By Gayatri Suroyo and Fransiska Nangoy
CIREBON, Indonesia (Reuters) – A G7-backed push to close coal power plants in emerging markets is facing further delays after a July deadline passed without a deal on the early closure of an Indonesian power plant that would be the first to shut under the initiative.
The push against coal comes under the Just Energy Transition Partnerships (JETPs) with Indonesia, Senegal, South Africa and Vietnam that call for billions of dollars in investments, grants and loans from G7 members, multilateral banks and private lenders to help them transition to low-carbon economies.
Cutting emissions from coal, the dirtiest fossil fuel, is seen as a crucial element of the JETPs if the world is to stave off the worst impacts of climate change.
But a deal on the early shutdown of coal power plants in South Africa remains elusive amid its struggles with rolling blackouts, and hope for proof of concept has turned to Indonesia’s 660 megawatt Cirebon-1 plant in West Java province, 220 km (140 miles) east of capital Jakarta.
The legal and financial implications of closing Cirebon-1 are a stumbling block though. Jakarta is worried, too, that costs for replacing it with renewable energy could reach $1.3 billion, mostly in subsidies to cover more expensive renewable power generation, according to the finance ministry.
A new government is taking office in October as well and that could further dent the chance of a deal on Cirebon, said Fabby Tumiwa, a renewables expert and member of the technical team advising Indonesia on its JETP.
“If this is not signed before Oct. 20, I am worried that this matter will be overlooked,” Fabby said, citing calls by President-elect Prabowo Subianto for self-sufficiency and energy security that suggest a commitment to coal, which generates two-thirds of Indonesia’s electricity.
Prabowo, who takes office on that date, has not commented on Cirebon and has rarely discussed his energy policy, though the retirement of coal power is mentioned in his campaign pledges.
Prabowo’s team has not responded to requests for comment.
Under Indonesia’s JETP, richer nations have pledged $20 billion to help the Southeast Asian nation with its energy transition, although little of that money has been disbursed.
LEGAL CONCERNS
Earlier this month, Finance Minister Sri Mulyani Indrawati said the outgoing government was trying to close the Cirebon deal as soon as possible, without giving details.
David Elzinga, team leader for the Asian Development Bank’s regional Energy Transition Mechanism programme that is working on the early shutdown scheme, said his group was seeking a binding deal on Cirebon acceptable to both the outgoing and incoming administrations.
“Indonesia has positioned itself to be a leader … It’s really important now that we get the deal done,” Elzinga said.
A deal on Cirebon is crucial for the ADB’s regional ETM programme as it plans similar deals in countries including Vietnam and the Philippines, as well as for other plants in Indonesia.
To get there, state utility Perusahaan Listrik Negara (PLN) and plant operator PT Cirebon Electric Power (CEP) need to reach a new power purchase agreement, which they failed to do by July, CEP Director Joseph Pangalila told Reuters.
The need for stronger legal protections and a clear road map for retiring coal plants was the main problem, PLN said, given that power generation costs could rise by nearly 90%.
PLN directors also fear a deal could expose them to future criminal charges if anti-graft investigators see the transaction as burdening the state with losses, JETP advisor Fabby said.
Rachmat Kaimuddin, deputy minister overseeing power infrastructure, acknowledged this at a recent forum, saying stakeholders were considering the legal repercussions that might arise from any closures.
“If we’re not careful, some people can get into trouble because it can create what they call state loss,” he said.
In June, a former chief executive of state energy firm Pertamina was sentenced to nine years in jail for signing a long-term gas contract that a corruption court said caused state losses of $114 million.
OTHERS TO FOLLOW
“We are anxious that it needs to get done, but at the same time what is important is that the first transaction be done in the best possible manner,” said Ramesh Subramaniam, ADB director general and head of the bank’s sectors group.
A number of private banks are lined up to invest and a series of new deals could also be kicked off once Cirebon is done, with the ADB having already looked at about 30 other plants in Indonesia, he said.
“Although this has taken time, we have learnt a lot … and our very clear feeling is the next ones to come will be considerably easier.”
Cirebon-1 is a fairly new plant that started up in 2012. A deal would mean it stops operations in 2035 instead of 2042.
Despite running cleaner than older plants, emissions from Cirebon and others around Jakarta are often blamed for Indonesia’s chronic pollution, and some of the locals in neighbouring fishing villages would be happy to see it go.
Fisherman Amin, 64, blamed the plant and coal unloading at its jetty for pollution and a scarcity of fish in nearby waters.
“When they first opened, the water was fine, but it became increasingly murky. The green mussel farms here didn’t have any harvest in the past two years,” he said.
“From the beginning of construction, I was against it.”
($1 = 15,475 rupiah)
(Reporting by Gayatri Suroyo and Fransiska Nangoy; Additional reporting by Bernadette Christina Munthe and Stefanno Sulaiman in Jakarta and Simon Jessop in London; Editing by Tom Hogue)
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