Retiring Indonesia's coal plants early to cost $53b and boost green jobs, study finds

Indonesia generates about 60 per cent of its electricity from coal. PHOTO: AFP

SINGAPORE - Retiring Indonesia's entire fleet of coal-fired power plants by 2040 will cost US$37 billion (S$53.2 billion) and put the nation on track to meet its mid-century net-zero emissions target, a study released on Thursday shows.

The analysis by TransitionZero, a climate analytics non-profit, found that retiring the fleet a decade earlier than planned would save 1.7 billion tonnes of carbon dioxide (CO2), equivalent to almost three years of Indonesia's annual CO2 emissions.

Accelerating the green transition would also create more jobs, it found.

Indonesia generates about 60 per cent of its electricity from coal, and last year set a goal to achieve net-zero emissions by 2060 to help limit global warming to 1.5 deg C above pre-industrial levels.

But achieving this target is tough because of generous state subsidies for coal and attractive power purchasing agreements with plant owners.

The nation, the world's top thermal coal exporter, is heavily reliant on subsidised coal for power generation and also offers power purchasing contracts that guarantee a fixed fee to some plant owners regardless of the amount of power they generate.

These capacity payments can cost the government billions of dollars a year because the main Java-Bali grid is currently oversupplied with electricity, meaning some power plants are running well below operating capacity.

Such overpayments risk defeating efforts to achieve energy security at the lowest cost possible, analysts say.

In addition, coal subsidies are costing the government about US$10 billion a year, TransitionZero said.

The government mandates that coal miners must supply about a quarter of their annual production to state utility Perusahaan Listrik Negara at a subsidised price.

Last December, the World Bank urged Indonesia to end the coal subsidy policy, which it said has encouraged the use of the dirty fuel in electricity generation.

Ms Jacqueline Tao, analyst at TransitionZero, said the US$37 billion could buy out up to 10 years of future coal generation by purchasing 10 years' worth of power purchasing agreements - essentially compensation payments.

"This finance would not only align with Indonesia's net-zero pledge and international climate goals, but would also enable Indonesia to wean off coal earlier than planned."

She added the findings highlighted the potential for clean energy jobs at power plants, which would outweigh coal closure job losses by 6 to 1.

Indonesia has been actively seeking financial support to accelerate coal plant closures.

In September, the government issued a regulation to encourage renewable energy use, including a plan to retire some coal plants early, a presidential decree said.

The authorities have been instructed to create a plan for early retirement of some coal power plants and the government could help absorb any losses incurred, Reuters reported.

Indonesia and the Philippines have also backed a pilot programme by the Asian Development Bank (ADB), which the bank says has the potential to be one of the biggest carbon reduction programmes in the world.

According to the ADB, retiring half the fleet of its three pilot countries, Indonesia, the Philippines, and Vietnam, could cut 200 million tonnes of CO2 annually - the equivalent of taking 61 million cars off the road.

The programme, called the Energy Transition Mechanism (ETM), would ultimately comprise separate funds for the early retirement or repurposing of coal-fired power plants and clean-energy investments.

The pilot seeks to retire or repurpose five to seven coal-fired power plants in the pilot countries in the near-term. The programme would require billions of dollars in funding to succeed.

An ETM partnership involving Indonesia and the Philippines was launched last year, and the ADB says further progress may be announced at the Group of 20 summit in Bali next month.

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