The financial case against coal power in Indonesia

A recent report by the Institute for Energy Economics and Financial Analysis (IEEFA) warns that Indonesia’s coal-based electricity strategy risks wasting $76 billion over the next 25 years.

Closing the gap between those who have electricity and those who do not is no easy feat, especially in an island nation like Indonesia. With over 17,000 islands — 6,000 of them inhabited — the country’s scattered Pacific geography defies construction of a national transmission grid. Nonetheless, the country’s economic ambitions and its substantial coal reserves have encouraged developers to rely on big centralized coal-fired power plants.

A solution is at hand. New generating technology and changing energy markets are making it easier and cheaper to supply electricity with smaller power stations more readily distributed across regions.

A sweeping global pivot away from centralized power plants and fossil fuels and towards cleaner wind, solar, geothermal, and small hydropower is gaining momentum.

Global pivot away from coal

The details of the pivot away from coal are emerging in the research findings of a select group of small non-profit investigative organisations operating around the world. One of them is the Institute for Energy Economics and Financial Analysis (IEEFA), a US-based research group that is pushing Indonesia to join an Asian-led transition away from coal-fired power that is shaking the world.

IEEFA’s research, focused on the ever more apparent mismatch between the rising cost of fossil-fueled power and diminishing price of renewable technology, is helping to tilt the views of utilities and government administrators not swayed by environmental or public health concerns.

In its newest report on the Indonesian electricity market, released in August, the four-year-old nonprofit warned Indonesia that a central provision of its coal-based electrical strategy risked wasting $76 billion over the next 25 years. IEEFA also asserted that Indonesia underestimated savings from energy efficiency.

As renewable energy costs have come down drastically. Renewables are forcing utility policy makers and regulators around the world to rethink the way the electricity sector is structured.

Yulanda Chung, author, Institute for Energy Economics and Financial Analysis (IEEFA)

As a result, the country’s planners overestimated how much power it would need to electrify every home and business.

Essentially, said IEEFA, energy authorities, influenced by Indonesia’s large coal reserves and mining job prospects, ignored both the escalating cost of fossil-fueled electricity and the plunging prices for efficiency and renewable energy. Indonesia’s program of building big coal-fired power plants, argued the IEEFA, was obsolete.

“As renewable energy costs have come down drastically,” wrote Yulanda Chung, the report’s author, “renewables are forcing utility policy makers and regulators around the world to rethink the way the electricity sector is structured.”

In a nation that exports more coal than every other except Australia, and wants to use more of it to fuel its domestic power plants, such a message could be expected to be roundly dismissed. 

As recently as May 2015, Indonesia President Joko Widodo pushed for a new plan to finish electrifying all of his big country, once again focusing on large, centralised fossil-fuel plants.

Widodo said Indonesia would raise $75 billion to add 35 gigawatts of new electrical generating capacity, 60 per cent more than exists in Indonesia today. He proposed that more than half of the new capacity – 20 gigawatts – would come from building 117 new coal-fired power plants.

A gigawatt is 1,000 megawatts. It’s a lot of electricity, equivalent to the generating capacity of a big power plant. Never had Indonesia added 35 gigawatts in new generating capacity during any four-year period.  For that reason and others, Widodo’s plan quickly began to implode.

Within weeks, pricing turbulence occurred in electrical markets. Lenders grew nervous. Within months, Indonesia’s big state-owned utility, Perusahaan Listrik Negara (PLN), which was charged with executing the plan, began reneging on power plant construction contracts.

In April 2017 Widodo blinked. He replaced the 35-by-2019 target and introduced a smaller proposal to add 15 gigawatts of capacity by 2019. That plan also is in trouble — just like coal-centered electricity programs all over the world.

Tiny organisation with global influence

None of what is happening in Indonesia’s electrical sector surprises the Institute for Energy Economics and Financial Analysis. Headquartered in a tiny office in Cleveland, Ohio, with revenues of close to $2 million, IEEFA has a 12-member staff of energy analysts who have served in government finance departments, investment institutions, and energy market research firms.

Working from offices in Boston, London, Manila, New York, Sydney and other cities, IEEFA acts like an auditing firm. It has dug deep into the accounts of the coal mining and electrical sectors in 13 nations, including Australia, Bangladesh, China, India, Japan, Russia, and the United States.

What they’ve found has been influential. IEEFA’s 2014 report on the mounting costs of India’s Ultra Mega Power Program anticipated the country’s decision last year to curtail building any more 4,000-megawatt coal-fired power plants, and to cease reliance on imported coal.

IEEFA’s various studies on the escalating costs of the $16 billion to build two coal mines in Australia’s Galilee basin influenced that nation’s four biggest banks to not fund development of any mining projects in new coal basins.

IEEFA studies also helped convince major financiers, among them the $960 billion Norwegian Sovereign Wealth Fund, one of the world’s largest investors, to divest their portfolios of interests in coal mines, coal-fired power plants, and utilities dominated by coal-fired power.

“The fundamental economics show that coal is on its way out, maybe not as fast as it needs to be for climate reasons,” said Michael Noble, co-founder and executive director of Fresh Energy, an American clean energy advocacy group in St. Paul, Minnesota. “It’s great that a group from Cleveland is on the front lines showing that coal economics is getting worse.”

This story was published with permission from Mongabay. Read the full story.

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