be considered. These include high emissions, low efficiency levels, and an age of over 15 years. If a plant is younger than 15, it may take a long time to see a return on investment, and negotiations may be necessary. It is also important to note that retiring CFPP requires blended finance from various funding sources, not just the state budget. This funding should be structured to make the CFPP financially and technically feasible to stop its operation early,” said Fabby.

Besides the state budget, said Fabby, Indonesia still has funding commitments from developed countries, such as the G7, through the Just Energy Transition Partnership (JETP) framework. However, it is unclear how these commitments will be realized. One obstacle discussed in the JETP is the difference between the market value and book value of PT Perusahaan Listrik Negara (PLN) assets. This issue involves many things, and regulatory changes will be necessary to address it. Moreover, G7 countries are currently focusing on renewable energy funding. Fabby assessed that these two things can be combined to increase renewable energy generation capacity and investment. For instance, if CFPP’s economic age is reduced from 30 to 20 years, 10 years can be dedicated to renewable energy generation. Unfortunately, there is no such regulation in Indonesia. If the government regulates this, Indonesia can benefit from lower costs due to early retirement and increased renewable energy generation capacity.

Early Retirement of Coal Plants a Crucial Step Toward NZE

Direktur Eksekutif Institute for Essential Services Reform (IESR), Fabby Tumiwa

Jakarta, October 20, 2023 – Climate change has become a significant global issue in the 21st century. Reducing greenhouse gas (GHG) emissions and achieving Net Zero Emission (NZE) have become essential objectives. To achieve NZE, switching from fossil fuel-based energy sources like coal to clean and sustainable energy sources is crucial. Therefore, a necessary step towards achieving NZE is the early termination of coal-fired power plants (CFPP).

The Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, mentioned that the Indonesian government has shown greater ambition in transitioning towards clean energy in the last two years. This is evident from the issuance of Presidential Regulation (Perpres) 112/2022, which mandates the Ministry of Energy and Mineral Resources (MEMR) to create a roadmap for decommissioning coal-fired power plants (CFPP). This roadmap must be approved by the Ministry of Finance and Ministry of State-Owned Enterprises. According to Fabby, coal power plants will cease operations by 2050 if we look at these provisions.

“The government is working on a new national energy policy (KEN), intended to replace the existing national energy policy outlined in PP No 79 of 2014. This new policy will serve as a roadmap for the country’s transition towards sustainable and renewable energy sources, particularly in the electricity sector. PT Perusahaan Listrik Negara (PLN) is also developing a new general plan for electricity supply that aligns with the roadmap for energy transition and aims to achieve net-zero emissions by 2050,” explained Fabby at the “Market Review” event broadcast by IDX Channel on Friday (20/10/2023).

Fabby emphasized that the energy transition’s success depends on the availability of proper investment or funding. To accelerate the energy transition, three important steps are required. First, the development of renewable energy should be accelerated. Second, supporting infrastructure such as distribution, transmission, and energy storage should be built to ensure the reliability of the energy system. Third, the operation of CFPP should be terminated early. All these steps are necessary for Indonesia to achieve its national target of having a 34% renewable energy portion by 2030.

“Achieving the target of a high renewable energy mix will be challenging if the capacity of coal-fired power plants in the electricity system is not reduced. An energy transition is necessary to attain the Net Zero Emissions (NZE) goal in the electricity sector by 2050.,” Fabby said.

Fabby said the issuance of Minister of Finance Regulation (PMK) Number 103 of 2023 provides a framework for fiscal support in the electricity sector to accelerate Indonesia’s energy transition. The regulation can also serve as a basis for allocating state budget funds to support the early termination of CFPP operations. This is a significant step, given that Indonesia has launched the Energy Transition Mechanism (ETM) Country Platform, which aims to promote a just and affordable transition in the energy sector. The initial funding for the ETM came from the Asian Development Bank (ADB) and the Climate Investment Fund.

“The platform is currently being utilized to organize the funding for the early retirement of two power plants, namely the privately-owned Cirebon CFPP and PT PLN’s Pelabuhan Ratu CFPP. If both are successfully retired, they will be decommissioned in 2035. According to IESR’s calculations, around 8-9 GW of capacity of coal-fired power plants will need to cease operation. This is noteworthy since there is no plan to end operations before 2030, even though we should. One of the funding sources for the project comes from the state budget, as outlined in the ETM. The issuance of PMK serves as the legal basis for the initiative,” said Fabby.

Fabby stated three things should be considered to carry out early retirement of coal-fired power plants. First, the reliability of the electricity supply is not disrupted. Second, when CFPPs are terminated, it contributes significantly to greenhouse gas (GHG) emissions. Third, when CFPPs are retired, the system has a replacement capacity from renewable energy. 

