CILEGON, Indonesia – In the busy port adjacent to the giant Suralaya power plant complex west of Jakarta, a steady stream of barges deliver shipments of black coal to feed the power stations’ voracious appetite.

The complex, South-east Asia’s largest, consumes 35,000 tonnes of coal a day, or more than 12 million tonnes a year. It provides much needed electricity for industry and keeps the lights on in Jakarta about 100km to the east and in other regions across densely populated Java island as well as Bali.

At full capacity, the 4-gigawatt complex can power about four million homes. It supplies about 10 per cent of the electricity for the Java-Bali grid that serves 150 million people.

But Suralaya – consisting of eight generation units with two more under construction – also creates hazardous air pollution. Nearby villagers breathe in the thick brown smoke from the towering chimneys, and the pollution also spreads far downwind, reaching as far as the capital.

The complex also emits vast amounts of carbon dioxide (CO2) that fuels global climate change, raising temperatures and intensifying droughts that lead to forest fires and haze. It is a vicious circle because smoke from forest and peatland fires contains large amounts of CO2 that further drives global warming.

Suralaya, in the city of Cilegon, is just one of many places in the country under the shadow of coal power plants. Dotted along the coastlines of Java and Bali are coal power stations and industries such as steel and cement-making that use the fuel.

Indonesia remains deeply dependent on coal and is building more coal power plants to drive its ambitious expansion to produce metals such as aluminium, nickel, copper and cobalt that are needed to make electric vehicle (EV) batteries and other key components of the burgeoning green economy.

Yet even as Indonesia invests in new coal plants, and mines, it has set a target to achieve net-zero emissions by 2060, or even sooner. How it weans itself off coal and boosts green energy production while ensuring energy security for its growing economy is being closely watched.

This is because the country faces huge hurdles in making that transition, as do India and China, the world’s top coal producers and consumers, and other major developing nations heavily dependent on coal. Indonesia is the world’s fifth-largest coal consumer and ninth-largest CO2 emitter.

Apart from deep dependency on coal, Indonesia faces huge costs in going green, the political challenge of phasing out costly subsidies that favour coal and reversing years of under-investment in renewable energy, especially cheaper wind and solar power.

Collectively, developing nations are by now the largest emitters of greenhouse gases, so their energy policies matter to the rest of the world. And what wealthy nations do to support poorer nations is also vital.

If Indonesia can kick the coal habit within a few decades, it will be a major achievement, one that will benefit the nation and the world, observers say. But for now, coal remains king.

Deep reliance

Mr Hendra Sinadia, executive director of the Indonesian Coal Mining Association, said it is inevitable that coal will eventually be replaced with renewable energy, such as wind and solar.

“But we still believe that in the next few years or even decades, coal will continue to be the backbone of our energy consumption and a cheap source of energy,” he told The Straits Times.

Indonesia has large coal reserves and is the world’s top exporter of coal used in power plants. In 2022, the country produced 687 million tonnes of coal and exported 494 million tonnes, earning US$46.7 billion (S$63.7 billion) in export income.

About 60 per cent of electricity is generated using coal, with bioenergy, hydropower and geothermal energy making up much of the remainder. Wind and solar generate about 1 per cent of electricity.

Observers say one of the biggest hurdles to going green is Indonesia’s favourable pricing policies for coal. These undercut the business case for renewable energy and have held back investments in wind and solar.

Mr Hendra pointed to the government’s price cap of US$70 per tonne for coal sold to domestic power plants.

“The subsidy is not aligned with our goal to shift (into clean energy). Isn’t it contradictory when on the one hand, we want to retire (coal) power plants early, but on the other hand, we subsidise coal?” he questioned.

There are other price support measures too.

“Indonesia has built a domestic price cap for coal and gas, a US$3 billion price support for biofuels, the list goes on – and this is outside the traditional petrol and electricity subsidies. These ‘walls’ prevent any real competition in the energy sector and block the path for future developments,” said Mr Putra Adhiguna, who leads energy technology research in Asia for the Institute for Energy Economics and Financial Analysis (IEEFA), a US-based think-tank.

This is holding back what many say should be an inevitable and rapid switch to more affordable renewable energy.

“It’s not kicking the coal habit that is difficult,” said Ms Sharon Seah, senior fellow and coordinator for the Climate Change in South-east Asia programme at the ISEAS – Yusof Ishak Institute in Singapore. “It is moving away from blanket subsidies to targeted subsidies that is a gargantuan effort that no government is willing to make because it will cost them politically.”

Yet wind and solar were now cheaper than fossil fuels, so it was puzzling the government was not more supportive of the green transition, she said.

But government plans are afoot to shift subsidies gradually from fossil fuels to renewables.

It will do so, for example, by slowly increasing the prices of fossil fuels, said Dr Siwage Dharma Negara, senior fellow and co-coordinator of the Indonesia Studies Programme at the ISEAS – Yusof Ishak Institute.

But he added: “It is not easy to kick the coal habit without offering sufficient and consistent alternative cheap renewable energy sources. Political commitment from the government is critical to promote more investment in the renewable sector.”

