November 4, 2022
JAKARTA – The government has taken another step forward in its plan to retire coal-fired power plants. State-owned electricity monopoly PLN has laid out three ways to do this: Writing the plants off its books; a spin-off with blended financing; or independent power producer (IPP) refinancing.
While Europe is heading back to coal amid the current energy crisis as a result of the Ukraine war, this sounds like another bold move from Southeast Asia’s largest economy to prove its commitment to its net-zero emissions goal.
PLN aims to end the operation of a combined 6.7 gigawatts of coal plants by 2040. About 3.2 GW of the plants will end their lifetimes as scheduled while the rest will be retired sooner than their operational life spans.
In June, PLN canceled a 1-GW project in Indramayu, West Java, a mutual decision with the Japanese government, the investor in the project, as both agreed to reduce the use of fossil fuels. It will not create any problem since Java already has an electricity oversupply.
The new financing plans, however, are trickier. Writing-off looks the easiest but without substantial renewable energy as a substitute it will spell trouble, especially outside of Java, where provinces possess just about adequate power supply.
In other countries, an operator and its investors only agree to do this when the country has a developed electricity market with many alternative sources of energy. This is unfortunately not the case for Indonesia as renewable energy remains expensive with few incentives for investors and private operators.
A spin-off or IPP refinancing are basically selling the coal plants to another party, most likely a private company or a consortium of public-private funding. The coal plants will no longer belong to PLN but they will continue to be operational.
The electricity firm and state coal miner PT Bukit Asam (PTBA) are studying the possibility of using a spin-off with a blended financing scheme to transfer ownership of PLN’s Pelabuhan Ratu power plant to the mining company. It is planned that PTBA will cut the plant’s operational life from 24 to 15 years.
The market responded poorly to the initiative, with PTBA’s share price dropping on the stock market right after the announcement of the plan. The reason is pretty clear. How can we expect to retire a coal plant when it is handed to a coalminer?
The spin-off scheme and the IPP refinancing also pin hopes on an Energy Transition Mechanism (ETM), a funding platform managed by PT Sarana Multi Infrastruktur (SMI), to finance the early retirement of coal projects, as well as building renewable energy power grids.
Another problem is while the financing schemes are buying these plants, they cannot be shut down unless Indonesia already has renewable energy ready.
Without significant progress in the development of renewable energy, efforts to retire the coal plants mean taking them off PLN’s books, rather than reducing the country’s emissions.
With its Group of 20 presidency this year, Indonesia has promoted its energy-transition plan, which is conveniently coupled with its ambition to become an electric vehicle hub.
But as its presidency comes to an end, unfortunately there has not been anything significant or fundamental to yield from the transition plan.
We may expect the curtains to come down on the G20 presidency with nothing to follow up next year when Indonesia is no longer in the spotlight.