'Why would they build another one?': Indonesia ramps up clean energy while adding coal power plants

CIREBON, Indonesia: For more than a decade, the fishermen in Kanci village, on the outskirts of the industrial city of Cirebon, have seen their catch of mussels, shrimp and fish decline. More worryingly, they have seen cases of respiratory illness rise, particularly among children and the elderly.

The culprit, residents suspect, is the 660 megawatt coal-fired power plant nearby, whose towering chimney has been spewing thick plumes of smoke 24/7 since it became operational in 2012.

“The power plant is killing us slowly,” a Kanci resident, Mr Sarjum, told CNA.

The 44-year-old said he had to leave his fishing days behind two years after the plant began operating; the sea had become too polluted with waste discharged from the plant, as well as slurry leaking from the steady stream of coal barges docking at the plant’s jetty.

Mr Sarjum, who like many Indonesians goes by one name, now works as a welder at a metal workshop. Other fishermen in his village have also looked for work elsewhere.

The plant’s operator disputed these claims, saying it has strict environmental measures. 

But from satellite imagery taken in 2022, researchers have found a concentration of pollutants including nitrogen dioxide and fine particulate matter around the plant, operated by PT Cirebon Electric Power.

In September last year, Indonesia announced the Cirebon 1 plant was one of two that it would retire in 2037. The other is a 700 megawatt plant 225km away in the town of Pelabuhan Ratu.

Indonesia has been touting the early retirement of the two power plants as a sign of its commitment to slash carbon emissions — a plan showcased in a document it is submitting to countries that have pledged a total of US$20 billion for its decarbonisation efforts.

The document, the Comprehensive Investment and Policy Plan (CIPP) for Indonesia’s Just Energy Transition Partnership (JETP), was officially launched on Nov 21 and outlines Indonesia’s ambition to become net-zero, which means it has to absorb as much carbon as it emits, by 2060.

NEW, BIGGER COAL PLANT RAISES QUESTIONS

The planned early retirement of Cirebon 1 should have been good news for nearby residents, except another bigger coal-fired power plant, the 1,000 megawatt Cirebon 2, began commercial operations in May this year.

This, analysts say, calls into doubt whether the world’s fifth biggest coal producer will be able to keep its pledge of becoming net-zero by 2060. 

Pundits pointed out that Indonesia will never reach this goal without retiring all 234 of its coal-fired power plants, and halting the 14 with a combined capacity of 19.8 gigawatts in the pipeline.

Indonesia’s energy sector produced around 600 million tonnes of carbon dioxide in 2021, making it the ninth-largest emitter, according to the International Energy Agency. Coal, the dirtiest fossil fuel, provides about 52 per cent of Indonesia’s electricity, according to the JETP document.

But experts also agreed that transitioning to cleaner energy is no easy feat and comes with a hefty price tag.

This puts Indonesia in a tough spot as it tries to balance decarbonising the grid and keeping electricity affordable in the world’s fourth most populous country where, according to the World Bank, 6.9 million people earn less than US$2 a day.

As part of its goal to become carbon neutral, Indonesia plans to deploy more solar farms and wind turbines to generate electricity and eventually reduce the use of coal to zero by 2050.

The country has pledged to boost electricity production from solar farms from 0.1 gigawatt in 2022 to 29.3 gigawatt in 2030.

This includes building a 192 megawatt floating solar farm on Cirata dam, 115km from the country’s capital Jakarta. Southeast Asia’s biggest floating solar farm, which generates enough power for 50,000 homes, became operational on Nov 9.

Mr Erick Thohir, Indonesia’s acting coordinating minister for maritime and investment said the Cirata solar farm currently occupies just 5 per cent of the dam’s surface and there are plans to quadruple the farm’s capacity.

“Indonesia is making a lot of infrastructure investment to combat air pollution. We will continue to push green energy as part of our short-, medium- and long-term solution,” Mr Erick said at the JETP document launch.

Similar solar farms, floating or otherwise, are being built across the country, including a 1,000 megawatt farm on Bengkalis Island in the Malacca Strait, just off Sumatra.