Health hazard

This shift is not just in response to the pressure to meet climate targets. The government also faces growing dissent from ordinary Indonesians suffering from toxic air pollution.

Jakarta’s air pollution is notoriously bad. But in August, the pollution became so dire that for several days it was the worst in the world, according to IQAir, a Swiss-based air quality technology company. And part of the blame was directed at the Suralaya power plant complex. The smog was caused by traffic, industry, illegal burning and power plants.

In 2019, a group of 32 Jakarta residents filed a lawsuit against the national and regional governments demanding that they tackle the city’s pollution. They won the case in 2021. The outcome of a government appeal is pending.

When coal is burned, apart from carbon dioxide, it emits a number of airborne fine particles and toxins, such as nitrogen dioxide, sulphur dioxide and mercury. Tiny particles that are 2.5 microns or less in diameter (PM2.5) can penetrate deep into the lungs and enter the bloodstream, and can cause heart and lung illnesses.

Coal plants in Indonesia caused an estimated 6,500 premature deaths annually, according to research by Harvard University and Greenpeace Indonesia in 2015.

In particular, the Suralaya plant complex has a “devastating impact on public health and the economy”, including the annual death toll of 1,470 people and health costs worth 14.2 trillion rupiah (S$1.25 billion), according to a recent assessment by the Centre for Research on Energy and Clean Air, an international research organisation registered in Finland with staff across Asia and Europe.

Green groups have long demanded state-owned utility company Perusahaan Listrik Negara (PLN) shut down the Suralaya power plants.

A sizeable number of ordinary Indonesians want the nation to quit coal.

According to the 2023 South-east Asia Climate Outlook by the ISEAS – Yusof Ishak Institute published in September, 43.5 per cent of Indonesian respondents supported an immediate phasing out of coal, while just over 18 per cent supported a 2030 timeline. The survey is based on responses from more than 2,200 people across Asean, and the 43.5 per cent figure was the highest among the 10 members of the grouping.

Captive coal

The government has pledged to stop building new coal-fired power plants beyond those still in the construction pipeline. But it has carved out an exception for the so-called captive coal power plants – those built at industrial parks with no access to the local power grid. Many of these parks are on remote islands.

PLN committed in 2021 to stop building new coal power plants, said Dr Kamia Handayani, PLN’s executive vice-president of energy transition and sustainability. The company continues its pipeline of about 12 projects based on the strict terms and conditions of its contracts with developers, she added.

In total, Indonesia has 45.3 gigawatts (GW) of operating coal power plants, 14.5GW under construction and a further 4.75GW announced or at various stages of the permit process, according to Global Energy Monitor, which tracks energy investments around the world.

IEEFA says Indonesia’s captive power capacity is 13GW, with a further 21GW in the pipeline, nearly half of which is under construction. (In comparison, Singapore’s total installed power capacity is about 12GW.)

State-owned Enterprise Minister Erick Thohir told ST that Indonesia will continue to build new coal power plants for what the government termed as “national strategic projects”.

“It’s only for crucial projects. Our national strategic projects must proceed because they would support our (mineral) down-streaming. We are not building them in Jakarta or Bandung, but only at certain locations, at economic zones where they are off-grid. But we will transition in a timely manner. We will limit the operational lifetime.” 

Coal plants typically have a 40- to 50-year operational life.

He dismissed the less dirty option of using gas-powered electricity, arguing it is more expensive and would make Indonesian industries less competitive. 

Indonesia is keen to cash in on lucrative metals processing to export nickel and cobalt. And it wants to expand production of other key metals, such as aluminium.

The country has large reserves of nickel and has rapidly emerged as a global player after major investments in nickel smelters. Processed nickel exports soared to US$30 billion in 2022 from US$1 billion in 2015.

A huge new industrial park is being built in Tanah Kuning, North Kalimantan province. The national government has labelled it a green project and one of the keystone investments is a US$2 billion aluminium smelter and power plant project being built by major coal miner Adaro Energy Indonesia and its subsidiaries.

Adaro says the smelter will initially rely on the 1.1GW coal-fired power plant it is building. The government is hoping that a multi-dam hydropower project under construction in the province plus solar energy will eventually meet the park’s needs.

Mr Erick’s family has a controlling stake in Adaro, whose net profits surged 175 per cent to US$2.83 billion in 2022.

Observers say the captive coal exemption simply perpetuates use of the fuel.

“The exemption seems to serve as a leeway to keep building new (coal) plants,” said Ms Binbin Mariana, Asia energy finance campaigner at environmental group Market Forces. Indonesian coal companies, she added, “should invest much in research and development to develop renewable energy in the industrial park” instead of “rushing off to build coal power plants”.

There are other risks. Some observers say producing “green metals” using coal power could turn off some buyers because of their own sustainability rules.

“Batteries and electric vehicles, which are touted as green products in many developed markets, need strong credibility across their entire value chain, and having high emissions doesn’t help,” said Mr Putra.

