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Facing oversupply, Indonesia scales back its coal-based electricity plan

  • In 2014, Indonesian President Joko Widodo announced plans to generate an additional 35,000 megawatts of electricity by 2019, much of it to be fueled by coal.
  • Last month, energy minister Ignasius Jonan said only 15,000 additional megawatts will be required by 2019.
  • Jonan cited lower-than-expected economic growth, leading to lower energy demand.

The Indonesian government appears to be backtracking on its aggressive 35,000-megawatt, coal-centric energy development plan.

The ambitious 35,000 megawatts of new electricity generation projects were to be completed by 2019, according to a plan announced by President Joko Widodo in 2014. However, only 15,000 megawatts will be required by then, the Minister of Energy and Mineral Resources, Ignasius Jonan, said last month.

Jonan attributed the U-turn on energy development goals to setbacks to the government’s equally ambitious goal of achieving upwards of 7 percent annual economic growth.

According to the World Bank, Indonesia’s economy will grow 5.2 percent in 2017, up from 5 percent in 2016. While 5.2 percent is still high by global standards, it is much lower than the government’s target.

Back in 2014 when Widodo announced the 35,000-megawatt plan, the government was planning for “very optimistic economic growth,” said Dwi Sawung, energy campaigner at Friends of the Earth Indonesia.

With lower economic growth than expected, there will be less industry, and less energy required, leaving a surplus of power. At current development rates, there would be a 5,000-megawatt oversupply to the Java-Bali grid by 2024, said Jonan.

Thousands of people from communities impacted by coal mines or coal-fired power plants rallied in Jakarta in March. Photo by Zamzami/Mongabay.

The 35,000-megawatt coal-based plan was “unnecessary,” and a “big surplus,” said Sawung.

To mitigate the oversupply, some coal power plant developments in Indonesia will be canceled, and an estimated 9,000 megawatts of projects have been put on hold until 2024. Out of the proposed 35,000 megawatts, around 20,000 megawatts were expected to be coal.

Supangkat Iwan, the procurement director for the state-owned electricity supplier PLN said the coal reduction will include scrapping power plant Java 5. The 2,000-megawatt plant would have been located in West Java, and built by PLN subsidiary, PT Pembangkit Jawa-Bali. Altogether, PLN is to scrap 9,000 megawatts of power purchase agreements (PPA), focusing instead on a smaller pipeline, said Iwan.

Coal power projects still going ahead include the controversial 1,000 megawatt Cirebon coal power plant which recently had its environmental permit revoked, the 2,000-megawatt expansion of Tanjung Jati which has had financers back out, and the 2,000-megawatt Batang coal power plant, which has been delayed for four years due to local protests.

A worker operates an excavator at an open pit-coal mine in Samboja, East Kalimantan, Indonesian Borneo. Photo by Kemal Jufri/Greenpeace.

The trouble with coal

For years, coal developments across Indonesia have faced protests, campaigns, lawsuits, and complaints over water and air pollution. Yet the government has steamed ahead with coal projects.

At risk from coal mining is approximately 8.6 million hectares (21.25 million acres) of Indonesia’s biodiverse and carbon-dense forests. As a 2015 report by NGO Fern found, this makes Indonesia’s forests the world’s most under threat due to coal. Indonesia’s continued pro-coal stance also calls into question its commitments to reducing carbon emissions by 29 percent from projected 2030 levels.

The 35,000-megawatt plan was “a lifeline for the coal mining sector in Indonesia,” says industry analyst Oxford Energy. It bolstered the domestic coal market and guaranteed demand as Indonesia’s two biggest coal customers, India and China drastically reduced coal imports (as part of a growing trend across the globe).

Business services company PwC estimates constructing new power plants and expanding the national grid would cost PLN over $75 billion over the next 10 years. However, PwC also reported last year that Indonesia’s coal reserves will not last more than 18 years, with coal resources on track to be depleted as early as 2033.

The coal-based energy plan would also have brought soaring numbers of early deaths from coal pollution. A Harvard University-led research study analyzed health impacts of existing and planned coal plants in Indonesia, predicting more than 24,400 premature deaths per year by 2030.

