Indonesia’s current power status shows that the country derives half of its electricity from coal-fired power plants (CFPP). The overwhelming additions of capital-intensive fossil fuels have contributed to poor financial returns and heavy debt burdens on the state electricity company, Perusahaan Listrik Negara (PLN).

Oversupply is a significant issue that developed as a combination of overestimating future demand, over-constructing large fossil fuel-fired generators, and market barriers that prevent the full utilisation of this existing capacity. Key power sector policies and announcements reveal that exemptions and existing, planned projects may not set Indonesia on the most straightforward path to achieving an effective, efficient, and timely energy transition. The proposed capacity additions stated in PLN’s Electricity Supply Business Plan (RUPTL) 2021-2030 could either prolong the use of fossil fuels or potentially deviate essential resources towards unproven “new” technologies rather than renewable energy (RE).

The Centre for Research on Energy and Clean Air (CREA) and Trend Asia have published a joint report examining the ambiguities in Indonesia’s energy transition policy, in particular in the power sector.

The report found an estimated 33% of the 58 GW of total installed fossil fuel capacity in Indonesia was more than what was needed to meet peak demand and maintain a 15% reserve margin in 2021. This oversupply exceeds the national electricity reserve margin standard of 30-35% and amounts to an estimated IDR 16 trillion (USD 1.2 billion) for fixed operating and maintenance costs to keep this excess capacity in working condition. Existing overcapacity on the grid should therefore encourage Indonesia to avoid new coal construction while devoting much-needed capital to grid improvements and zero-carbon technologies to preserve the security of supply.

The Energy Transition Mechanism (ETM) and Just Energy Transition Partnership (JETP) scheme currently being offered to Indonesia will be excellent opportunities to accelerate the transition, in particular to support the financing of the early retirement of CFPPs and to boost the development of RE-based power plants such as solar and wind.

Key findings

● Over 12 GW of fossil fuel power plants have been commissioned in the last five years, increasing Indonesia’s operating coal fleet by 30%. Meanwhile, only 1.6 GW of renewable energy capacity was added, mostly hydro and geothermal.
● In 2021, 33% of the 58 GW of total installed fossil fuel capacity in Indonesia was in excess of what was needed to meet peak demand and maintain a 15% reserve margin. This oversupply exceeds the national electricity reserve margin standard of 30-35% and is maintained by IDR 16 trillion (USD 1.2 billion) annually in FOM cost.
● An estimated 40.6 GW of capacity is planned for commercialization between 2021 and 2030; of which 34% (13.8 GW) will come from coal and 14% (5.8 GW) from gas and diesel. Such capacity additions are incompatible with an ambitious NZE and will likely worsen oversupply.
● At present, the determination of the NZE targets is not fully aligned across ministries and related entities. PLN and MEMR set 2060 as the official target, while MoEF set 2070 and Bappenas set 2045.
● Amid slower economic growth rates, electricity grid oversupply, and CPP’s funding uncertainty, nearly 6 GW of new CPPs are “shelved” in the 2021 2030 RUPTL in case they are needed for “adjusting system needs.” The most significant portion is found in Sumatra (2.59 GW) and Java (2.66 GW), even though these grids both faced oversupply concerns of over 50%.
● From 2021 2030 RUPTL, PLN plans to convert 1.2 GW of proposed coal projects to fossil gas. The existing coal overcapacity in Indonesia and the low penetration of renewables in the energy mix means that gas infrastructure will only lock in fossil fuels infrastructure.
● PLN’s strategy to reduce GHG emissions will not be met by increasing biomass co-firing at coal plants because the portion of biomass is only 1-5%, and the remaining 95% will still use coal. Co-firing runs the risk of derating the asset and also potentially provides a reason to extend the coal life and keep them operating. PLN plans to implement this technology in 144 CPP units with a total capacity
target of 18.3 GW by 2025.
● The feasibility of ammonia co-firing remains untested outside of Japan. Factors such as the need to import the fuel and the retrofitting of existing plants will likely make this technology extremely costly in Indonesia and are of concern as it could extend the lifetime of CPPs and LNG power plants. PLN plans to implement this technology in 7 units of power plants with a total capacity target of 4 GW.
● CCUS technology remains largely unavailable commercially and remains extremely costly to implement for power projects, especially in the face of renewable energy alternatives. The implementation will reduce the plants’ generating capacity because the technology is energy-intensive.
● Clean Coal Technology (CCT) does not guarantee the reduction of GHG emissions and air pollution from CPP. CPPs with CCT still emit CO2 and toxic pollutants such as sulfur dioxide, nitrogen dioxide, and particulate matter.

Recommendations

CREA and Trend Asia recommend to:

• cancel all new fossil fuel power plants in the pipeline;
• reevaluate fossil fuel projects that are subject to PPA renewals;
• expedite timeline for phase out of coal power plants, while scaling up deployment for new solar and wind technologies;
• disclose long-term power purchase agreements (PPAs) and plant-level retirement plans to the public;
• reevaluate fossil fuel based capacity, and its share in the energy mix;
• completely avoid fossil gas and false solutions in power sector and energy transition initiatives;
• integrate sub-national electricity grids and improve grid management.

The report is available in English and Bahasa Indonesia.