In this article, you will get all the information regarding Early Retirement of Coal-Fired Power Plants: Is Indonesia Ready? –
October 19, 2022
Jakarta – The lingering global energy crisis has become a key point for countries around the world to review their plans for the energy transition. Many believe that the energy transition has become a secondary priority as countries race to strengthen their energy security amid rising fossil fuel prices.
Plans to shift the world’s energy sources from fossil fuels to renewables have been the driving force behind the global energy transition plan after most European Union countries increased their consumption of coal to cope with the global energy crisis. , has become more controversial. With rising energy prices, it is a relatively cheap fuel.
For Indonesia, rising energy costs have not had a major impact on the economy and energy transition plans. Its resilience is largely underpinned by Indonesia’s position as a major coal exporter. However, the impact is still partly there as we have encountered an upward revision in oil prices.
As the world begins to question the feasibility of an energy transition in the short to medium term, Indonesia recently announced that it would begin closing some of its coal-fired power plants (PLTUs) by the end of 2022 at the earliest. While this massive and sudden decision is in line with Indonesia’s ambitious plans to move from fossil fuels to renewable energy, we believe there are three controversies worth discussing regarding the enactment of this policy. I am aware of that.
First, energy security should take precedence over the energy transition. It’s amazing that this policy came at a time when the world is suffering from high energy prices resulting from the ongoing energy crisis. The question is how Indonesia can implement its plan to early phase out the PLTU without jeopardizing its energy security.
According to the Ministry of Energy and Mineral Resources, Indonesia’s power mix in 2021 was still dominated by PLTUs, which accounted for 50% of the total installed capacity (37 GW out of 74 GW). It should be noted that decommissioning PLTU will not immediately increase the capacity of its preferred replacement, renewable energy. Therefore, this measure will consequently expose Indonesia to energy security risks until its renewable energy capacity can match that of the alternative PLTU.
On the other hand, we also believe that the government’s decision to initiate early closure of some PLTUs may lay the groundwork for other future policies to accelerate renewable energy development.
Second, there is no urgency for Indonesia to dramatically phase out coal use in the early stages of the global energy transition. According to data from BP Statistical Review, we believe that Indonesia is not among the countries that consume a lot of coal.
In 2021, Indonesia consumed only about 111.97 million tons of coal. This is only 2% of global coal consumption. That amount is fairly low compared to other coal-consuming countries such as China, India, and even the United States.
At the same time, we understand that being a country that sets the example of continued commitment towards the transition from fossil fuels to renewable energy creates a formidable reputation globally. Whether or not is still a big question.
Third, coal threatens to become a stranded asset in the near future. About 84.3% of the domestic market obligation (DMO) for coal in 2021 was allocated and used by the power sector, according to ministry data. Coal consumed in this sector is therefore expected to decline with the closure of some PLTUs.
Moreover, it is difficult to argue that the amount of coal previously consumed by the power sector can be reallocated to other uses. For example, the increase in demand for imported coal is expected to be temporary, so reallocating that amount of coal for export may not be feasible in the long run. It is also doubtful whether downstream coal projects are ready to deal with all the stranded coal.
For these reasons, we believe that accelerating the decommissioning of the PLTU is not the ideal way to address energy transition plans, especially as energy security begins to take center stage in our current energy agenda. I’m here. Therefore, we argue that there are several concerns that need to be addressed before PLTU early retirement is escalated.
First, the government needs to develop better incentives for renewable energy investors so that renewable energy development is comparable to PLTU retirement.
We are aware that the Government has issued Presidential Decree No. 112/2022 on Accelerating Renewable Energy Development. However, we feel that most of the price control points (i.e. price ceilings for electricity from renewable power plants) are designed to indirectly protect the state power company PLN.
We believe that there should be no price cap in a market where the only buyer is PLN. In addition, we propose that the government should raise the purchase price of electricity generated by renewable energy to a level that investors will be willing to invest in for a period of time.
Second, we believe that sometimes it is better to wait, see and adopt what other countries are doing to stay in line with their energy transition plans while maintaining energy security. I believe
As mentioned earlier, Indonesia is not one of the largest consumers of coal. For example, make sure you have enough psychological time to learn and adopt the technology of a country that consumes a lot of coal. Technologies that make renewable energy more affordable and prevent coal from becoming a stranded asset.
Finally, we believe that if governments are to persist in enacting this policy, they will need to use the current commodity windfall window to accelerate renewable energy development. For example, you can mandate the use of coal export royalties to support investments in renewable energy power plants.
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Early Retirement of Coal-Fired Power Plants: Is Indonesia Ready? –
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