Who will pay for Indonesia’s clean energy bill?

  • By Jonathan Head
  • BBC News, Bali

Image caption,

Bali, where the G20 summit is happening, is home to a controversial coal power plant

Driving over the volcanic peaks which run through Bali, you pass scenes of natural and human-fashioned beauty that have made this “island of the gods” the jewel in Indonesia’s tourist crown.

As you descend to the north coast, however, there is a jarring sight. A tall, red-and-white chimney rises from a complex of grey and blue buildings, with a long conveyor belt running out to the sea.

Great mounds of coal are piled on off-shore platforms and, until recently, a half-sunk barge threatened to spill its black contents into the sea.

This is Celukan Bawang power station, one of a growing network of coal-fired power plants in Indonesia that are now the subject of complex negotiations to reduce the country’s emissions. But the path to clean energy is uphill for emerging economies, especially as they still recover from the clobbering effects of Covid-19 – and it’s no different for this fast-growing nation of 275 million people.

Celukan Bawang power station was opened in 2015, the year President Joko Widodo announced his campaign to “Light Up Indonesia”.

Jokowi, as he likes to be called, had won the presidency the year before on a track record as mayor of two big cities who got things done – and on promises to fix his country’s ramshackle infrastructure.

He announced a plan to expand electricity generation by 35,000 megawatts over the next four years to address persistent shortages. This would be done mainly by building dozens of power plants fuelled by coal, which Indonesia has in abundance.

At the time that Celukan Bawang was planned, Bali had been suffering from those shortages, which threatened to hurt its vital tourist industry, More reliable electricity supply was a top priority. But the power station was controversial from the start. There were disputes with locals about the acquisition of land, and complaints about pollution.

“Since they began operating we no longer find certain kinds of fish,” says Supriyadi, a fisherman who lives a few hundred metres down the beach from the plant. “The fish have moved much farther out to sea, and people don’t want to buy what we catch.”

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Supriyadi, a fisherman, says the power station has affected their catch

Environmental groups have campaigned against Celukan Bawang, filing a lawsuit against a plan to increase its capacity. The Chinese-funded company running it has responded by hiring tough-looking men to keep watch outside the plant, and stop people even from photographing it.

The local police chief told the BBC he had been ordered to make sure no one filmed anything in his area during the G20 summit, and a group of protesters planning to cycle from the capital Jakarta to highlight their concerns was blocked from crossing to Bali. This, despite the fact that President Jokowi has suddenly found his green voice.

“Up until a year ago, there were certain words that couldn’t be uttered in government circles. Climate being one and coal phase-out being the other,” says Adhityani Putri, who runs Cerah, an Indonesian foundation working for a transition to sustainable energy.

“Fast forward one year, we now are looking at a government that is finally taking climate and energy transitions seriously, with President Jokowi saying this on the international stage, and energy transition being made one of the priority agendas of the G20.”

The change came at COP26 – the climate summit in Glasgow in 2021 – when Indonesia said it would phase out coal-fired energy before 2050. Since then, there has been a flurry of announcements from the government, the latest a presidential decree blocking licences for new coal-fired plants. But there are caveats.

Projects that have already been approved can go ahead. Facilities which will power essential industries, like the giant mines in eastern Indonesia that supply much of the nickel needed to make batteries for electric cars, can still be constructed.

And Indonesia will actually produce more coal-fired electricity for several years, before it starts to cut production at the end of the decade. Even then, there is talk of continuing to use coal in other ways, like gasification – converting it to dimethyl ether (DME), a substitute for liquified petroleum gas (LPG).

This is not yet the great leap forward to Indonesia’s target of net zero emissions by 2060. But they are going as fast as they can, says Luhut Binsar Panjaitan, the co-ordinating minister for maritime affairs and investment, and the country’s lead negotiator on energy transition.

“We are not going to make any policy that jeopardises the next generation,” he adds. “I have given my negotiating team very clear parameters – anything we do, don’t disturb our economic growth. We have to have affordable clean technology. And we need the right timeline for our economy.”

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Celukan Bawang power station was opened in 2015

Mr Luhut makes the point that Indonesia’s per capita carbon emissions are well below those of the United States, and still below the global average.

His government is putting faith in technologies like carbon capture and efficient “super-critical” coal burning to make power plants cleaner – measures environmentalists greet with scepticism. They also say that in the most populous areas, such as Java and Bali, there is now surplus electricity.

“Why does our government still want to build new coal power plants? It doesn’t make sense to me,” says Adlila Isfandiary, a climate and energy campaigner at Greenpeace who says the island of Java, Indonesia’s most populous island, already exceeds its power supply needs by 46%.

“The number of plants they are planning to retire is smaller than the number they want to build. Why do they say they need money to retire the old plants, yet they still spend money on new ones? And if you build new coal plants, it leaves no space to develop renewable energy.”

She says Indonesia has abundant sources of renewable energy that have barely been touched yet.

There are other problems holding Indonesia back.

It is one of the world’s biggest coal producers, and environmentalists worry that the many vested business interests are limiting the government’s ambitions for a clean energy transition.

Then there is resistance from the state-owned electricity monopoly PLN. It is in financial difficulties, partly because it’s generating more electricity than is needed after demand fell during the pandemic, and partly because it must sell power to consumers at low prices even as fossil fuel prices soar.

PLN also has long-term contracts with private contractors to get the new power plants built. Tellingly, it bars businesses and individuals on Bali from sourcing more than 15% of their electricity from solar panels, making that renewable source economically infeasible.

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The government is finally talking about climate change seriously, says Ms Putri

But perhaps the greatest challenge is that Indonesia’s power stations are so new, unlike those in South Africa, the first country to start negotiating a coal-reduction deal under the Just Energy Transition Partnership (JETP). It brings together richer countries and international financial agencies so they can pay for weaning developing nations away from coal-fuelled power.

In South Africa, most of the plants listed for decommissioning were near the end of their working lives. But here, because the power stations are new and have been built with borrowed money, decommissioning them will be expensive.

“This is where the Just Energy Transition financing comes in,” says Ms Putri. “They still need to pay back the loans that the developers have taken out in order to build these coal-fired power plants.

“This is where the international world needs to step in and provide cheap financing, concessional loans and even grants, a mix of it that will then help Indonesia to pay off those loans sooner, and then they can be retired 10 years earlier.”

Just how much money Indonesia gets for shuttering its coal-fired power plants is now the subject of some tough and thorny negotiations, under the JETP, with former US Secretary of State John Kerry leading the group of developed countries.

But it will certainly run to many tens of billions of dollars, coming from many sources, both government and private.

The prize is that if such a deal can succeed with a country of Indonesia’s size, it will set an example, and perhaps offer lessons, for many other countries to follow.

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