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Indonesia to Retire 2GW of Coal-Fired Power with Support from Climate Investment Funds

Date Published
November 14, 2022

Indonesia is transitioning from coal to cleaner energy alternatives. Photo credit: Asian Development Bank.

The Climate Investment Funds (CIF) announced that it will partner with Indonesia’s state utility Perusahaan Listrik Negara (PLN) and the private sector to accelerate retirement of up to 2 gigawatts of coal-fired power in 5 to 10 years. In October, CIF’s Trust Fund Committee endorsed in principle an investment plan that will also pilot solutions for repurposing decommissioned coal assets using solar farms, battery storage, and other climate-smart alternatives.

CIF is one of the world’s largest multilateral funds for climate action in developing countries.

Under the agreement, Indonesia—the world’s largest coal exporter—will have access to $500 million in concessional, risk-bearing capital from the Accelerating Coal Transition (CIF ACT) investment program to build momentum toward ambitious climate, energy, and development goals.

The investment plan features a grant-making mechanism that promotes women’s climate leadership and supports their involvement in designing and implementing coal-to-clean transition strategies.

The Asian Development Bank (ADB) will be the primary implementing partner for CIF in Indonesia, working jointly with the World Bank Group. ADB is already working with Indonesia to pilot an Energy Transition Mechanism (ETM), a transformative, blended-finance approach that seeks to retire existing coal-fired power plants on an accelerated schedule and replace them with clean power capacity. During the 2- to 3-year pilot phase, ETM will raise the financial resources required to accelerate the retirement of five to seven coal plants in Indonesia.

Clean energy transition

Indonesia has committed to reaching net-zero by 2060. The investment plan will support just transition activities up and down the value chain, supporting capacity building, retraining, upskilling, and other economic regeneration programs for people and communities affected by the transition.

Coal is an abundant natural resource in Indonesia, underpinning most domestic electricity generation and many livelihoods. Even more challenging, its coal fleet is relatively young with potentially decades of economic life and harmful emissions ahead of them.

"As a country, we are strongly committed to transition away from coal to cleaner forms of energy,” said Indonesian Minister of Finance Sri Mulyani Indrawati. “Any potential solution must reflect our country-specific considerations like electricity over-supply, young fleet of coal plants, and just transition of our people. The Climate Investment Funds’ ACT Investment Program allows us that flexibility to deploy a financial toolkit to tackle these critical challenges holistically."

According to a CIF fact sheet, PLN plans to retire two to three coal-fired power plants with a combined capacity of about 1GW by 2030 and phase out 9GW by 2035 and 49GW by 2050.

First multilateral initiative

CIF ACT is the first multilateral effort to advance an equitable, inclusive shift away from coal power in developing countries. Launched at COP26 in Glasgow last year, the program addresses three critical dimensions of the coal transition: governance, people and communities, and infrastructure. South Africa, India, Indonesia, and the Philippines, representing over 15% of coal-related emissions globally, were selected as the first beneficiaries of the initiative.

In 2021, G7 leaders committed up to $2 billion to capitalize CIF ACT and related CIF energy transition initiatives. In fulfillment of this pledge, the United States recently announced a contribution of nearly $1 billion to CIF ACT.

CIF ACT investments are expected to mobilize billions of dollars in additional finance from partners including multilateral development banks (MDBs) and the private sector, reduce greenhouse gas emissions, improve air quality, and ensure a people-centric transition. MDBs have a critical role in helping countries meet their climate ambitions. As institutions they have relevant expertise, experience, networks, and safeguards to help developing countries spark lasting structural change.

“There is no winning our fight against climate change without a rapid, just transition away from coal, especially in the developing world, where the coal fleet still has many years of economic life and coal is deeply interwoven into societies and the livelihoods of millions,” said CIF Chief Executive Officer Mafalda Duarte.

Coal combustion is costly for the economy and public health. It is the single-largest source of global temperature increase and contributes to air pollution that causes over four million deaths every year.

Renewable energy is increasingly more cost-competitive than coal, with the number of uncompetitive coal plants expected to grow by over two-thirds globally by 2025.