Show us the money

With coal so entrenched, what can be done to help Indonesia go from black to green?

In a word, money.

Like many developing nations, Indonesia has said it will do more on climate if it receives financial support from wealthier nations, financial institutions and the big development banks.

Two financing models involving these parties could hold the key, if they can overcome disagreements over money and worries of parties over the risks from funding coal retirements.

By far the largest is the Just Energy Transition Partnership (JETP), which was announced with much fanfare at the Group of 20 leaders’ summit in Bali in late 2022. This more than US$20 billion plan aims to accelerate the retirement of coal plants and fast-track the deployment of renewable energy.

It also aims to help Indonesia achieve peak coal emissions by 2030. It is backed by the Group of Seven countries plus Norway and Denmark and large financial institutions.

But nearly a year later, the JETP has largely stalled. An investment plan set for release in August 2023 has been postponed and Indonesian government officials have been critical of the JETP programme, in part because much of the money promised is in the form of loans, not grants.

Helping Indonesia get off coal has turned out to be much harder than initially thought.

“The process started top-down,” said Dr Edo Mahendra, chair of the secretariat tasked with turning the JETP into reality. “Once we do the bottom up, all the devils that lurk in the details come out,” he told Bloomberg News recently.

Dr Siwage said the conditions set by the donors are not favourable to Indonesia.

Mr Rachmat Kaimuddin, Deputy Coordinating Minister of Maritime Affairs and Investments in Infrastructure and Transportation, agreed. He told ST that a middle-ground approach is needed for JETP programmes for Indonesia and other nations. Recipient countries should be able to make adjustments to suit local conditions – building captive coal plants, in Indonesia’s case.

“We should avoid a cookie-cutter solution, thinking that if a project works successfully in one place we can do it exactly the same at any place.”

And there is another problem: JETP donor governments and many major banks have coal-funding exclusion policies, leaving them wary of funding early coal plant retirements, or joining any programme in a country still building coal plants.

The Monetary Authority of Singapore has been helping financial players develop criteria for early-phase-out financing to try to overcome the reputational and regulatory risks. This could help nations in the region switch out of coal.

The second, related, scheme is the Asian Development Bank’s (ADB) Energy Transition Mechanism (ETM). It also involves early retirement of coal plants and involves direct negotiations with plant owners to compensate them via a mix of grants and concessionary and commercial loans.

A key focus of the ETM is ongoing negotiations with the Japanese, Korean and Indonesian owners of the 660-megawatt Cirebon 1 power plant east of Jakarta. The coal plant, which started operations in 2012, would be refinanced in a US$250 million to US$300 million deal that would pay for its retirement 10 to 15 years before the end of its useful life, possibly by 2037.

Retiring it 15 years early could cut up to 30 million tonnes of greenhouse gas emissions, the equivalent of taking 800,000 cars off the road, ADB estimated. So, imagine repeating this exercise dozens of times and the climate – and health – benefits add up.

ADB principal energy specialist David Elzinga told ST that the negotiations are progressing, including on the commercial terms and due diligence.

However, ST understands that one of the sticking points is who is going to pay for the electricity projects needed to replace the power generated by the plant. Another is the type of cleaner energy projects to be built. Resolving these issues is key to the ETM’s success.

Immediate action

International financing is not the only key. Observers say Indonesia must also show more leadership on all fronts of the green transition.

“International financing will be instrumental, but looking at the scale, the bulk of the efforts also needs to come from domestic political and financial commitment. Relying on foreign funding alone means Indonesia is not taking its fate in its own hands,” said Mr Putra.

He noted that progress to ramp up wind and solar power is still very slow, despite government pledges to accelerate it this decade. “India’s solar capacity is more than 200 times that of Indonesia. We have some catching up to do.”

He added that a small reallocation of royalties, taxes or resource levies towards a transition fund could hasten the transition.

The International Energy Agency said in a September 2022 report that achieving net-zero emissions by 2060 for Indonesia “is a long journey that requires immediate and sustained action”.

It said energy efficiency, renewables in the electricity sector, and the electrification of transport needed to be kick-started immediately. “The technologies for efficiency, electrification and renewables are commercially available and cost-effective, provided that the right policies are put in place,” it added.

Indonesia already has plans to cut emissions from transport, and large-scale renewable energy – mainly solar – projects are planned or being built. But far more is needed.

Ultimately, Indonesia’s challenge to kick the coal habit will only grow as the economy keeps expanding, wealth increases and more Indonesians buy cars and air-conditioners, and as cities build new housing. That means the nation’s energy demands will also grow and it risks entrenching coal further without a major refocusing of energy policies.

Going green will be expensive. But the alternative could be far costlier in an increasingly hotter world facing more severe climate impacts. Burning coal stokes the furnace of climate change and risks tarnishing the country’s image.

Correction note: An earlier version of the article said Indo Raya Tenaga, the developer of the plants, is owned by Indonesia Power, a subsidiary of PLN, and petrochemical company Barito Pacific. This is incorrect. We are sorry for the error.