Indonesia made headlines last week when it unveiled plans to phase out anthrax and achieve carbon neutrality by 2060, a move that surprised energy experts watching with deep concern the country’s rapid expansion of fossil fuels in recent years.
The Director General of the Indonesian Ministry of Energy and Mineral Resources mentionned On Thursday, the government will not approve new coal projects and only companies already under construction or having reached financial close will be launched.
This reaffirmed a commitment made in early May by the utility Perusahaan Listrik Negara (PLN) that there would be no more new thermal power plants after an ongoing program to add 35 gigawatts (GW) to the national grid – 60% of which comes from coal – is completed in 2023.
The Crown corporation has promised become carbon neutral by 2050, a goal it aims to achieve by phasing out of coal-fired electricity overtime. It would remove a total of 49 GW of coal-fired power plants by 2056.
Data from research firm Fitch Solutions indicates that more than 15 GW of coal projects under the 35 GW program are already under construction or have reached financial close. In August 2020, a quarter of the device had been completed. This means that none of the factories in the program, deployed in 2015, are under penalty of cancellation.
The plan to stop the development of new coal was rented Signs that Southeast Asia’s largest economy, which has long resisted the global shift from fossil fuels, is stepping up efforts to reduce emissions, following the critical local media about the country’s lack of climate ambition.
To meet its climate ambitions, Indonesia is also ruminate the introduction of a carbon tax for emissions from factories, vehicles and carbon-intensive industries, including power generation.
Daine Loh, energy and renewable energy analyst at Fitch Solutions in Singapore, said heightened awareness of climate threats was a key factor in Indonesia’s turnaround, as was the growing challenge of securing funding for coal projects.
“Indonesia relies on foreign direct investment to support its energy projects. Now that some of the world’s major coal financiers, such as Japan and South Korea, have announced their intention to tighten their coal lending policies, it may become much more difficult to secure financing for coal projects ”, she declared.
A moratorium on coal-fired electricity would bode well for the country’s renewable energy transition, reflecting an upward trend in Southeast Asia as more governments scramble to respond to economic developments and fast policies, said Liming Qiao, director for Asia at the Global Wind Energy Council (GWEC), an industry association.
PLN looks more than tripling its renewable generation capacity, from the current 7.9 GW to 24.1 GW, by 2030. By 2060, it considering that 53% of the expected energy demand will come from solar and wind energy, compared to less than 1% currently.
“It was common to say that the energy transition is not happening in Southeast Asia,” Qiao said. “But what has happened over the past two years has shown that, on the contrary, governments are moving – some faster, others slower – in this general direction.”
But there are several question marks over Indonesia’s abandonment of coal, not least due to PLN’s notoriously opaque planning processes.
The announcement that no new coal will be approved currently has no legal status, said Elrika Hamdi, energy finance specialist at the Institute for Energy Economics and Financial Analysis (IEEFA) in Indonesia.
Enshrining the commitment in a binding policy is necessary to ensure that authorities cannot reverse the announcement, she said. This should also be reflected in PLN’s upcoming Electricity Supply Plan (RUPTL), a document that will chart the course for the country’s electricity development through 2029, she added.
“We hope that PLN and the government will stay true to their word,” Putra Adhiguna, Indonesia-based energy economics and policy specialist at IEEFA. “It is to be welcomed that some coal-fired power plants have disappeared from the planning documents. But with PLN planning power plants come and go sometimes, so we hope this is a long term commitment.
Another problem is PLN’s “delicate definition” of the projects it considers to be under construction, Hamdi said. Projects that are inactive and could be delayed for years may fall into this category. The problem is, the longer the projects, the higher the risk of them becoming stranded assets, some experts suggesting that solar energy coupled with storage and wind farms will produce electricity cheaper than coal by 2027.
Difficult times for renewable energies
To develop renewable energy, Indonesia must also make the necessary policy changes to address the lingering problems. regulatory uncertainties which have deterred investors and hampered greater private sector involvement. Like other emerging markets, Indonesia will not be able to bear the cost of its energy transition on its own.
Industry players have long awaited more favorable policies. For example, the presidential regulation on the purchase price of electricity from renewable energy sources, which should provide incentives and set the pricing mechanism for clean energy projects, has not yet been finalized. after more than a year of deliberations in parliament, Loh said.
Amid the lingering political challenges, several clean energy projects included in past electricity development plans have reportedly reached a stop, and only a fraction of the estimated 442 GW of renewable energy potential has been tapped.
In 2020, the share of coal in the archipelago’s energy mix Pink at 38%, against 37.1% the previous year, while the development of renewable energies has was at an average of 500 megawatts (MW) per year in recent years, which experts say will not be enough to meet the country’s target of 23% renewables in the energy mix by 2025.
“Indonesia is very unlikely to meet its renewable energy target. They are very far from it now, ”Loh said.
There is also a controversy over what the government considers to be “new and renewable” energy, in which it lumps renewables like solar, geothermal and hydropower, but also controversial sources like biomass, palm oil-based biofuels, gasified coal and, theoretically, nuclear.
In the hope of harnessing the capacity of its coal-fired power plant, PLN has would have has devoted considerable planning resources to exploring biomass co-combustion – which refers to adding biomass as a partial replacement fuel in coal-fired boilers – while ignoring opportunities to actively engage with investors and developers on the potential of renewable energy auctions on an industrial scale.
IEEFA warned that Indonesia’s big bet on biomass co-combustion could backfire, raise questions on economic feasibility, stability of raw material supply and technical challenges of technology in a report released earlier this year.
Not ambitious enough
For some experts, PLN’s ambitions do not go far enough either, with environmentalists questioning the decision to give the green light to the factories in the project.
“Indonesia is taking a step in the right direction by not approving any new coal-fired power plants,” said Sisilia Dewi, Indonesia team leader at the international environmental organization 350.org. But, she told Eco-Business, there hasn’t been a review of ongoing projects, which will block many more shows for decades.
In addition, allowing new coal capacity to be built where PLN already has too much will put more financial pressure on the utility, Adhiguna said. Due to poor planning and inflated demand forecasts, the Java-Bali grid, the utility’s most extensive transmission network, has been plagued by excess generation capacity, which not only results in substantial costs for the utility. PLN, but also leaves little room for renewable energies to develop, except in the eastern islands of the country.
Terminate existing businesses It’s no small feat, according to Nuki Agya Utama, executive director of the Asean Center for Energy, a Jakarta-based energy think tank. “It is difficult to stop a project where contracts have been signed,” he said.
Still, Hamdi said it was possible for PLN to invoke the Covid-19 pandemic as a force majeure event. Force majeure is a common clause in power purchase contracts which releases both parties from any liability when an extraordinary circumstance beyond their control prevents them from fulfilling their obligations under the contract.
Hamdi said Indonesia needs to rethink energy planning and implement modern strategies that allow more renewables to connect, such as demand side management, increased interconnectivity and more robust transmission infrastructure.
To make room for cleaner alternatives, PLN could be more aggressive in decommissioning old coal-fired power plants, some of which were built in the 1970s and are very polluting and expensive to operate, she said. The company released a list of factories slated for retirement by 2030, but some of Indonesia’s oldest factories were not included in the plan, she said.
“Many of PLN’s coal-fired power stations are already very old. It is time for them to retire, ”she said.
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