“To avoid expensive termination costs, it may be worth considering retiring a coal-fired power plant (CFPP) once it has reached 20 years of age. This is especially important because CFPP technology is still subcritical, meaning the emission intensity is very high. Furthermore, these power plants are operated in an electricity system with sufficient power supply, leading to overcapacity,” said Fabby.

Indonesia – China need to Formulate an Energy Transition Financing Partnership at the Belt and Road Initiative Summit

press release

Jakarta, October 17, 2023 – Marking the 10th anniversary of the Belt and Road Initiative (BRI) launch, China is hosting the third BRI International Cooperation Summit or Belt and Road Forum in Beijing on October 17-18, 2023. China’s theme is “High-quality BRI Cooperation: for Common Development and Prosperity” at this year’s summit. The Institute for Essential Services Reform (IESR), has been invited to the BRI Summit agenda and expects a breakthrough in the partnership between Indonesia and China regarding energy transition financing, including renewable energy, early termination of coal-fired power plant operations, green industry, and close collaboration in renewable energy technology to accelerate the energy transition.

The Executive Director of IESR, Fabby Tumiwa in his remarks at the High-Level Seminar Building a New Vision for the Green Silk Road in Beijing organized by the BRI International Green Development Coalition (BRIGC) and Foreign Environmental Cooperation Center (FECO), Ministry of Ecology and Environment of China, revealed that Indonesia needs considerable funding support, around USD 1 trillion, from developed countries and other countries, one of which is China, to achieve net-zero emissions by 2060.

“Financing is crucial to this transition. Accessible and affordable financing options can accelerate the global low-carbon transition, increase the adoption of green technologies, retire emission-intensive assets, and optimize energy asset portfolios,” Fabby said.

IESR believes that China can assist Indonesia in fulfilling its financial requirements to expedite the transition towards cleaner and sustainable energy. 

Direktur Eksekutif IESR, Fabby Tumiwa
Direktur Eksekutif IESR, Fabby Tumiwa

“Through this BRI, China and Indonesia can partner to finance their energy transition. This partnership needs to involve financial institutions, technology providers, and the government to unlock more domestic financing, spur innovation, and drive shared economic prosperity,” Fabby explained.

Fabby believes developing renewable energy is crucial to reducing global emissions and preventing a severe climate crisis. Not only that, massive utilization of renewable energy will also increase Indonesia’s energy security. 

Regarding technology, China is currently at the forefront of developing renewable energy, particularly solar power. In the roadmap for decarbonizing Indonesia’s energy system to achieve the Paris Agreement’s target of zero emissions by 2050, IESR found that Indonesia needs to utilize solar energy through solar PV up to 80% of the energy system in Indonesia by 2050.

“According to IESR’s Deep Decarbonization study, by 2030, renewable energy capacity needs to reach 138 GW, with solar power being the dominant source. On the other hand, China currently controls about 90% of global solar panel manufacturing capacity and half of global wind turbine manufacturing capacity. Therefore, the massive renewable energy market potential in Indonesia can be fulfilled by Chinese companies. At the same time, there is a need to build renewable energy manufacturing capacity and transfer technology to Indonesia. Bilateral cooperation between the two countries can facilitate and accelerate this process,” said Deon Arinaldo, Energy Transformation Program Manager, IESR.

Deon added that China invests in Indonesia’s energy, industrial, and infrastructure sectors. This is an opportunity for both countries to strengthen their cooperation by shifting investment plans currently centered on supporting fossil energy to the development of the renewable energy industry.

Indonesia’s Commitment to Energy Transition is Impacting Financing Opportunities

press release

Jakarta, September 18, 2023 – An energy transition in the electricity sector that prioritizes equitable principles and is affordable for society requires a combination of strategic factors, long-term commitment, and policies that lead to investment opportunities for the development of renewable energy and technological innovation. This was stated by Deon Arinaldo, Program Manager of Energy Transformation, Institute for Essential Services Reform (IESR).

“All forms of investment, especially for energy infrastructure with a lifespan exceeding 20 years, it is essential to have long-term policies and legal certainty in place to ensure success. This is important for project developers and financial institutions to calculate the project risks. Moreover, renewable energy projects require relatively large initial investments compared to other energy sources. By committing to long-term targets and synergies from various existing policies and regulations, the level of investment risk can be reduced so that renewable energy projects remain bankable with low-interest funding,” explained Deon.

Febrio Nathan Kacaribu, Head of the Fiscal Policy Agency, Ministry of Finance of the Republic of Indonesia in the 2023 Indonesia Energy Transition Dialogue (IETD), said that energy transition carried out by a developing country like Indonesia must take place in just and affordably. He assessed that to achieve an Updated Nationally Determined Contribution (NDC) of 29% unconditionally (with its own efforts) in 2030 in the energy sector, it would reach IDR 3,900 trillion.  However, the financial requirements of an Enhanced NDC (ENDC) with an unconditional emission reduction target of 31.89% are still being estimated.

