Coal power plant early retirement opens the door for NRE funding

Jakarta – The government’s decision in Presidential Regulation (Perpres) 112/2022 to no longer build new coal power plants, and to limit all of their operations to 2050 at the latest, needs to be supported by political, financial and social readiness, analysts said Wednesday (13/10).

The Institute for Essential Services Reform (IESR) and the University of Maryland study showed that accelerating the retirement of coal-fired power plants could prevent deaths from reaching 168 thousand people by 2050 and total health cost savings that could be obtained around USD 60 billion until 2050.

“Indonesia can immediately retire 4.5 GW of coal-fired power plants in the 2022-2023 period,” said Raditya Wiranegara, IESR Senior Researcher at Indonesia Sustainable Energy Week (ISEW) 2022. He said benefits that can be obtained from the plants’ early retirement scenario are about 2-4 times greater than the costs incurred to retire the coal powered plants.

Wiranegara said that most of the costs needed for coal retirement include the cost of abandoned assets with two-thirds related to the retirement of IPP’s PLTU. While waiting for all coal-fired power plants to be fully retired in 2045, he said, the government can carry out flexible coal-fired power plant operations to make room for renewable energy to enter Indonesia’s energy system.

Koben Calhoun, Principal Carbon Free Electricity, Global South Program, RMI added by citing an IESR study which states that for the decarbonization of the energy sector in Indonesia in 2050 it will take as much as USD 25 billion/year until 2030 and USD 60 billion/year until 2050 for investment in renewable energy, electrification, and supporting infrastructure.

“There are 3 pillars of approach to finance the coal transition, first by capitalising on the coal transition, there will be opportunities to reinvest in clean energy and finance an energy transition that is equitable for the community,” explained Calhoun.

He said, Indonesia can lead an ambitious energy transition and demonstrate financial mobilisation with ambitious government commitments, leadership towards energy transition platforms and funds, has a clear early retirement roadmap preceded by the implementation of pilot projects and has a blended financial structure to lower capital costs and mobilise finance for the energy transition.

“Ensuring funding needs as well as the interests and goals of potential investors, who tend to finance renewable energy and no longer want to finance coal projects, are important to be able to open the funding faucet,” said Calhoun.

Architrandi Priambodo, Senior Energy Specialist, Asian Development Bank also revealed that early retirement of coal-fired power plants, in addition to significantly reducing greenhouse gas emissions, will also reduce overall generation costs in the long term.

He explained that this is one of the goals of the Energy Transition Mechanism (ETM) program to accelerate the termination or repurposing of coal-fired power plants, especially parts of the power plant assets that can be utilised further, such as transmission and substations.

Melli Darsa, Senior Partner, PwC Indonesia, on the same occasion said that if political conditions are favourable, early retirement plans for coal-fired power plants need to be followed by implementing regulations related to the technical aspects of early retirement for coal-fired power plants so as to provide higher legal certainty.

“The government has been in the right direction by issuing a Presidential Decree. The relevant ministers need to immediately follow up. However, the reluctance to take risks (to carry out early retirement for coal power plants) is still felt, especially from the side of the PLN leadership board, perhaps because of the unclear role, because so far early retirement of the plants is mandatory,” said Darsa. (Hartatik)

Banner photo: Indonesia Sustainable Energy Week (ISEW) 2022, Wednesday (13/10).

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