COAL PRICE CAP “HINDERS ENERGY TRANSITION”

But at the same time, Indonesia plans to keep building new coal-fired power plants up until 2030 when a moratorium kicks in. Beyond that point, it plans to shut down some of its coal-fired power plants or have them converted to run on gas or biomass like wood or agricultural residues.

Officials in Jakarta argue that as a developing nation, Indonesia still needs more coal-fired power plants to keep prices of electricity affordable and spur economic growth.

Mr Leonard Simanjuntak, Indonesia director of environmental campaign group Greenpeace, disagreed. He said the country does not need to build new plants, particularly on its most developed island of Java, where some of the new power plants including Cirebon 2 are located.

“There is already a surplus of electricity in Java. The plants which are in the pipeline must be cancelled,” he told CNA.

Indonesia should focus on renewable energy to meet its future electricity needs, argued Mr Putra Adhiguna of the US-based think tank, Institute for Energy Economics and Financial Analysis (IEEFA).

“Our electricity system is currently too reliant on coal-fired power plants, which already creates an oversupply and in turn creates a disincentive for our electricity provider, PLN, to add more capacity,” he said, referring to Indonesia’s state-owned firm, Perusahaan Listrik Negara.

Another factor “hindering Indonesia’s energy transition efforts”, he said, is the price cap on coal.

Depending on its quality, Indonesia’s energy and mineral resources ministry caps the price of coal for electricity production at US$70 per tonne. The PLN estimates that this year, Indonesia would need 161 million tonnes of coal to feed its power plants. 

The coal price cap makes it difficult for renewable energy to compete. In some countries, the levelised cost of solar energy over a 25- to 30-year life cycle is cheaper than fossil fuels, but that is not the case yet in Indonesia because of the artificial price ceiling for coal.

According to the Jakarta-based think tank Institute for Essential Services Reform (IESR), the levelised cost of electricity from solar is 5.79 US cents per kilowatt hour, while that from coal is 5.68 US cents, making it the cheapest source of energy in the country.

That, however, does not take into account the steep environmental cost of a coal-fired power plant. For every megawatt hour of energy produced, a plant emits 700 to 900 tonnes of carbon dioxide into the atmosphere. This includes facilities that employ newer technology that burns coal at a very high temperature and pressure level.

In contrast, solar farms only generate around 50kg of carbon dioxide per megawatt hour, which comes primarily from the mining of solar panel materials and the production process.

“This is why it is important to retire some coal-fired power plants,” Mr Putra of IEEFA said.

TWO VOLUNTEER FOR EARLY RETIREMENT 

Funding of decarbonisation is another area of uncertainty. Indonesia is hoping the nine countries pledging to lend US$20 billion under the JETP programme — members of the Group of Seven (G7) plus Denmark and Norway — can help expedite the retirement of some of its coal power plants.

The money is needed to compensate the plants’ private shareholders and restructure the loans from foreign governments and lenders.

Officials in Jakarta have so far identified 33 power plants they wish to retire ahead of their intended life cycles provided that they secure funding from the JETP donor countries.

As a show of good faith, Indonesia’s finance ministry agreed to finance the early retirement of the two power plants in Cirebon and Pelabuhan Ratu under its Energy Transition Mechanism (ETM) scheme.

The plants were chosen because their operators volunteered, and not because they are the highest emitters.

But Indonesia should adopt a different approach and prioritise ageing power plants, since newer ones might be costly to refinance, said Mdm Farah Vianda, IESR’s sustainable financing coordinator. “Mind you … JETP is a loan that we need to pay back. So we need to plan (the retirement) carefully,” she said.

Cirebon 1’s operator said it joined the ETM scheme because its shareholders are committed to achieving net-zero emissions. “The commitment varies. Some (shareholders) by 2050; some earlier, some later. But all are committed towards that goal,” Mr Joseph Pangalila, vice-president of PT Cirebon Electric Power.

The early retirement is “not because our emissions are high”, he added. 

Cirebon 1’s emissions are “a third of (the) national standard” and the plant has “strict environmental standards”, he said. The Cirebon 2 plant, meanwhile, is less emissions-intensive and was tendered in 2014, years before Indonesia announced its net-zero ambition, he said. 

