Indonesia is struggling to prove its commitment to boost renewable energy. While the government’s latest national electricity plan (RUPTL) promotes a much higher portion of renewable energy, coal is still projected to be the primary source of power (59.4%) by the end of decade.
And instead of accelerating the renewable energy transition, the government plans to ban coal exports to keep its coal fleet running.
The decision seems to contradict Indonesia’s plan to provide more green energy in the future. It’s also causing geopolitical tension.
Indonesia needs to take serious action to fulfil the global pledge to phase out coal power by 2030 while boosting investment in renewable energy. It requires the right plans and solid political will to ensure this energy transition happens smoothly.
Why coal power generation must retire earlier
Indonesia has put its coal retirement program in place, starting from 2030. Subcritical coal-fired power plants, as the least efficient coal power generation technology, will be the first in line. The program is due to finish in 2060.
This isn’t fast enough to meet the Global Coal Transition Pledge to phase out coal power generation by 2030.
The coal retirement program should start much earlier, especially considering the market has seen increased volatility in coal supply and demand. These uncertainties continually threaten energy security. They may also create tension with several countries.
Furthermore, the cost of coal power generation will not be cheaper than renewable energy. The average price of a solar module decreased by 90% from 2010 to 2020. It will continue to become cheaper due to technological advancements.
The late implementation of the retirement program also increases the risk of stranded assets in Indonesian coal facilities. The estimated total value of the loss is between US$34.7 billion and US$118.06 billion. These losses are the result of falling demand and the costs of climate-related risks.
To support the retirement program, the government must start by phasing out its coal subsidy. Throughout 2016-2017, the government budgeted over US$0.7 billion (Rp9.9 trillion) per year to control the cost of electricity from coal-fired power generation.
The government can instead shift these funds to directly subsidise and improve the financial capacity of Indonesia’s state-owned electricity company, PT PLN.
Renewable energy subsidies such as feed-in-tariffs (controlling the cost of power generation) could be an alternative and cheaper solution to increase the economic viability of Indonesia’s low-carbon project.
Mitigating labour risk by opening massive renewable energy investment
An early retirement program for coal-fired power plants aligns with Indonesia’s target to multiply its renewable energy capacity.
The latest national electricity plan (RUPTL 2021-2030) has considered the effects of climate change by increasing the target for additional renewable energy capacity to 21 gigawatts (GW). This is 20% more than the previous plan (RUPTL 2019-2028).
Renewable energy will mostly come from hydropower and solar power. These sources account for 25.6% and 11.5% of all additional power plants between 2021 and 2030, respectively.
To meet this target, the government should improve the investment climate by simplifying business processes, considering the majority of renewable energy projects (56.3%) will rely on private investment.
Financial institutions should work hand in hand with the government to accelerate renewable energy investment. The classification of sustainable economic activities (also known as the “green taxonomy”) issued by the Financial Services Authority (OJK) should be used as a basis to provide incentives for green economy activities.
Accelerating the flow of climate funds from the international community could also support the economic feasibility of renewable energy projects.
Lastly, increasing renewable energy investment is likely to create jobs. The government can grab this opportunity to create a just transition without massive unemployment. Australia, for instance, may provide lessons on how to manage such a transition.
Several factors should be taken into account, such as the mapping of human resources potential, subsidies to develop employee skills and competencies among small-medium enterprises, village-owned enterprises (BUMDes), start-ups and incubators in creating new green economy prospects in their own regions.
Most importantly, such a pathway should be discussed not only by the government but also with industry associations, unions and other stakeholders.