Febrio explained that his party had made several breakthroughs in efforts to finance the energy transition in Indonesia, including expanding investment through green sukuk, with the total investment mobilization from the issuance of green sukuk reaching USD 6.54 billion from the 2018-2022 period as well as implementing several regulatory frameworks in Energy Transition Mechanism (ETM) has been carried out. Febrio emphasized that collaboration for blended finance with the private sector has increasingly great opportunities.

“One of the obstacles for the private sector (to invest in the energy transition, ed) is the lack of a common understanding or taxonomy. This year, with Indonesia as chairman of ASEAN, one of the things agreed was that transition activities would also include the early termination of coal-fired power plant operations, which are included in the transition finance taxonomy. There are green provisions with certain limits that can be financed by the private sector; for example, if early retirement of coal fired power plants (CFPP) before 2040, then the private sector will join in (financing-ed),” said Febrio.

Dadan Kusdiana, Secretary General of the Ministry of Energy and Mineral Resources (MEMR) mentioned that the trend in the cost of renewable energy tends to decrease while fossil energy, such as coal, is increasing. Dadan mentioned, although the investment needs for the energy transition are very large, Indonesia has the potential for renewable energy and various forms of financing, which also come from various international organizations.

“Large investment (for the energy transition, red) is an opportunity to transition the energy sector. Indeed, there will be an increase in costs, but we will feel the benefits of reducing the costs of renewable energy in the long term,” explained Dadan.

Jonathan Habjan, Economic Counselor at the United States Embassy in Indonesia, said that the energy transition is a challenging process and involves many people over a long period, so it needs to be done correctly and efficiently.

“Of course, this will cost a lot of money, require a lot of effort, and change how business is done in many ways,” he said.


Jonathan added that to ensure that the energy transition somewhat takes place, it is necessary to involve people classified as vulnerable, including those who still work in the coal industry.

The Indonesia Clean Energy Forum (ICEF) and the Institute for Essential Services Reform (IESR), in collaboration with the Ministry of Energy and Mineral Resources (MEMR), held the 2023 Indonesia Energy Transition Dialogue (IETD) on 18-20 September 2023.

Transforming the Electricity Sector as a Strategic Step to Accelerate Emission Reduction

press release

Jakarta, September 18, 2023 – The Indonesia Clean Energy Forum (ICEF) and the Institute for Essential Services Reform (IESR) are urging Indonesia to accelerate the transformation of the electricity sector. This has been the focal point of discussion at the 2023 Indonesia Energy Transition Dialogue (IETD), organized by ICEF and IESR in collaboration with the Ministry of Energy and Mineral Resources (MEMR). IESR and ICEF view the energy transition in the electricity sector as a strategic step that will simultaneously reduce emissions in other sectors such as transportation and industry.

“The current focus should be on developing renewable energy to become the backbone of Indonesia’s primary energy. Technological innovation in energy generation from potential renewable sources such as biomass, geothermal, hydro, solar, wind, and others needs to be enhanced,” stated Bambang Brodjonegoro, Chairman of ICEF.

Bambang highlighted that the Indonesian government has demonstrated a clear commitment to energy transition, actively advocating for it in various international and diplomatic forums with the aim of promoting more environmentally friendly cooperation and investments for the energy transition.

Arifin Tasrif, Minister of Energy and Mineral Resources, stated in his remark at IETD 2023 that energy transition requires significant infrastructure transformation, especially for developing countries. He noted that this presents its own challenges in the energy transition process in Indonesia.

“The lack of supportive infrastructure, high investment costs with limited funding are some of the challenges of energy transition in Indonesia. Indonesia collaborates with other countries to address these challenges, providing competitive technologies, sustainable financing accessibility, and human resource capacity building,” explained Arifin.

Yudo Dwinanda Priaadi, Director General of New Renewable Energy and Energy Conservation at the Ministry Of Energy And Mineral Resources, also explained, “Our energy transition funding is obtained through trust; therefore, ongoing programs must align with global plans. Currently, funding for JETP (Just Energy Transition Partnership) is being pursued and refined through discussions between the Indonesian government and the International Partners Group (IPG) in New York, USA.”

Fabby Tumiwa, Executive Director of IESR and ICEF, mentioned that one of the remarkable aspects of IETD 2023 is that it is held in collaboration with MEMR for the first time. He also emphasized that for the energy transition to be fair, safe, and beneficial for all citizens, it requires careful planning and the involvement of all community groups. According to Fabby, the energy transition in the electricity sector is a strategic sector for emission reduction due to three factors: the feasibility of alternative technologies (renewable energy), planned electricity grid integration, and the economic benefits of increasingly affordable renewable energy.

“These technological factors encompass the integration of renewable energy, energy storage solutions, grid integration that can be planned, and the economic benefits of competitive renewable energy technologies compared to fossil fuels,” concluded Fabby.