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The cost of renewables
Given that these deals could sound too good to be true, experts have reminded the country of the prudent use of the funds for early coal plant retirement and new investments in renewables.
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The coal-fired Suralaya power station in Banten. (Antara/Asep Fathulrahman)
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mid the aggravating crises of climate change, economic woes and geopolitical tensions that are taking a toll on almost every nation, the urge to pivot the world away from fossil-based energy become stronger.
States across continents are loudly calling for early coal-fired power plant (CFPP) retirement and the acceleration of reinvestment in renewables. Several Southeast Asian countries have kickstarted the movement.
The Philippines, for instance, recently announced divestment of its investment in the South Luzon Thermal Energy Corp. coal plant by utilizing the energy transition mechanism (ETM) fund, which also marked the first deal of its kind in the world.
The ETM is a novel concept offered by the Asian Development Bank (ADB), aimed to anchor low-cost and long-term funding support toward early coal plant retirement. As part of the ETM structure, the coal plant's operating life of up to 50 years will be halved.
The scheme allows ACEN, Luzon Thermal Energy’s parent company, to phase out its 246-megawatt coal plant in Calaca, Batangas, and transition it to cleaner technology by 2040.
Globally, the gesture may seem like a baby step, although it still indicates a firmer path toward a possible solution to the problem of funding the CFPP phase-out, which was fiercely debated at the recent United Nations Climate Change Conference (COP27) in Egypt.
Jumping on the bandwagon, Indonesia also began pooling money for an ETM fund during the just-concluded Group of 20 Summit. Through the move, the government aims to retire the 12-year-old Cirebon1 CFPP in West Java.
Per the ADB on Nov. 14, the Cirebon1 has a capacity of 660 MW and would be refinanced in a US$250-$300 million deal on condition that it be taken out of service 10-15 years before the end of its 40- to 50-year useful life.
Shortly after the deal was made public, the government announced another funding deal worth $20 billion under the Just Energy Transition Partnership (JETP) banner, which also aims to retire Indonesian CFPPs early.
Through JETP, a coalition of rich nations is set to mobilize $20 billion in grants and concessional loans over a three-to-five-year period to help the country shut down coal plants and bring forward the sector's peak emissions date by seven years to 2030.
The JETP deal itself chips away at the estimated $600 billion Indonesia will need to phase out coal power in favor of renewables.
Given that these deals could sound too good to be true, experts have reminded the country of the prudent use of the funds for early coal plant retirement and new investments in renewables. The country would also have to consider its existing debt burden, particularly given the number of past infrastructure investment projects with “less-than-stellar outcomes”.
Many fear that much of the deal would consist of burdensome loans, rather than grants or funding with more favorable terms. In this case, Indonesia would need major assistance in fixing current policies that make it hard to add more renewable energy to the grid.
Another concern is the lack of criteria for the early retirement of coal-fired plants. This may lead to overcompensation, as in the case of the Cirebon1 power plant early retirement deal.
At the end of the day, retiring coal plants will be a complex and costly task for the Global South, including Indonesia, due to these countries’ vulnerability to climate hazards and dependence on assistance from the Global North.
