Indonesia relies heavily on coal, but China no longer favors overseas coal power—the energy poor get caught in between.
Initium Media editor’s note: This is the third and final article in Initium Media’s “The Future of Coal Exit?” series. In the context of a decade-long delay in the installation of a coal-fired power plant in Indonesia’s Maluku province, made possible with Chinese investment, the article explores the reasons why Indonesia has become reliant on coal power, as well as the structural obstacles it encounters on the way towards a renewable energy transition. Previous stories in the series are available in English here.
Ongen Hattu, a 42-year-old taxi driver, has lived his entire life in Ambon, the capital of the eastern Indonesian province of Maluku, part of an archipelago of the same name. The island of Ambon, an important port for the spice trade since the 16th century, has a total population of about 330,000, as well as many unexplored, pristine beaches and rolling hills.
But even with those assets and its status as one of the more developed cities in eastern Indonesia, Ambon’s infrastructure development is still limited compared to the metropolitan areas of western Indonesia. Notably, Ambon is still unable to provide adequate electricity to all its residents. Like many residents of Ambon, Hattu has become accustomed to frequent power outages and has never experienced a day in his life when he didn’t have to worry about them.
“It’s normal; we’re used to it,” Hattu said in a light-hearted tone. “We always joke that our power plant here should be renamed the ‘candle power plant’ because we always have a stockpile of candles in our house to light up in case of power outages.”
Agus, 63, also a resident of Ambon, installed a generator at his home to maintain his quality of life and provide electricity during power outages. But the generator requires diesel fuel, which is a significant financial burden in the long run. The power outages happen about twice a week, sometimes more, reports Agus. Perusahaan Listrik Negara (PLN), Indonesia’s national power company, responsible for supplying electricity to the grid throughout Indonesia, told local residents that the outages occur because of operational and maintenance problems.
“They [PLN] send us a notice before the outage that there is an ‘operational and maintenance problem’ and that residents should be prepared for the outage,” Agus said. “Each outage usually lasts about seven hours, sometimes longer.”
Electricity shortages are common in remote areas of Indonesia, especially in eastern Indonesia, where there are many small islands and relatively few residents. According to the Indonesian government, more than 500,000 Indonesian households have no access to any form of electricity by May 2021.
Adhityani Putri, founder and executive director of CERAH, an Indonesian NGO advocating for a renewable energy transition, told Initium Media that the population of eastern Indonesia accounts for only about 7% of the country’s population and is sparsely distributed. The region has little industrial activity and low and unconcentrated demand for electricity. Putri observes that it is extremely difficult to establish a large-scale power supply network due to the geographical constraints of these islands: “Even the government is not willing to do it.”
However, the government cannot ignore the problem of energy poverty. PLN and the Ministry of Energy and Mineral Resources have also implemented a number of projects to electrify remote areas, including the installation of microgrids and dissemination of solar lamps.
In May 2021, the Indonesian government announced that the national electrification rate had reached 99.28% in the first quarter of 2021 and that it expects to have 100% of the country electrified by 2022. However, experts concerned with energy issues in Indonesia say that the government’s announced rate does not reflect the true supply of electricity because it is based on whether households have access to electricity and does not take into account either the stability or the length of supply. Also, the number of households is often calculated on a village-by-village basis, with some villages having only a few households connected to a grid, yet the entire village is still counted in government statistics.
“The electrification figure [published by the Indonesian government] grossly overstates actual access [to electricity], which can be as little as one or two hours a day [for households classified as electrified by the government], with variable reliability and quality,” Abidah Setyowati, a senior researcher at Delft University of Technology in the Netherlands, noted in her paper on energy poverty in Indonesia. Moreover, recurrent power outages persist, especially outside Java, the country’s most populous and developed region.
According to statistics released by the Indonesian Ministry of Energy and Mineral Resources, Maluku province reached the current national rate of 99% electrification in 2019. However, behind the government’s rosy statistics, local residents have not yet escaped the shadow of an electricity shortage.
