Coal phase-out plan gets pushback in power-hungry Indonesia

  • Officials and industry in Indonesia have questioned a plan by the national utility to phase out all coal-fired power plants, while clean energy advocates have welcomed the proposal.
  • The main objections to the plan include the high cost of prematurely retiring coal-fired power plants that haven’t achieved a return on investment, and the persistently high price of renewable energy compared to coal in Indonesia.
  • Supporters of the plan say it’s not just economically feasible, but over the long term would work out cheaper than maintaining coal plants, while creating millions of jobs in the renewable energy sector.
  • A glaring inconsistency in the plan, however, is that the utility is at the same time also planning to bring 117 under-construction and planned coal-fired power plants online, negating any notion of a “phase-out.”

JAKARTA — Officials have cast doubts on a government plan that would somehow see Indonesia phase out all its coal-fired power plants while at the same time build more than a hundred new ones, while activists have welcomed the move.

A key criticism of the plan is what to do with the 117 under-construction or planned coal plants, with a combined capacity of 21 gigawatts, that will come online over the next few years.

The plan by state-owned utility PLN calls for retiring all coal plants by 2055, with new plants and those still under construction to be closed down last. But a top official in the office of the chief investments minister says shutting the new ones down prematurely will be far too costly.

“Energy transition needs to be positively beneficial for the country,” Rida Yasser, the minister’s assistant deputy for energy, said in an online event May 28. “So we shouldn’t commit [financial] suicide in order to fix or clean our energy system. We shouldn’t have to incur financial loss to our own country in order to clean our energy.”

Coal plants built between 2020 and 2025 would, under PLN’s plan, become “stranded assets” — i.e. fail to provide a return on the money invested in them — which would cost Indonesia $26 billion, according to a new report by the Indonesian think tank the Institute for Essential Services Reform (IESR).

Rida also questioned the need to shut down coal plants as an emissions-cutting measure, suggesting that Indonesia might actually be a net CO2 absorber and not an emitter. “Is Indonesia truly carbon positive? Has it been proven?” he said.

It has, in fact. Multiple studies and indicators show Indonesia to be a major global emitter. According to the International Energy Agency (IEA), Indonesia’s greenhouse gas emissions increased by 313% in 2018 from 1990 levels. The World Resources Institute (WRI) puts Indonesia in the top 10 of global emitters, responsible for 2% of total emissions, with a quarter of that coming from its electricity sector.

Cheap coal to fuel the economy

Emissions denialism notwithstanding, another objection to the coal phase-out plan is that Indonesia remains one of the few countries where generating electricity from coal is still cheaper than from renewable energy sources like solar or wind.

The latter can cost 12-16 U.S. cents per kilowatt-hour (kWh), compared to 4-6 cents/kWh from coal, according to Bahana Sekuritas, a state-owned investment bank. It also notes the high level of investment needed to construct renewable energy infrastructure as another major hurdle to the adoption of clean energy.

Mulyanto, a lawmaker on the parliamentary commission overseeing energy affairs, said that while he agreed with the need to transition away from coal, his main concern was that such a move would lead to a sharp increase in electricity prices for households.

“Don’t let [the phase-out] be used to justify raising the electricity price during this pandemic that’s still ongoing,” he said. “It’s a pity if the public has to bear the brunt of rising electricity prices.”

Mulyanto said the higher price of renewables would also add to the already considerable financial woes of PLN, which is saddled with 500 trillion rupiah ($35 billion) in debt.

“In the end, to cover the price of electricity that’s not competitive, the government would have to give subsidies to producers of renewable-based electricity,” Mulyanto said.

Associations representing coal miners and coal plant operators have also seized on this point, saying that cheap coal still has a role in powering Indonesia’s economy for the foreseeable future.

Hendra Sianida, executive director of APBI, the coal-mining association, said demand for energy will continue to increase as the economy grows, and that “of course this needs the cheapest energy, and [that’s] coal.”

Arthur Simatupang, chair of APLSI, the association of non-PLN power plant operators, said that rather than being phased out, coal can “complement other energy sources.”

“In my opinion, maybe in the future, it can be studied how to decrease the portion [of coal-fired power plants] by increasing the portion of renewable energy, but not completely eliminating [coal plants],” he said.

Rida said cheap energy is crucial to kick-starting Indonesia’s economy after the economic slump caused by the COVID-19 pandemic, which saw the country fall into its first recession in more than two decades.

“We need to rebound,” he said. “We need all the power we can get.”

View of Suralaya coal power plant in Cilegon city, Banten Province, Indonesia.

Funding the phase-out

Pamela Simamora, a research coordinator at IESR, the think tank that estimated a $26 billion loss from prematurely retired coal plants, said it was valid to question how to compensate the investors and operators.

