- A USD 20 billion climate financing deal between Indonesia and a group of industrialized nations led by the US and Japan has hit a snag due to captive coal-fired power plants.
- Indonesia was supposed to launch an investment plan on August 16 that underpins the deal, called the Just Energy Transition Partnership (JETP), but the launch was delayed to late 2023 because emissions from captive coal plants that are in the pipeline haven’t been included in the plan.
- Indonesia will use the money from the JETP deal to cap its emissions from the power sector at 290 million metric tons of CO2 by 2030, down from 357 million metric tons of CO2 that are estimated to be released under a business-as-usual scenario.
- When emissions from upcoming captive coal plants are accounted for, the 2030 baseline emissions increased significantly, making it more difficult for Indonesia to hit the target.
Indonesia’s deal with industrialized countries for the latter to channel USD 20 billion in funding to help speed up the former’s energy transition is hitting a snag due to captive coal-fired power plants.
Indonesia is among the world’s biggest consumers of coal, the single largest energy source of planet-heating carbon dioxide.
Last year, Indonesia burned more coal than any other year, putting the country on track to become one of the largest carbon emitters from fossil fuel in the world.
Therefore, to mitigate global warming, Indonesia has a plan to accelerate the retirement of its existing coal-fired power plants and to develop renewable energy.
Last year, a coalition of industrialized nations led by the US and Japan signed a deal with Indonesia to help the country in its energy transition.
Under the deal, called the Just Energy Transition Partnerships (JETP), the G7 group of industrialized countries, plus Denmark and Norway as well as private financial institutions, pledged to channel USD 20 billion to Indonesia.
Indonesia is the second country in the world to have the JETP deal after South Africa. Therefore, analysts hope the Southeast Asian country could be a model to get other developing countries off coal power.
Before the money can start pouring in, Indonesia needs to come up with a plan for how it will spend the USD 20 billion.
In February, the Indonesian government established a secretariat to formulate the document, called the comprehensive investment and policy plan.
The JETP secretariat was scheduled to finish drafting the investment plan and release it to the public August 16.
The secretariat has submitted a draft of the plan to the government and the JETP partners, but the comprehensive strategy will not be made public until late this year.
In a statement, the secretariat said it had to go back to the drawing board because unspecified “additional data” needed to be included in its analysis.
These “additional data” are related to emissions from the country’s captive coal-power plants and mineral processing infrastructure, according to the Institute for Essential Services Reform (IESR), a think tank that is part of the secretariat’s technical working group.
Under the JETP deal, Indonesia aims to cap its greenhouse gas (GHG) emissions from the power sector at 290 million metric tons by 2030, down from 357 million metric tons of CO2 that are estimated to be released under a business-as-usual scenario.
This baseline value of 357 million metric tons comes from a calculation made by the International Energy Agency (IEA), which was requested by the Indonesian government to develop a comprehensive road map for the country to reach net zero emissions by 2060.
In the road map, which charts a path for the country’s energy transition over the coming decades, the IEA used government data, which include data on captive coal power plants aimed at supplying industrial and commercial consumers without feeding into the grid.
But the data used in the IEA report were not the most recent. Since the report was written, many captive coal plants have gone online, IESR executive director Fabby Tumiwa said.
So when the JETP secretariat’s technical working group calculated Indonesia’s projected emissions in 2030 again using the latest data, which included the recent captive coal plants that went online, the projections were significantly higher than 357 million metric tons, he said.
“When [emissions from] all these [new captive coal plants] were calculated, we came up with a new emission baseline for 2030 that’s much higher than the one calculated by the IEA in 2021,” Fabby told Mongabay.
This increase in the 2030 baseline emissions makes it more difficult for Indonesia to hit the target to cap its power sector emissions at 290 million metric tons.
Captivated by captive coal
The JETP secretariat’s working group also didn’t consider the large number of captive coal plants that are expected to be built in the coming years, according to Raditya Yudha Wiranegara, a senior researcher at the IESR.
Indonesia had 18.8 gigawatts of coal power considered under construction by the end of 2022. Most of these new coal plants, 13 GW or 69%, will be captive plants.
This includes a USD 2 billion plan by Indonesia’s largest coal mining company, Adaro Energy, to build an aluminum smelter and captive coal plants on the island of Borneo.
An official familiar with the JETP discussion told Tempo that the industrialized countries took issue with the large number of captive coal plants planned to be built that will feed electricity into smelters in Indonesia.
Activists have pointed out that the new captive coal plants coming online will negate any effort by the government to cut the coal capacity in the grid as part of Indonesia’s wider emissions reduction plan.
Raditya said the working group didn’t consider the planned captive plants because it initially thought that the emission reduction target laid out in the JETP deal was only related to the phasing out of coal-fired power plants owned by the state utility, PLN.
“We just realized when we communicated with [Indonesia’s] ministry of energy and mineral resources that the emission reduction target isn’t only related to the shuttering of state coal plants, but also captive power stations,” he told Mongabay.