A coal power plant delayed for more than 10 years
For decades, Ambon has relied on diesel power plants to provide electricity. In 2017, PLN noted that the total installed capacity (the maximum allowable output of generating units) of diesel power plants in Ambon was 61.9 MW, with a peak load of 54 MW. Based on the average power plant’s reserve capacity of 15-20% of peak load, the installed capacity of diesel power plants in Ambon is still insufficient.
Haryanto W.S., the director of PLN Maluku and Papua provinces at the time, told the media the electrification rate in Ambon was only 70% in 2017 (compared to Maluku’s 99% rate) and that electricity was still in very short supply.
In addition, because Indonesia relies on imported diesel fuel, primarily from Singapore and Saudi Arabia, the price of which often fluctuates with the exchange rate in US dollars, and because diesel itself is already itself an expensive fuel for power generation, PLN has been looking for ways to replace these power plants in recent years. Elrika Hamdi, energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), said in an interview with the Initium Media that reliance on diesel is one of the reasons for the unstable power supply in remote areas of Indonesia.
The local government of Ambon and PLN have initiated several projects to address the lack of electricity on the island and its reliance on diesel for power generation.
In April 2017, the Ambon government leased a floating power plant (“powership”) named Yasin Bey from the Turkish government for a period of five years. The 120-meter-long powership is moored offshore the village of Waai, in the eastern part of Ambon Island, to generate electricity from liquefied natural gas and heavy oil and has an installed capacity of 120 MW. However, according to the contract signed with Turkey, it only supplies 60 MW of electricity to the Ambon power grid.
PLN has implemented several power projects in Ambon, including a 20 MW geothermal power plant in Tulehu on the eastern part of Ambon Island and a 30 MW coal power plant in Waai village. The construction of the plant has not yet been completed.
Construction of the Waai coal plant began in 2010 and was included in the 10 GW Fast Track Project Phase 1 list of coal plants launched by former Indonesian President Susilo Bambang Yudhoyono’s administration in 2006, but it was never completed. More than a decade later, PLN announced the cancellation of the Waai coal plant project, in October 2021.
Why has a small coal power plant been delayed for more than a decade and eventually terminated? According to public information, the Waai coal power plant was initially built by a joint contract between China’s Wuhan Kaidi Electric Power; an Indonesian power plant construction company, Hilmanindo Signintama; and Indonesian construction company, Sakti Mas Mulia. The coal plant is located on a 22-hectare plot of land in Waai village, just a few hundred meters from scenic Waai Beach.
In 2014, the coal power plant project was suspended without PLN giving detailed reasons at the time. It was not until 2017 that the former president of PLN, Sofyan Basir, stated, without further explanation, that the Waai coal project had encountered obstacles such as land use disputes, financial problems and internal mismanagement by contractors. The Ambon local government has accused the project of corruption. So far, the Waai coal project has cost almost Rp800 billion (about US$56 million).
In February 2019, PLN subsidiary, Rekadaya Elektrika, signed an engineering, procurement and construction contract with Energy China GPEC. The latter was to be responsible for performing construction work such as on-site structural and equipment assessment, follow-up design services, inspection and maintenance of existing equipment, new equipment provisioning, construction work, adaptation and training, as well as full plant operation and maintenance services for five years.
The project was originally scheduled to begin in the second quarter of 2019 for a two-year construction period. However, no progress seems to have been made. When a reporter from Initium Media visited the Waai coal plant site in October 2021, he saw a scene not much different from photos that appeared in Indonesian media in 2018: a giant blue steel frame halfway mounted, in the midst of a vast expanse of weeds and surrounded by dilapidated tin scaffolding and steel pipes swallowed by grass. Several beat-up vehicles were parked nearby, giving it the air of a deserted recycling plant.