She pointed to Germany as an example where the federal government is paying companies as part of its own coal phase-out plan, but said this isn’t feasible for a country like Indonesia.

“If we ask the Indonesian government to compensate the independent power producers, it’s difficult because the fiscal burden is huge,” she told Mongabay. “Germany is also aggressively [shutting down coal plants, but] most of the cost is being paid by the federal government because they have big fiscal capacity.”

Still, Pamela said this shouldn’t be used as justification to delay the transition away from coal. She recommended first inventorying the coal plants in Indonesia, and identifying those that are on track to be retired in the next 30 years.

“Maybe the cost to retire [coal plants] is not as big as imagined,” she said. “This needs to be based on data. So far, the government doesn’t have a detailed road map. It’s difficult just to obtain data on all coal power plants in Indonesia, their ages and their capacity. This data is important to measure the financial cost [of retiring them].”

Pamela also said Indonesia could seek funding from industrialized countries to share in the cost of shutting down the plants and adopting renewable energy.

“There are some who propose that developed countries, which have enjoyed the economic benefit of churning out emissions before, have a responsibility to help developing countries retire their coal-fired power plants,” she said.

Industrialized countries agreed in 2010 to pony up $100 billion per year by 2020 to address the climate needs of developing countries; by 2018 they had offered $78.9 billion.

“They have to commit to the $100 billion to help [developing nations],” Pamela said.

Indonesia alone will need an estimated $20 billion to $25 billion per year from now through 2030, and $60 billion per year from 2030 to 2040 in investments in energy transition to achieve zero emissions by 2050, according to the IESR report.

While these are large numbers, the cost of inaction would be much higher, Pamela said, citing the impact of pollution from coal-fired power plants on public health.

“Economically speaking, we calculated that the cost born by the government is actually 20% lower if we decarbonize our economy in accordance to the pathway that we propose, compared to business as usual,” she said.

Growing price gap

Pamela noted that the cost of renewable energy would keep going down, eventually making it cheaper than coal-generated power in Indonesia.

“If Indonesia keeps maintaining coal and not retiring coal-fired power plants earlier, it might actually harm PLN consumers because they will have to pay a higher electricity price,” she said.

As a state-owned company, PLN must cap its rates to consumers and cannot raise them without government approval, even in response to higher energy costs — and even if it incurs losses, which is one of the reasons why it’s so deep in debt.

Another factor that could hike coal-generated electricity prices is a carbon-pricing scheme that the government is trialing at 80 existing plants. Under the program, plants whose emissions exceed a government-set threshold must buy offsets from producers with lower emissions. Again, PLN would be expected to absorb the higher cost rather than pass them on to consumers.

“Even without carbon pricing, renewables have started to become cheaper [than coal],” Pamela said. “With carbon pricing, coal will become even more unaffordable.”


A worker walking by rows of solar panels at the Kayubihi Power Plant in Bangli, Bali. The Kayubihi Power Plant is the only solar-powered plant operating in Bali out of a total of three plants. Image by Anton Muhajir/Mongabay Indonesia.

A new economy’

The IESR report says another economic benefit of switching to renewables is the creation of more jobs: 800,000 new direct jobs in the power sector, it calculates, of which two-thirds will be in solar power generation by 2030. The report projects job growth in the sector to increase to more than 3.2 million in 2050, with solar and battery storage accounting up for 73% of new jobs created that year.

It also says the common argument that solar and wind aren’t sufficiently reliable to provide a steady supply of power, known as intermittency, is increasingly flawed. Experts have pointed out that the problem of intermittency becomes less of a factor the more renewable capacity is built. And since the solar have dropped significantly, operators can overbuild the system to provide enough energy even on cloudy days.

In Indonesia, the only country in Asia that sits on the equator, intermittency in solar is even less of a problem, the IESR report says. The location means the country sees very little seasonal or daily variations in solar output, which effectively means “the security of supply is guaranteed,” the report says.

In fact, it adds, Indonesia could generate 100% of its electricity from renewable energy. And if it can achieve that by 2045, it can become a net-zero carbon emitter by 2050, according to the report.

IESR executive director Fabby Tumiwa cited Vietnam as an example of a Southeast Asian country that has aggressively grown its renewable capacity — by a factor of 100 over the last two years.

“So actually we can [follow Vietnam’s example],” he said. “We can meet our energy demand reliably and sustainably, with no blackouts.”

Fabby said a future with 100% renewables would also usher in higher-quality economic growth.

“With investment in renewables, we can build a new industry that can replace the fossil fuel industry that has entered its sunset phase now,” he said. “So we can create a new economy, one that can support green economic growth.”