Energy and Mineral Resources (ESDM) Minister Dadan Kusdiana said that President Joko “Jokowi” Widodo had set the deadline for Indonesia to declare that the country has started the process for early retirement of its CFPPs to when Conference of Parties (COP 28) is held from Nov. 30 to Dec. 12, 2023 in Dubai, United Arab Emirates. Dadan added that his ministry aims to do at least one commercial transaction of a CFPP in 2023 as part of that mandate and revealed that it is also finalizing a roadmap for early retirement of CFPPs as a reference for both domestic and foreign funding.

Early retirement of CFPPs is part of Indonesia’s goal to cut on-grid power sector carbon emissions to 250 million tons in 2030 and raise its renewable energy generation share to 44 percent as required by JETP, according to its comprehensive investment and policy plan (CIPP) made public on Nov. 1. But the CIPP does not account for captive CFPPs, which have a combined 13.74 gigawatt (GW) of capacity and another 20.48 GW planned due to metal processing sector expansion, according to a report commissioned by the Asian Development Bank (ADB).

Indonesia had initially agreed to cap and peak its power sector's carbon emissions at 290 million tons by 2030 as part of JETP. But the government said that at the time, it had not understood the scope of power capacity outside the state utility's grid, which are in the hands of off-grid metal processors. That led to captive CFPPs’ exclusion from Indonesia’s CIPP for the JETP. Indonesia also seeks to shut down 1.7 GW of CFPP capacity through financing from the Climate Investment Funds and the ADB.

The International Partners Group (IPG), which consists of countries committed to provide half of the US$20 billion JETP funding while the other half provided by Glasgow Financial Alliance for Net Zero (GFANZ), had previously raised their concern on the planned expansions of captive CFPPs for smelters.

According to Senik Centre Asia researcher Andri Prasetiyo, parties who had pledged to disburse JETP funding to Indonesia could back out due to the issue of captive CFPPs. Furthermore, he added that the smelters’ output will find it hard to compete in the global market later on due to their production being powered by CFPPs.

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Considering the problems that could threaten IPG’s and the GFANZ’s commitment to JETP funding, experts say the issuance of Finance Ministry Regulation No. 103/2023 on Oct. 13 could assure them towards making good of their pledge. The regulation stipulates that the state budget and “other legitimate sources” can be allocated to end CFPPs’ operations and electricity purchase agreements (PJBL) earlier, as well as to develop renewable energy power generation to replace the retired CFPPs.

What’s more

Trend Asia, Indonesian Forum for the Environment (Walhi), Indonesian Centre for Environmental Law (ICEL), Center of Economic and Law Studies (CELIOS), Indonesia Research Institute for Decarbonization (IRID), Institute for Essential Services Reform (IESR), and Yayasan Indonesia Cerah submitted a white paper criticizing the process of formulating the CIPP for the JETP. Their criticisms span from the use of state funding for CFPPs early retirement, lack of transparency and public participation in drafting the CIPP, as well as lack of local government participation in the program planning and implementation.

Meanwhile, the unclear status of JETP funding has caused PLN to explore alternatives in retiring its CFPPs earlier, including a capacity factor reduction scheme outlined in the state-owned enterprise (SOE)’s Accelerated Renewable Energy with Coal Phase Down (ACCEL RE Coal Phase Down) scenario. But Institute for Energy Economics and Financial Analysis (IIEFA) energy analyst Putra Adhiguna noted that the scheme is legally risky since it will involve violating commercial agreements between suppliers and independent power producers.

What we’ve heard

Several sources within the Energy and Mineral Resources Ministry (ESDM) have mentioned ongoing negotiations between the state electricity company (PLN) and the government regarding the early retirement plan for Suralaya Coal-Fired Power Plant units 1-4.

Due to pollution and emissions, PLN had previously retired the old Suralaya Coal-Fired Power Plant located in Cilegon, Banten. However, later on, the power plant, which supplies electricity to Jakarta and West Java, was reactivated. A similar situation occurred with the Pelabuhan Ratu Coal-Fired Power Plant (PLTU).

The main issue revolves around the missing budget to cover the early retirement of the Suralaya PLTU, which remains unclear. The government still hopes to receive grants through the JETP agreement to retire fossil fuel-based power plants early. Reportedly, PLN has requested a significant allocation of funds to retire the Suralaya Power Plant, arguing that they have already made substantial investments there.

The problem arises because, in order to obtain grants, the government must fulfill several stringent conditions. Lately, the financing requirements of JETP have not aligned with expectations. Apart from the high interest rates, only a small portion is provided as a grant. Apparently, half of JETP's commitments come from private lenders.

Due to the lacklustre JETP grant scheme, the government is forced to dip into the state budget (APBN) to retire the Suralaya Coal-Fired Power Plant early. Meanwhile, PLN's internal budget is also being prepared for allocation. The cost to retire the Suralaya Coal-Fired Power Plant early is around Rp 16 trillion. Moreover, the budget requirement to close the Pelabuhan Ratu Coal-Fired Power Plant is at least Rp 15 trillion.

Another source adds that the cessation of coal-fired power plants, with required funds of up to $1.3 billion by 2030, is supposed to be included as one of the five investment focus areas (IFA) of JETP. However, this does not include expediting Renewable Energy projects. This meant that to reach the target to build 16.1 GW of Renewable Energy projects by 2030, the government needs to raise its own funds of up to $49.2 billion by the year 2030.

Furthermore, among the thousands of projects gathered in the 5 IFA, more than 400 projects have been identified by JETP to require a minimum investment of $67.4 billion. Of those, the JETP Secretariat has identified roughly 50 priority projects.

Disclaimer

This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access the latest edition of Tenggara Backgrounder to read the articles listed below:

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