A guard in brown uniform, who had been taking a nap behind a concrete wall at the site, noticed someone approaching and strongly refused the entrance of any unauthorized reporters. “There has been no activity since years ago,” said the guard. “I’m just tasked with guarding this facility, that’s all. I don’t think there will be any construction [here] work in the near future.”
Initium Media has made several attempts to ask PLN’s Maluku branch about the delay of the Waai coal plant through phone calls and text messages but did not receive any reply at the time of publication.
In May 2021, the Indonesian Ministry of Energy and Mineral Resources announced it would study whether to terminate the Waai coal power plant project without providing a reason, and in October, PLN mentioned in its annual national electricity development report for 2021-30 that the Waai coal power plant project had been canceled. Again, no specific reasons were given. The coal power plant, which was half built, disappeared from official view almost as an afterthought.
Overdependence on coal power
Experts on Indonesian energy issues interviewed by Initium point out that PLN’s decision-making process for building power plants has long been very opaque and rarely provides detailed information on individual projects. The only way to find out why coal power plants have been summarily canceled is to comb through public information and research trends in Indonesia’s electricity development. Beyond the case of land use rights, there are many structural problems with Indonesia’s power supply that lie behind the termination of a coal plant project.
Andri Prasetiyo, a researcher at Trend Asia, a green group promoting the transformation of new energy sources, pointed out to Initium Media that building coal power plants in eastern Indonesia is an illogical plan in itself because eastern Indonesia does not produce coal, and coal power plants need to be transported from mines in Kalimantan and Sumatra in the west. The transport costs of shipping coal from these mines are high.
When Indonesian President Joko Widodo visited Ambon in 2017 to inspect what was then the shuttered Waai coal plant, he also said that coal should not be used as a source of power generation in the area given transportation costs. “It is clearly wrong to use coal as a fuel for power generation here [in Ambon],” President Widodo concluded.
Why would PLN choose to build a coal plant in Ambon, a non-coal producing region, despite the obvious transportation costs? Hamdi, the energy analyst, points out that according to the Indonesian law, the on-grid power tariff sold to customers is set by the national government, and PLN is obliged to charge a fixed rate for on-grid electricity supply no matter what power generation source it uses (off-grid electricity normally doesn’t fall into PLN’s business range).
The Indonesian government’s policy also sets out cap price for domestic coal usage, resulting in an artificially low cost of power generation from coal compared to diesel and other sources. This has made PLN see coal-fired power plants as the priority option when building new power plants and replacing diesel power plants over the past years.
Indonesia is the world’s fourth-largest coal producer, and coal mining has long been one of the country’s key industries, enjoying handsome tax incentives. The International Energy Agency reports that Indonesia also provides the largest fossil fuel subsidies as a percentage of GDP of any country in the region.
Prior to the COVID-19 outbreak, Indonesia’s coal production capacity was generally flat or increased year over year, with a significant jump of 30% between 2017 and 2019. In order to maintain the domestic coal industry and offset the reduced international demand for coal in recent years due to environmental policies, the Indonesian government provided significant subsidies to coal power to absorb coal production capacity. According to a report by the Overseas Development Institute, a British think tank, the Indonesian government provided Rp 970.2 billion (US$680 million) in subsidies to coal plants in 2016 and 2017 alone, and Rp 3,095.3 billion (US$2.16 billion) to encourage the use of coal power. In 2018, the Indonesian government set a ceiling price for coal sold to coal power plants and mandated that at least 20-25% of coal production be used domestically. In 2020, statistics show that 68% of Indonesia’s domestic coal sales are for coal-fired power generation.
With the support of many policies, the cost of coal power generation in Indonesia is very low. According to Indonesian government data, the cost of generating electricity from coal in 2020 will be Rp 600 (about US$0.04 cents) per kilowatt hour (kWh), compared to Rp 1,600 (US$0.11) and Rp 1,100 (US$0.08) per kWh for natural gas and geothermal respectively, nearly two to three times less.
