Indonesia’s coal retirement program hinges on Cirebon Power deal, say experts

The plant is being considered as a pilot of the coal plant early retirement program under Energy Transition Mechanism, aimed at financing the coal plant retirements and other energy-transition projects in the country.

Yohana Belinda

Yohana Belinda

The Jakarta Post


Workers walk alongside pipelines extending from the 660-megawatt Cirebon coal-fired power plant in West Java, in this undated photo extracted from the Cirebon Power website in 2018. PHOTO: CIREBON POWER WEBSITE/THE JAKARTA POST

October 10, 2023

JAKARTA – The Cirebon 1 coal-fired power plant owned by PT Cirebon Electric Power (Cirebon Power) is deemed to play a crucial role in Indonesia’s energy transition, with experts suggesting that whether other plants joined the government’s early retirement program for coal plants would depend on its success or failure.

The Cirebon 1 plant is being considered as a pilot of the coal plant early retirement program under Energy Transition Mechanism (ETM), a financing platform backed by the Asian Development Bank (ADB) that is aimed at financing the coal plant retirements and other energy-transition projects in the country. Discussions are ongoing on the facility’s potential decommissioning by up to 15 years before the end of its operational lifespan.

Fabby Tumiwa, executive director of the Institute for Essential Services Reform (IESR), said that stakeholders, especially independent power producers (IPPs), were waiting for negotiations to conclude over Cirebon 1’s early retirement deal before looking into the program further.

According to Fabby, stakeholders were also waiting for negotiations to conclude over the potential early retirement of the Pelabuhan Ratu coal plant, which is owned by state electricity firm PT PLN.

“If this fails, people will become skeptical: What should we do? [They will assume] there are no success models, right?” he said on Thursday, stressing, “we must demonstrate that it is doable” on the assumption that retiring coal plants early was possible.

He added that coal power stakeholders would be “distraught” if the initiative to retire the 660-megawatt (MW) Cirebon 1 plant failed.

This would affect other coal power plants in the pipeline for early retirement as well as the Just Energy Transition Partnership (JETP), which had a similar aim, he said.

Read also: Donor countries’ aversion to coal retirement could render JETP ‘meaningless’

Previously, the IESR recommended the early retirement of 86 captive coal-fired power plants belonging to PLN, IPPs and industrial firms.

Fabby said targeting these facilities to pilot the coal retirement program provided a means for energy stakeholders to gain insight into the legal regulations and financial requirements of the program.

He added that many had expected negotiations on the proposed Cirebon 1 early retirement pilot to be finished by mid-year, but this had been pushed back closer to the year-end, so it was understandable that many had decided on a “wait and see” stance.

Read also: Silent, invisible danger at Cirebon coast

Bhima Yudhistira Adhinegara, executive director of the Center of Economic and Law Studies (CELIOS), said if stakeholders failed to agree on the terms for retiring the Cirebon-1 plan early, it could be seen to imply that coal retirement was not worth funding.

“That’s why [the negotiations] must succeed,” Bhima said on Friday. “At present, not everyone wants to participate in the coal retirement [program].”

Reaching a deal over the Cirebon 1 pilot project was also important from the funding standpoint, he added, given the uncertainty of a similar scheme under the JETP facility.

A final deal on the Cirebon 1’s early retirement would serve as a blueprint for funding the ETM early coal retirement scheme.

Bhima added that the government needed to ensure that any early retirement of coal power plants would not significantly impact PLN’s performance in supplying electricity.

Arie Rahmadi, an energy analyst with the National Research and Innovation Agency (BRIN), said on Thursday that Indonesia needed a solid legal foundation to support its coal retirement program so policymakers at the ministerial level would not hesitate to implement it.

“One could include a [provision] to ensure that neither the finance nor the energy and mineral resources ministry will be questioned by law enforcement” over their decision to retire a coal plant early, said Arie, suggesting that such a guarantee could be provided through a presidential regulation (Perpres).

He added that feasibility studies on the ETM must be done in a transparent manner to demonstrate the program’s credibility amid ongoing criticism.

David Elzinga, principal energy specialist for climate change from ADB, said on Friday that the bank could confirm that negotiations with Cirebon Power were progressing, including on commercial terms and related due diligence.

“Transitioning away from fossil energy, which has powered human progress for centuries, is a multi-decade process of significant complexity,” Elzinga said in a statement.

“ETM has the potential to speed up the retirement or repurposing of high emission plants such as Cirebon 1, while supporting the deployment of renewables to help Indonesia meet its climate targets,” he added.

Arief Budiman, deputy CEO of the Indonesia Investment Authority (INA), said on Friday that the sovereign wealth fund, the ADB and Sarana Multi Infrastruktur (SMI), the ETM country platform manager, were currently negotiating with Cirebon Power’s shareholders over the proposal to designate the Cirebon 1 plant as the ETM pilot project.

“Support from various parties is needed, including relevant ministries, PLN as well as other stakeholders, to make the Cirebon ETM a success,” Arief said.

“In addition, a complete study is also needed regarding the plan to replace the electricity lost from Cirebon 1’s early retirement: a grid study, just transition impacts, as well as the environmental and social impacts of the ETM,” he said.

An SMI spokesperson said the company was currently not party to the Cirebon 1 deal, and instead referred The Jakarta Post to INA.

Cirebon 1’s operator Cirebon Power declined to comment on the matter, while one of its shareholders, Indika Energy referred the Post back to the operator.

The Finance Ministry did not immediately respond to the Post’s request for comment.

Asked whether the government still planned to showcase the ETM, including the Cirebon 1 pilot project, at the United Nations’ COP28 climate conference in Dubai on Nov. 30, the Energy and Mineral Resources Ministry secretary-general Dadan Kusdiana replied: “We are preparing for that [event] with the relevant parties.”

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