CEO says clean sources could make up half company’s revenue in 10 to 15 years.
Adaro Energy CEO Garibaldi Thohir says transitioning to renewables is the future but will take time. (Source photos by Koya Jibiki and screenshot from Adaro Energy’s website).
JAKARTA — Indonesian coal mining giant Adaro Energy could generate half its revenue from renewable power as soon as a decade from now as it diversifies away from fossil fuels, its top executive told Nikkei Asia.
But Garibaldi Thohir also said developing countries such as Indonesia need time to transition from coal, with the fuel continuing to play a key role in the country’s energy mix.
Thohir, who is both CEO and president director, said that as the world tries to wean itself off of the carbon-heavy resource, Adaro, one of its biggest miners in Indonesia, “needs to transform from [an] integrated coal and energy company into [one that’s] more green.”
Currently, over 90% of Adaro’s revenues come from coal-related operations. That could drop to 50% in 10 to 15 years as the company ramps up its renewable energy businesses, Thohir, older brother of Erick Thohir, Indonesia’s minister for state-owned enterprises, said in a recent interview.
The acknowledgment of the need to gradually move away from coal by one of Indonesia’s largest miners is a major boost for the Indonesian government’s ambitions to reduce carbon emissions in a country where the coal industry is intertwined in both politics and the economy.
Indonesia pledged in the 2015 Paris climate agreement to cut carbon emissions by 29% by 2030 using its own resources, or 41% with international support. It is targeting net zero carbon emissions by 2060, with plans to stop building coal power plants beyond 2028. Indonesia was also one of the 46 countries which signed up to an agreement to phase out coal power in advanced economies by the 2030s and worldwide by the 2040s at the ongoing 26th U.N. Climate Change Conference of the Parties (COP26).
Southeast Asia’s biggest economy was the world’s eighth largest CO2 emitter in 2019, according to Our World in Data. Coal made up 38.4% of Indonesia’s primary energy supply in 2020, the Ministry of Energy and Mineral Resources says. Oil accounted for 32.8%, gas 17.4% and renewables 11.2%.
The CEO’s comments also come as world leaders met in Glasgow, Scotland for COP26. The gathering has been called the last chance to avert global catastrophe and limit an increase in world temperatures to 1.5 degrees Celsius.
Thohir said Adaro is looking at solar, hydro and hydrogen projects, with details to be laid out later this year.
He also expressed an interest in using the Asian Development Bank’s newly-announced Energy Transition Mechanism, which seeks to retire coal-fired power plants on an accelerated schedule. Adaro has two coal-fired power plants with 260 megawatts of gross power generation capacity, and another 2,000 MW plant under construction with Japanese trading house Itochu and J-Power, Japan’s top coal power producer.
Adaro isn’t the only Indonesian coal miner to plot an entrance into renewables.
Earlier this year, Indika Energy announced a joint venture to enter the solar power business with Fourth Partner Energy Singapore. State-owned Tambang Batubara Bukit Asam last year launched solar panel projects in some of its ex-mining sites and some of the country’s airports — albeit hitting a roadblock as state utility Perusahaan Listrik Negara has not agreed to buy its planned solar output.
Despite the willingness of major coal players to move into renewables, Thohir said developing nations need time for the shift. The Adaro chief said coal will be an important part of power generation in developing countries such as Indonesia for a while yet, as it “is still the cheapest source of energy … also the most available and the most efficient one, the most flexible one.”
Thohir said that even solar energy, a relatively competitive energy source for a country like Indonesia where sunlight is abundant, “cannot produce electricity 24/7” and would require a “sophisticated, cheap and competitive battery” to be developed to store excess electricity for distribution when needed.
He also said the recent energy crunch around the globe is a testament to the fact that the transition to renewables cannot happen in an instant. Analysts have pointed out that renewables are not without shortcomings and thus not yet ready to take over as the baseload power.
“Unfortunately, given grid limitations and unstable renewable production — issues that would need to be remedied with grid upgrading, load distribution, and storage capacity breakthroughs — growing demand for electricity cannot be met with a proportional increase in renewable energy investment,” HSBC economists said in report last month. “Coal-fired capacity … remains crucial as a consistent baseload source [in Asia].”
And despite many financial institutions and global investors now treating coal-related companies as pariahs, Adaro’s share price shot up during the energy crunch earlier this year, as Indonesia became China’s biggest supplier of coal. Adaro shares are now trading some 15% higher than the start of the year.
“I think we have to be fair that the developing countries need time because there are still a lot of people in this part of the world that are still poor,” Thohir said. “They have to have access to cheap, affordable energy,” he said, adding that the market for coal will still be around in 15 to 20 years. “The Western world needed [a long time] to transform. My only appeal is please give us time also … help us build a better world together.”
A similar message was delivered by President Joko Widodo during COP26. Countries like Indonesia “need support and contributions from international and developed countries,” he said, adding that with help, “Indonesia will be able to contribute more quickly to the world’s net zero emissions.
“The question is, how much is the contribution of developed countries to us? What technology transfer can be provided? This requires action, needs implementation as soon as possible.”
But developed nations have not followed on their promise from 2009, when they pledged to channel $100 billion a year by 2020 to developing countries to help their energy transition to mitigate climate change. The new timeline has been pushed back to 2023, according to several reports.
And even the $100 billion “is not enough,” Thohir said, adding that besides money, developing nations need technological transfers as well. An October report issued by Bappenas, the Indonesian ministry responsible for national development planning, said the country needs $200 billion per year in the next decade and more in following years to achieve net zero carbon emissions in 2060.
“I don’t want to be remembered by my grandson or granddaughters that their grandfather was not supportive of a cleaner world,” Thohir said. “Of course we are committed in supporting this initiative [to phase out coal] … But on the ‘how’ part, every country needs a different strategy.”