Against this backdrop, it is easy to understand why Indonesia’s coal-fired power generation is growing amidst an international wave of reducing carbon dioxide in the atmosphere. According to the Global Electricity Review report published by the European Union’s climate and energy think tank, EMBER, in 2021, Indonesia is not only one of the five G20 countries (the top 20 industrial countries in the world) with increased growth in coal-fired electricity since 2015, but it also has the highest growth rate in the region. Some 60% of Indonesia’s total electricity generation came from coal in 2020. Nearby Vietnam and the Philippines, both of which are also highly dependent on coal, have coal-fired power generation rates of 48.1% and 57%, respectively.
The Indonesian government’s subsidies for coal-based power generation have not only resulted in a massive reliance on coal for domestic power supply, but have even brought about a crisis of coal overcapacity. According to a report released by the Institute for Energy Economics and Financial Analysis in November 2021, PLN has been overestimating electricity demand for years (by an average of 34.2% per year since 2015) and building a large number of coal power plants, causing coal supply to gradually exceed actual electricity demand across the country.
“PLN has been forecasting electricity demand solely based on the national GDP growth forecast, without taking into account changes in energy efficiency or other factors that reduce demand,” Hamdi, the report’s author, explained to Initium Media. “Indonesia’s average electricity demand growth over the past five years shows that the economy never took off as high as the government would have wanted, but PLN has not adjusted the way they predict electricity demand until recently.”
In addition, there are apparent conflicts of interest between the Indonesian coal mining industry, PLN and the Indonesian government, including an alleged construction of unnecessary coal power plants. The current Indonesian Minister of Maritime Affairs and Investment Coordination, Luhut Binsar Panjaitan, is the owner of the mining company Toba Sejahtera, and the Minister of Tourism, Sandiaga Uno, holds a stake in Adaro Energy, the second-largest coal mining firm in Indonesia.
“Corruption is the elephant in the room when discussing Indonesia’s coal power industry,” an Indonesian coal power industry researcher told Initium Media on background because the subject is sensitive. “Some coal power projects seem to have no reason to be built at all; they are the result of someone ‘promising’ someone.” In 2018, a bribery scandal erupted over the 600 MW Riau-1 coal project in Sumatra, involving not only members of parliament and the minister of social affairs, but also the former PLN president mentioned previously, Sufuyan, who was indicted for bribery and resigned as a result.
The overcapacity of coal power is particularly serious in Indonesia’s largest power grid, Java-Bali. According to data released by the Indonesian Ministry of Energy and Mineral Resources in 2020, the Javan-Bali grid has an installed capacity of 30.23 GW but a peak load of only 16.61 GW, which leaves a surplus capacity of 10.29 MW after deducting a reasonable reserve capacity of 15-20% from peak load (the so-called “reserve margin”).
Greenpeace China’s June 2021 report on the risks of investing in coal power in Indonesia also points out that even in an ideal economic growth scenario with high demand for electricity, the Java-Bali, Kalimantan and Sumatra regions in western Indonesia will have excess coal capacity by 2022; in a low economic growth scenario, even the Maluku-West Papua region in the east could face a coal overcapacity crisis.
PLN’s financial dilemma
The Waai coal plant is just the tip of the iceberg for coal projects PLN has canceled or shelved in recent years. Isabella Suarez, a Southeast Asia analyst at the Center for Energy and Clean Air Research, told Initium Media that as of July 2021, approximately 30 GW of coal power plant projects in Indonesia have been canceled and 5.6 GW have been shelved.
“[The total installed capacity of canceled or shelved projects] is about the equivalent of the operating [coal power generation] capacity in Indonesia at the end of 2020,” Suarez said.
