By: Felicia Grace Ratnasari Utomo (Research Staff at Purnomo Yusgiantoro Center (PYC)).
Filda C.Yusgiantoro (Senior Researcher at Purnomo Yusgiantoro Center (PYC)).

Recently, the Indonesian government has issued a plan for a moratorium or termination of coal-fired power plants. New coal-fired power plant projects will be phased out after 2025, except for projects that are already under construction or in the completion stage.

This is because the Indonesian government is currently facing global pressure to achieve its carbon emission reduction target of 29% with business as usual (BaU) and 41% with international assistance by 2030.

However, the moratorium is not the end of the coal-fired power plants. State Electricity Company (PLN) and the government can integrate several efforts, so that the coal-fired power plant can still contribute to the energy transition, especially in pursuing emission targets and realizing Indonesia’s future economy security and energy security.

Research also shows that the moratorium will increase investment in renewable energy which will benefit Indonesia in the future.

Illustration of coal |Pexel

Dependence on Coal-fired power Plant

Indonesia is ranked 7th in the world as the country that uses the most coal-fired power plants in 2020. The Indonesian State Electricity Company (PLN) is also building 35,000 MW power plants, which will be dominated by 20,000 MW coal-fired power plants. In addition, PLN is also developing the Fast Track Program (FTP) II with a total of 7,000 MW dominated by coal-fired power plants. The idea on the construction of 41 GW of new power plants, which will be dominated by 36% of coal-fired power plants is also being discussed.

Coal-fired power plants became the pillar for energy sources in Indonesia, since Indonesia is one of the largest coal reserves countries in the world. Indonesia’s total coal reserves until the end of 2019 reached 37,56 billion tons, which was mostly dominated by low and medium rank coal.

Indonesia’s coal reserves in 2019 | PYC Data Center

Indonesia plays an important role in the global coal market as the 2nd largest coal exporter that contributes 18.2% of the world’s total coal exports. In 2019, Indonesia’s coal production was 616 million tons, with 76% of its total production allocated for export.

With abundant reserves, low prices, and high efficiency, coal-fired power plants became the main source to fulfill the national electricity energy needs. Coal-fired power plants contributed 35,220 MW or 50% of the total installed capacity of PLN’s power plants until June 2020.

On the other hand, the presence of coal-fired power plants brings up social and environmental problems. In fact, in 2015, carbon emissions from coal-fired power plants contributed 122.5 million tons of CO2e or 70% of Indonesia’s total power plants carbon emissions.

If Indonesia should continue using coal-fired power plants for a long term, carbon emissions would be predicted to increase significantly.

With the increase in reducing and suppressing the negative impact of carbon emissions, strategic policy to phasing out the coal-fired power plant is crucially needed.

Future economic benefits

The moratorium of the coal-fired power plants can be beneficial for Indonesia’s sustainable economy.

Investment trends and the green economy seem to be growing. Investors will consider the impact of environmental, social and governance (ESG) as their investment decision-making indicators, thus, environmentally friendly projects will become a funding priority.

Moreover, several countries, such as the UK and Japan, as well as global companies such as General Electric from the United States and Siemens from Germany had even declared their commitments to stop funding fossil energy projects including coal-fired power plants. Thus, investment opportunities for developing coal-fired power plants in the future will be increasingly difficult.

As technology develops, the demand for new and renewable energy (NRE) is also expected to increase and the price will decrease. As the result, the price of electricity from NRE plants will become more competitive than the price of electricity from coal-fired power plants.

Meanwhile, the coal-fired power plants operational costs such as fuel costs, operational costs and maintenance costs will burden the state. In addition, the government must also bear the negative externality cost such as health problems caused by the coal-fired power plants.

However, the threat of those losses can be reduced by several alternative efforts, so that the coal-fired power plants can still contribute to economic security and energy security in the future.

The moratorium is not the end of the coal-fired power plants

Many alternatives can be applied so that the Coal-fired power plants can still support the economic security and energy security in the future. Several things can be synergized by PLN and the government in reducing the negative impact of coal-fired power plants.

First, PLN needs to review the proportion of coal-fired power plants in 41 GW of power plants development project by increasing the portion of NRE.

Second, PLN can consider the following options to take advantage of the coal-fired power plants assets that will be abandoned. Instead of being dismantled, PLN can implement clean coal technology in the existing coal-fired power plants to make it more efficient and environmentally friendly. In addition, PLN can synergize with other State-Owned Enterprises (BUMN) in the energy sector, in the developing Carbon Capture and Storage (CCS) technology to reduce the carbon emissions.

Third, Indonesian government and PLN can issue an attractive green investment instruments such as green bond for financing the development of the technology.

Finally, Indonesia’s large coal reserves can also be utilized for other national strategic programs, such as converting low-rank coal into gas called dimethyl ether (DME), which can be used to replace imported Liquid Petroleum Gas (LPG).

Ahead of the coal-fired power plants moratorium in 2025, PLN should not take the opportunity to maximize the construction of new coal-fired power plants. If PLN and the government were unable to take advantage of this momentum, Indonesia would certainly not only fail to meet its emission targets but also threaten Indonesia’s economy security and energy security in the future.

Disclaimer: This opinion piece is the author(s) own and does not necessarily represent opinions of the Purnomo Yusgiantoro Center (PYC).

This opinion has been published on The Conversation
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