Indonesia’s state wealth fund signed a non-binding agreement to help fund the early retirement of a 660-megawatt coal-fired plant in West Java, the first deal to be made under a newly-set up energy transition fund.
The money will be used to retire Unit 1 of the plant located in the city of Cirebon, some 200 kilometers away from the capital Jakarta, according to a statement. The coal plant, which started operations in 2012, is jointly owned by Marubeni Corp., PT Indika Energy, Samtan Co., Korea Midland Power Co. and Jera Co.
Southeast Asia’s largest economy is seeking to raise billions of dollars via the Energy Transition Mechanism to help phase out its coal-fired plants, reducing its dependence on the dirty fuel that makes up more than half the national power capacity. Indonesia has pledged to achieve net zero emission by 2060.
“The severe impact of Covid 19 and climate change will definitely hinder our fiscal space, so for all of us to deliver our credible commitment, financing is very important,” said Finance Minister Sri Mulyani Indrawati at the ETM launch ceremony in Bali on Monday. “The ETM will be our platform to crowd in funding for climate actions.”
Such fund mechanism would act as a conduit for international funding toward energy transition in Indonesia, such as for the estimated $20 billion Just Energy Transition Partnership deal with US and Japan set to be announced on Tuesday. “That demonstrates the level of preparation that has gone into this work,” ADB Vice President Ahmed Saeed said in an interview.
Cirebon plant was chosen because of its owner’s interest and it has suitable financial structure, ADB said in a separate statement. The plant may be retired as early as 2037, or 15 years earlier than its original lifespan, with plans to replace it with renewable energy.
The plant retirement cost is estimated at $250 million to $300 million, said ADB. The ETM currently manages $500 million, that can be leveraged to $4 billion, according to Indrawati.
Blended Finance
The funding platform would involve adopting a model called “blended finance,” that taps different types of investors including sovereign, multilateral and private, instead of bilateral funding, ADB said. That means countries like Indonesia can retain more authority over their domestic energy strategy instead of signing on to policy-binding deals.
As much as 6.7 gigawatt of coal-fired power plant will be shut down before 2030, according to state utility Perusahaan Listrik Negara. The company has a roadmap to “scale things up, and deploy much larger funds,” said PLN President Director Darmawan Prasodjo.
On the same day, PLN signed an agreement with Amazon.com Inc. to supply 210 megawatt of electricity from four solar plants in Java and Bali to power its Indonesian operations. Amazon Chairman Jeff Bezos said he wants the entire company operations to run solely on renewable energy by 2025.