Most of the coal power plant projects were terminated during financing or planning stages. Hamdi noted that the most plausible reasons for the cancellations were delays and difficulties in closing out financing agreements and the fact that PLN discovered that electricity demand was lower than expected for the past couple of years. Meanwhile, the cancellations and delays of coal power plant projects have resulted in significant financial losses for PLN. In 2017, the Indonesian Ministry of Audit noted that five delayed coal power projects, including the Waai coal power plant, caused a total loss of more than US$120 million.
However, Hamdi, who has been tracking PLN’s finances for a long time, said that the deficits from building and operating coal plants with overcapacity due to lower demand might be greater than the financial loss from canceled or delayed projects. “The biggest financial problem that PLN is facing now today is the contracts with strict terms that PLN signed to attract capital to coal plant projects but in return increase its liabilities,” she said.
The “liability-increasing contracts” referred to by Hamdi are the power purchase agreements (PPAs) signed by PLN for independent power producer (IPP) coal projects. IPPs are not themselves public utilities but rather own facilities to generate electricity for sale to utilities and end users.
Based on the ownership of the plants, the coal plants on the Indonesian grid can be broadly divided into two categories: one owned entirely by PLN, and the other by third-party companies that own or share IPP projects with PLN. In an IPP project, the company that owns the plant provides financing through loans. Once the plant is completed, PLN, which is responsible for supplying electricity throughout Indonesia’s larger grid, must purchase the power from the plant owner in accordance with the terms of the PPA.
After the Asian financial crisis of 1997, Indonesia struggled to attract capital investment for many years. While demand for electricity grew rapidly, PLN was forced to accept more investor-friendly contract terms, often with very long terms of up to 30 years for PPAs. “Basically, these terms follow the playbook of the World Bank to attract capital to emerging markets, which aims at lowering the investment risks. Once a contract is signed, it’s almost impossible to change the terms, and it’s often very difficult for PLN to cancel these contracts by going to international courts,” Hamdi said.
As a result, a large amount of capital began to pour into Indonesia’s coal power market, a situation described as “explosive” by an industry insider who works for a Chinese investor in overseas coal power.
However, PLN’s over-optimistic projections of electricity demand, which resulted in excess coal capacity, began to translate into increasing debt figures. Many of the coal plants in operation in Indonesia were first planned 10-15 years ago. This means that PLN has to buy more power than was forecasted in the previous year, well in excess of actual demand, based on the PPAs signed at the time.
In 2017, a letter expressing concerns about PLN’s financial situation, sent by the Indonesian Ministry of Finance to the Ministry of Energy and Mineral Resources, was leaked. PLN began to realize the potential financial crisis and ceased bidding for coal power projects in 2018, instead choosing its own partners and modifying the terms of signing contracts for IPP projects.
The Chinese industry insider mentioned previously revealed to Initium Media that PLN required 51% equity in the IPP coal power project and 49% in the partnering firm, but only about 10% of the equity was contributed by PLN; the rest required the partner to provide low-interest loans. At the same time, PLN requires the partner to be fully responsible for loan guarantees.
“The company’s shareholding ratio is not in line with normal standards and will bring greater risks to the Chinese partner. For Chinese state-owned enterprises, such a requirement is not allowed,” reported the insider. According to them, after 2018, Chinese companies have rarely signed equity investment contracts in Indonesian coal power. Most of the new coal power contracts are for off-grid power plants in industrial parks that do not require cooperation with PLN, as well as turnkey engineering or equipment export projects.
But in Hamdi’s view, PLN has made the change too late, and has only shifted the risk of operating coal plants to other companies without making adjustments to the way it plans to build coal plants.
According to a report by the Institute for Energy Economics and Financial Analysis, PLN’s debt on the books will reach nearly Rp 650 trillion (about US$45 billion) in 2020, and if the lease liabilities from the PPA are added, the total debt will rise to Rp 875 trillion (US$61 billion). With the COVID-19 outbreak significantly reducing electricity demand, power purchase payments to IPP coal project partners are expected to be PLN’s largest operating expense in 2021.