This realization came a month before the August 16 deadline, Raditya said.
He said the error was caused by lack of communication between the JETP secretariat and the energy ministry.
“We didn’t involve the energy ministry from the beginning, and there’s a lack of communication with them as well,” Raditya said.
There are many captive coal plants in the pipeline because the government has been issuing permits to build coal plants left and right in the past few years, according to Fabby.
“In the past two years alone, the government kept issuing permits [to build captive coal plants]. It never stopped,” he said.
This spree of permit issuance could happen despite a moratorium on new coal plants that the government announced in 2021.
This is because a 2022 regulation issued by President Joko Widodo stipulates that the coal moratorium contains loopholes.
The regulation still allows the development of new coal plants as long as they are “integrated with industries that are built orientated to increase the added value of natural resources or are included in the national strategic projects that have a major contribution to job creation and/or national economic growth.”
This means that captive coal plants built for nickel and aluminum smelters fall under both categories as metal refining and being nationally strategic, and they can still be built.
Bhima Yudhistira, director of the Center of Economic and Law Studies (CELIOS), called the 2022 regulation “the root of the problem” as it means there’s no limit to the number of captive coal plants that can be built.
This explosion of new coal plant permits coincides with the government’s efforts to process mineral resources in the country as a way of profiting from the added value.
One such mineral the government is promoting heavily is nickel, of which Indonesia is the world’s top producer. The metal is a key element in the batteries that power electric vehicles and energy storage systems, and the government is banking on its nickel reserves to become an EV powerhouse.
A recent report by CELIOS shows the coal plant building spree is very much tied to EV battery production, with most of the plants serving the steel and nickel processing industries on the islands of Sulawesi and Maluku. These in turn are funded mostly by Chinese companies.
“From the beginning, the government has said that energy transition shouldn’t disturb Indonesia’s economy and efforts to process mineral resources,” Fabby said.
These downstream mineral industries see coal as the most reliable and cheapest source of energy.
Since factories and smelters operate 24 hours, they need a steady stream of power, known as base load, to prevent hiccups in daily operations.
Therefore, it wouldn’t be easy to ask industries to not build captive coal plants or to shutter existing captive power stations, Raditya of the IESR said.
For one, these are plants that can’t be shut down without shutting down the industries they power. Therefore, they will need renewable energy that could provide base load electricity to replace coal, Raditya said.
“But there might not be base load renewable energy, such as geothermal and hydro, available in their smelter areas,” he said.
Other sources of renewable energy, like solar and wind, are known to have an intermittency problem, where they aren’t sufficiently reliable to provide a steady supply of power.
But experts have pointed out that the problem of intermittency becomes less of a factor the more renewable capacity is built. And since solar prices have dropped significantly, operators can overbuild the system to provide enough energy even on cloudy days.
Singgih Widagdo, chairman of the Indonesian Mining and Energy Forum (IMEF), encouraged more industries to build renewable power stations for their factories and smelters rather than coal by working with international corporations with experience in the electricity sector.
“A few companies are opting for renewable energy captive power generation, but the capacity is not big yet,” he said as quoted by The Jakarta Post.
With the new emission baseline in place, the working group is now charting pathways to achieve the JETP emission reduction goal to be included in the investment plan, Raditya said.
The plan will include details like what the capacity expansion of renewable energy will look like, what the potential solutions for the issue of captive coal plants are and how much investment is needed for each of the solutions.
Fabby said it’s actually a good thing the public launch of the JETP investment plan is delayed, as it gives the secretariat more time to find solutions to the captive coal problem.
“The investment plan document will give indications on what we could do in the next three years, and these are very critical years for us to take concrete actions,” he said.
To address the issue of captive coal, it is also important for the government to disclose the data so the public can scrutinize it, said Grita Anindarini, a program director at the Indonesian Center for Environmental Law (ICEL).
“It’s important for the government to build a consolidated database for captive coal plants, and the public should be able to access this database as well,” she told Mongabay.
While the JETP secretariat said the delayed investment plan launch is caused by technical issues, Luhut Binsar Pandjaitan, the coordinating minister in charge of investment as well as energy issues, put the blame on the group of industrialized nations that signed the JETP deal.
Luhut, one of the lead players in charge of the JETP program, questioned whether rich countries are truly committed to helping Indonesia stop its coal addiction.
He said it’s this lack of clarity in their commitment that has caused the launch of the investment plan to be postponed.
Luhut said preparations to start the JETP mechanism had been completed from the Indonesian side.
And now the ball is in the hands of industrialized countries.
“It’s been reported that we are the ones who regress [on JETP], but it’s actually them [industrialized countries] who’s not clear,” Luhut said August 18, as quoted by Kumparan.
This article first appeared on Mongabay and was originally written by Hans Nicholas Jung, an environmental journalist and staff writer at Mongabay. It has been republished here under the Attribution-NoDerivatives 4.0 International (CC BY-ND 4.0) Creative Commons license.