The 35,000-megawatt plan was not just coal focused, but also urban focused; around 26,000 megawatts was expected to be developed in Indonesia’s most populous island, Java, connecting to the Java-Bali grid.

While an estimated 1.6 million poor households in Indonesia do not have grid access, Java is almost fully electrified. “This electricity is not for those people without electricity access, it is for industry,” Didit Wicaksono, a coordinator at Greenpeace Indonesia has previously told Mongabay.

Due to all the impacts imposed by the 35,000-megawatt plan, environmental organizations have been pressuring foreign finance to pull out of Indonesian coal investments. Investors and businesses also began questioning the 35,000-megawatt plan, and a policy review was announced last year.

Police and security aboard a journalists’ boat as anti-coal activists unfurl banners and block the loading of coal at the Cirebon coal plant in West Java. Photo by Ardiles Rante/Greenpeace.

Changes to coal support

While it is unlikely the government will change its “pro-coal” stance, said Sawung, minister Jonan is new to the energy sector, and has said he is not just pro-coal, but pro-low prices.

Joining the Energy and Mineral Resources Ministry in October 2016, Jonan had no previous experience in the energy sector. He is also the fourth person in less than a year to be appointed as the Energy and Mineral Resources Minister in Joko Widodo’s government.

Jonan “saw the subsidies being paid for electricity were too big, with too much surplus,” explains Sawung. Now Indonesian energy policy is “all about the price.”

New power projects will go ahead and secure PPAs, as long as they are below the purchase price limit set by PLN. As of March, and until April 2018, the price limit is 983 rupiah ($0.07) per kilowatt-hour. Sawung said that because of this change in pricing regulation, as long as energy is supplied below this price, Indonesia is “open to buying energy from renewables.”

“If energy is cheaper from renewables, the government will buy it, if it is cheaper from coal and gas, they will buy from that,” said Sawung.

The current purchasing price limit is also “very low,” meaning coal companies “cannot meet this price,” said Sawung. The regulation change “makes it difficult for new coal power projects in Java to be profitable, even for the biggest coal companies.”

This trend away from coal could open up a “new opportunity” for renewables, said Sawung. Especially on small islands and rural areas, where renewable energy has been taking off successfully in Indonesia.

The delays and cancellations to coal projects under the 35,000-megawatt plan do not apply to the 3,700 megawatts of renewable energy developments. Previous plans for hydro, wind, solar and geothermal projects are still going ahead as planned.

One additional reason for the recent shift in policy away from coal, said Sawung, is the general election campaigns for 2019, which will begin next year. President Joko plans to run, and potential voters from middle-income households complain, often on social media, about high electricity prices. “This year the price has increased about four times, and the price keeps rising,” said Sawung.

A masked activist holds an anti-fossil-fuel banner outside the Bandung Administrative Court on April 19, part of a rally awaiting a court verdict on the validity of the Cirebon coal plant’s environmental permit. Photo by Donny Iqbal/Mongabay.

In response to complaints, on April 28 Jonan said electricity tariffs will be adjusted every three months, to ensure electricity prices remain affordable and to provide a climate of certainty for investment.

Jonan also said that the Energy and Mineral Resources Ministry’s new goal is to make Indonesia’s energy sector more efficient and accessible, including new policies to penalize PLN for not delivering electricity to customers.

Emphasizing the need to close what he described as a “very big natural resources management gap,” deputy minister of Energy and Mineral Resources Arcandra Tahar spoke April 25 at the University of Gadjah Mada. “As good as our plans, the gap is still wide open,” Tahar said.

Sawung agrees there is a dearth of sufficient management and organization of Indonesia’s natural resources. The government “did not do enough planning,” pushed for 35,000 megawatts “without feasibility studies” and “did not fit power plants to the conditions,” said Sawung.

“When you push for 35,000 megawatts without doing any of the studies, projects cannot operate,” said Sawung.

The government wanted to speed up projects, Sawung said. “But you have to study beforehand. Without studies, you cannot fasten [up] projects, as you don’t know what troubles there are, or what the conditions will be.”

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