With fewer foreign investors willing to sign risky contracts to enter an Indonesian coal power market already nearing overcapacity, and with global capital pulling out of coal power due to environmental concerns, PLN has often encountered difficulties in financing coal power projects. In recent years, more and more coal power projects have been terminated without receiving financing.
An ambitious new energy transformation commitment
Regardless of the underlying reasons for phasing out coal projects, in the eyes of environmentalists pushing for a renewable energy transition, every coal plant that isn’t built is at least a new opportunity to expand renewable energy generation. Indonesia’s new energy transition has been slow due to a lack of policy impetus. Between 2012 and 2020, Indonesia’s renewable energy capacity grew only marginally at an average rate of 4% per year, lagging far behind the more than 10% growth rates of Malaysia, Vietnam, India and Thailand over the same period.
In May, President Jokowi announced that no new coal power plants would be built in Indonesia after 2023 and set a target of achieving carbon neutrality by 2060. In line with the government’s policy, PLN’s October 2021 business plan proposed the removal of nearly 13.2 GW of previously planned coal power plant projects. Many of them are to be replaced by renewable energy projects, which would significantly increase the share of renewable energy capacity from 13% today to 23% by 2025, and 29% by 2030.
The share of renewable energy capacity is expected to increase significantly from the current 13% to 23% by 2025, and to 29% by 2030. At the United Nations Climate Change Conference (COP26) last November, the Indonesian government further pledged to retire 9.2 GW of coal power by 2030 and advance its plan to move away from coal power completely by 2056 to the 2040s.
However, environmentalists have questioned whether these commitments will be sufficient to reduce the environmental impact of coal plants over the next 30 years. PLN is still on track to build new coal plants with a total installed capacity of 13.8 GW by 2023. “The environmental impact of building these new coal plants will last until 2050,” Adila Isfandiari, a researcher at Greenpeace Indonesia, told Mongabay, a global media outlet focusing on environmental topics..
Coal power plants are the second largest source of carbon emissions in Indonesia, accounting for 35% of all CO2 emissions. Seventy-nine percent of Indonesia’s coal power plants are subcritical, which are not only less efficient than ultra-supercritical units, accounting for 45% of the electricity generated in China, but also contribute 75% more CO2 emissions.
Due to the lack of strict emission control measures, coal power plants have caused extremely serious air pollution in Indonesia. Suarez, the energy analyst, pointed out that local regulations for emissions for coal plants are so lax that they require little to no emission control equipment to be installed. According to a study released in September 2021 by the multinational environmental group C40, air pollution from coal power plants near the capital Jakarta will cause the death of more than 1,500 people in 2019 and more than 3,000 people annually by 2030.
Meanwhile, shortly before the announcement of the new energy transition plan in May 2021, the Indonesian government announced that fly ash and bottom ash from coal combustion, which contain large amounts of heavy metals, would be removed from the list of hazardous waste. Previously, the Indonesian Coal Mining Association and several other industry trade groups lobbied the government to loosen regulations to facilitate the sale of fly ash and bottom ash for use in construction.
In addition, experts point out that Indonesia’s ongoing preferential policies on coal power and the fact that PLNs are subject to long-term power procurement contracts also pose hurdles for Indonesia’s new energy transformation path. The Indonesian government has said it will need $35 billion in funding to reach its 2030 target of having the country powered by 29% renewable energy. But Hamdi pointed out that the main problem is not only the source of funding, but also whether the Indonesian government proposes a consistent and clear energy policy.
The bigger problem for PLN is that it is “stuck with the excess coal capacity and strict PAA contracts. Renewables hardly have any room to play [in such a situation]. Financing for renewables is abundant and some easily accessible but PLN and the Indonesian government must provide clear direction and consistent support policies for future projects.”
Indonesia is rich in renewable energy sources such as geothermal, solar, wind and hydro, and the government has introduced small tax breaks for renewable energy projects in the past, as well as a feed-in tariff (a mechanism for government subsidies to renewable energy generators) other countries in Asia have already managed to implement.