“If you go to our site, there is not a speck of dust.”

Mr Joseph said the company is still in talks about how much money Cirebon 1’s Japanese, Korean and Indonesian investors and lenders should be compensated for closing eight years ahead of schedule.

“The size (of the refinancing) is probably around US$250 to US$300 million,” he said.

PHASEDOWN OR PHASEOUT? DEPENDS ON FUNDING

PLN president director Darmawan Prasodjo said in a parliamentary hearing on Nov 15 that if Indonesia is unable to secure international funding, it might convert its power plants to run on other types of energy instead of retiring them entirely ahead of their end of life.

“(PLN and the government) agreed that this wouldn’t be a coal phaseout but a coal phasedown,” he told members of parliament.

Without international funding, the existing coal-fired power plants would be allowed to operate until their contracts with PLN expires, the latest of which is slated for 2050.

After 2050, Mr Darmawan said, the plants which are still fit to run will be mandated to use less pollutive energy sources like natural gas, biomass or green hydrogen, which is hydrogen produced by splitting water into hydrogen and oxygen using renewable electricity.

Energy and Mineral Resources Minister Arifin Tasrif said Indonesia is preparing a law on renewable energy which would make this conversion mandatory. “This law will provide assurance that we intend (to make) new and renewable energy a priority,” he said at the Nov 21 JETP document launch.

MORE INCENTIVES, CARBON TAX NEEDED?

Analysts said Indonesia should introduce policies to incentivise power plants to volunteer for the early retirement programme.

It could remove the price cap on coal, which is the main reason why the levelised cost of renewable energy is currently higher than coal. 

Another way is to introduce a carbon tax, something which Indonesia has been planning for years. Indonesia was supposed to introduce the tax last year but postponed its implementation to 2025, saying it still needs time to make sure the scheme would not clash with existing laws and regulations.

“Without carbon tax, there is really no pressure for companies to make efforts to lower their emission,” said Mr Bhima Yudhistira, executive director of Jakarta-based think tank Centre of Economic and Law Studies (CELIOS).

Under the scheme, a power plant’s emissions are capped at 900 to 1,000 tonnes of carbon dioxide per megawatt hour, depending on its size.

Companies must pay 30,000 rupiah (US$1.90) for every tonne beyond the allowed cap. This is considerably lower than the US$8.15 per tonne businesses must pay in South Africa or the US$55 per tonne in Sweden.

But power plants which exceed this cap can also buy carbon credits from other plants which have not used up their allotted quotas, in a process known as carbon trading. 

Indonesia launched the country’s first carbon trading market in September.

But carbon trading is not a solution to the climate crisis, said Mr Leonard of Greenpeace. “Everyone should work together to lower their emission, (instead of) trading allotted quotas so less environmentally friendly businesses can pollute more than they should,” he said

Analysts also criticised the leeway given to industries under Indonesia’s net-zero emission efforts.

For example, the proposed cap for off-grid power plants, which generate electricity for limited areas like mines, refineries and factories, is set to 1,900 tonnes of carbon dioxide per megawatt hour.

In addition, the JETP investment proposal does not include efforts to decarbonise hundreds of these industrial-level coal-fired power plants.

This could mean the country misses out on potential economic opportunities. “For example, the United States’ Inflation Reduction Act makes it difficult for Indonesia’s nickel to enter the US’s electric vehicle supply chain because our nickel is mined in an environmentally bad way and coal-fired power plants are used to power its production,” said Mr Bhima.

“So the ball is in Indonesia’s hands. If its (energy transition) target is not ambitious, it will hinder (Indonesia’s) economic growth in the long run.”

In the meantime, residents of Kanci remain sceptical about Indonesia’s decarbonisation pledge. 

They had protested against Cirebon 1’s presence since construction began in 2007, but ended up having a second, larger coal plant in their community.

“If (the government is) really serious about retiring power plants, why would they build another one? They both should retire. Otherwise, this is just for show,” said Mr Sarjum.