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.

Calculating the Costs of Early Termination of Coal Power Plant and Other Decarbonization Measures

Jakarta, 11 October 2023 – Early termination of coal-fired power plant (CFPP) operation from the natural CFPP retirement year is a more cost-effective approach than extending the life of coal CFPP with the addition of carbon capture and storage (CCS) technology. It was stated by Fadhil Ahmad Qamar, Program Staff for the Clean, Affordable, and Secure Energy (CASE) project for Southeast Asia (SEA), Institute for Essential Services Reform (IESR), at Indonesia Sustainable Energy Week (ISEW) 2023.

Fadhil mentioned that adding CCS technology to power plants tends to be expensive due to the high procurement costs and initial capital expenditure (Capex) and operating expenditure (Opex). Moreover, shutting down coal power plants can result in similar reductions in emissions as implementing CCS but at a lower cost.

“Appropriate carbon pricing must be applied alongside innovative financing to attach economic value to the advantages of reducing emissions through the early termination of coal power plant operations and utilization of CCS technology. This will prevent any burden on the state budget,” said Fadhil.

On the same occasion, Raditya Wiranegara, Senior Analyst, IESR, also emphasized again the social and economic impacts of the early termination of coal power plant operations are crucial, primarily when the local communities rely heavily on these operations for their economic activities. Therefore, policymakers must adopt an approach to formulating policies for the cessation of coal power plant operations based on reliable data on the plants’ generating assets and their external costs. These external costs include social costs associated with local pollution produced by coal power plants.

“It is crucial to include the plan for early termination of coal-fired power plants in the RPJPN. This will enable us to prepare a social safety network and estimate the required budget to minimize the impact of ending coal-fired power plant operations on the communities around the plant and producing areas. Additionally, we should consider taking anticipatory measures such as preparing to shift workers from coal-fired power plants to renewable energy-based power plants. All of these steps can be included in the RPJPN,” explained Raditya.

Jakarta Post | Donor Countries’ Aversion to Coal Retirement Could Render JETP ‘Meaningless’

The government has again expressed its doubt that the International Partners Group (IPG), a coalition of Western countries coled by the United States and Japan, is willing to help fund the retirement of Indonesia’s coal-fired power plants, which would signal a major setback to the country achieving its emissions reduction goal.

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Warta Ekonomi | IESR Estimates That 5 GW of Coal-Fired Power Plants Will Not Be Able to Recieve Funding from China

Indonesia needs to anticipate the changing times in the coal industry, which is showing a global declining trend. In a seminar titled “Sunset of Coal-Fired Power Plants and the Coal Industry,” Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), conveyed that coal is currently experiencing a significant decline.

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