However, studies point out that Indonesia’s renewable energy subsidy mechanism is volatile, and the government still tends to prioritize coal power as the source of generation, leaving investors with little confidence. Over the past decade, the development of renewable energy projects in Indonesia has been limited, with the exception of hydroelectricity, which incurs relatively low costs but has its own social and environmental impacts to contend with.
“Most investors still believe that investing in renewable energy in Indonesia is riskier than coal power,” said Setyowati, a senior researcher at Delft University of Technology in the Netherlands.
In October 2021, the Indonesian legislature passed its first carbon tax, which is expected to tax carbon emissions from coal power plants that exceed the required threshold starting in April 2022 and extend it to other industries in 2025. However, analysis shows that the amount of Indonesia’s carbon tax is too low to promote a renewable energy transition. Several Indonesian companies reported they would rather pay a carbon tax than invest in renewable energy alternatives.
On the other hand, whether operating coal plants can be decommissioned on schedule or earlier is also a key factor in Indonesia’s renewable energy transformation pathway. In August 2021, the Asian Development Bank (ADB) announced the launch of the Energy Transition Mechanism, which provides funding for Indonesia, Vietnam and the Philippines to assist in the early retirement of coal plants under the age of 15 years. The ADB has set a target to help retire nearly 50% of the coal plants in the three countries over the next 10-15 years, which is seen as a major boost that could accelerate the phasing out of coal in Indonesia.
However, a December 2021 report by the Institute for Energy Economics and Financial Analysis noted that 66% of Indonesia’s coal plants, at a capacity of about 22.8 GW, are currently less than 10 years old, a significant number when added to the 13.8 GW of new coal plants that PLN says are still expected by 2023. The ADB’s Energy Transition Facility will prioritize the decommissioning of coal plants at 6-15 years, meaning that many coal plants in Indonesia may not benefit from this facility.
In addition, about 40% of Indonesia’s coal plants are IPP projects, and PLN has signed power procurement contracts typically 25-30 years in length. The terms of these contracts make early decommissioning of coal plants unlikely. At the same time, PLN’s own interests may also limit the progress of a larger coal phase-out. Coal-fired power generation is still PLN’s main source of revenue, and all coal-fired power plants in Indonesia more than 30 years old that have not yet been decommissioned are owned by PLN.
Considering PLN’s conflict of interest as a state-owned enterprise, the report’s author, Haneea Isaad, an assistant researcher in Asian energy markets, warns that if the ADB’s ETM is not well designed, it is likely that governments in Indonesia and other countries will subsidize the decommissioning of coal-fired power plants and then turn around and fund the operation of existing and new coal-fired power plants, thus “prolong[ing] the life of polluting assets by giving them an additional grace period to retire.”
What happens after China stops investing in overseas coal power
China is the largest source of financial and technical support for the construction of coal power plants in Indonesia. According to Greenpeace China, as of May 2021, China is involved in a total of 30.19 GW of coal power projects either in operation, under construction or in planning throughout Indonesia. This accounts for approximately 62% of all coal power projects in Indonesia.
After South Korea and Japan announced a halt to state-backed overseas coal power investments in early 2021, China also declared a halt to new offshore coal projects in September 2021, raising concerns about Indonesia’s coal power developments and in what way it will transition to renewable energy
The Chinese government has not yet issued any further explanation on how it plans to phase out overseas coal power projects currently under construction or being financed. Suarez pointed out that Chinese companies are involved in 36% of such projects. If these projects are terminated, it will certainly reduce the capacity of new coal installations in Indonesia over the next few years.
Zhang Jing, head of Greenpeace China’s “Green Infrastructure Overseas Investment” program, told Initium that according to current observations, one of the factors that will affect planned coal power projects is their current status. The ones that are in the early stages of planning with incomplete financing and payments due, or without ground even being broken on their construction, may face a greater risk of being canceled or shelved.
Hamdi notes that more than half of PLN’s own coal projects have been financed by Chinese or Japanese banks in the past. Given that just Japan and China announced they would no longer fund coal power abroad, PLN’s unfinanced coal projects may have trouble procuring investment; but these are relatively small-scale installations that may still attract financing from within Indonesia.
Given that most of Indonesia’s planned coal projects have already been financed and are already under construction, and that no new coal plants are likely to be planned in the near future, if only China stops providing funding, the impact on the future development of coal power in Indonesia could actually be limited.
After China withdraws from overseas investments in coal power, will it invest more in renewable energy projects in Indonesia instead? According to experts interviewed by Initium Media, it all depends on whether there is a legitimate demand in Indonesia and whether an attractive investment environment can be created.
“Overseas power investments, including those from China and Japan, are basically driven by Indonesia’s own demand,” EMBER’s senior power policy analyst, Yang Muyi, told Initium.
In an interview in 2018, an Indonesian government official also said, “If we want coal, they [China] will sell us coal. If we want solar energy, they will sell us solar energy.”
In 2020, more than half of China’s total overseas energy investment in Belt and Road projects went into solar, wind and hydro power projects. In Indonesia, China’s current investment in renewable energy generation is focused only on hydropower, with no money going into wind and solar so far. Hamdi points out that much of this is because PLN has never publicly bid out these projects.
“If PLN starts tendering large solar projects, I’m pretty sure Chinese investments will start flowing in as well. So you can see how little effort PLN has put for renewable expansion, other than hydro and geothermal power.”
Energy poverty still far from being solved
Whether or not the Indonesian government meets its CO2 reduction commitments, there is already a clear policy trend to phase-out new coal plants and develop renewable energy in its place. Residents of Ambon Island, who have long suffered from power shortages, also notice this change.
While announcing the cancellation of the Waai coal plant, PLN has simultaneously prioritized a different, 50 MW Ambon coal project—shelved in 2017 before it could be financed—over a renewable energy project expected to be completed by 2030, without even specifying the renewable energy source.
The most effective and sustainable way to solve the problem of energy poverty in remote areas of Indonesia is to set up community-based, off-grid renewable energy generation facilities, according to Setyowati, the Delft University researcher. These facilities already exist in many remote areas of Indonesia, but because communities are often responsible for their own maintenance, and in the absence of government subsidies, the price of this electricity is generally much higher than the price of on-grid, nonrenewable sources.
The result is that the maintenance of long-term operations is a challenge. Setyowati believes that the Indonesian government needs to support these small-scale renewable energy projects by providing preferential loans, fast-track approvals and allowances for co-financing of multiple projects in order to achieve the government’s stated goal of “100% nationwide electricity access”.
Although the Indonesian government’s attitude towards a renewable energy transition has increasingly become more open, all the discussions related to such projects are still focused on large-scale, on-grid options, with little discussion about the supply of electricity to remote areas where return on investment is minimal, thus deterring outside financing.
Nevertheless, while government officials talk about energy transformation, and all parties are looking forward to the introduction of specific policies related to the energy sector, there is a small group of Indonesians eagerly waiting for the arrival of reliable and safe power no matter its origin.
“It doesn’t matter if the power comes from coal, diesel, or something else as long as it doesn’t disturb our activities,” said Hattu, the taxi driver from Ambon. “[Electricity] is our basic need, and the government should provide it.”
This report by Lin Yuxuan and Adi Renaldi was produced with the support of the Internews’ Earth Journalism Network and was originally published in Chinese by Initium Media on January 9, 2022. It has been lightly edited for length and clarity.
Banner image: Barges transporting coal on a river in Samarinda, East Kalimantan, Indonesia on October 13, 2021 / Credit: Dimas Ardian/Bloomberg via Getty Images.