Despite billions to get off coal, why is Indonesia still building new coal plants?

Not far from the white sand beaches on the island of Borneo, the Indonesian government is building what it calls a "green industrial park." In the ground-breaking ceremony, Indonesia's president said this area of more than 40,000 acres would become a hub for green manufacturing using the country's vast mineral reserves.

Indonesian officials are pursuing deals with Chinese battery manufacturer CATL as well as Elon Musk and Tesla to make EV batteries there. The idea is that this "green" park will eventually run on solar power and hydropower from a nearby river.

But building the hydropower infrastructure could take several years. In the meantime, Indonesia plans to build new coal-fired plants to power its "green" park, says Rachmat Kaimuddin, Deputy Minister of Indonesia's Coordinating Ministry for Maritime Affairs and Investment.

Running green tech factories on brand new coal plants captures the often contradictory push-and-pull of Indonesia's approach to climate change. Now these inconsistencies are raising questions as Indonesia emerges as an ambitious test case of a developing nation getting billions from industrialized countries to get off fossil fuels.

In November 2022, U.S. President Joe Biden, Indonesian President Joko Widodo and other world leaders announced an initial $20 billion deal to help Indonesia get off coal power. About 60% of the country's electricity comes from coal. Reining in global warming requires cutting fossil fuel use, especially coal, the single largest energy source of planet-heating carbon dioxide.

The deal would rely on loans, grants and other financial tools from countries like the U.S. and Japan, as well as banks like Citigroup and Bank of America, to help Indonesia retire coal plants early and increase renewable energy. Some analysts hope it could be a model to get other developing countries off coal-fired electricity.

But Indonesian energy experts and solar executives worry much of this deal may be "omong kosong" — empty talk. They say despite Indonesia's renewable aspirations, the country has many coal-friendly policies which this deal might not address, including an exemption to build more coal plants.

The credibility issues of this deal could cast doubt on future international efforts to get other countries off coal, says Anissa Suharsono, a Jakarta-based energy analyst at the think tank the International Institute for Sustainable Development. "If the government cares about international image, then they better make sure this one doesn't fall apart," she says.

A potential loophole to "no new coal"

Emerging economies continue to use coal to fuel their development. But industrialized countries hope an influx of funding could speed up the transition to renewables. World leaders already invested in a similar "Just Energy Transition Partnership" in South Africa. The goal is not just to do deals one country at a time, but make a template for wider adoption across the world, says Camilla Fenning of the climate and energy research group E3G.

Indonesia, the world's largest exporter of coal for electricity, has more coal power than it can use. Indonesia made bad projections about rising power demand over the last decade, and built too many coal plants on islands like Java, Kaimuddin says. "And you can't just say, 'Sorry, we don't want to do it anymore.'"

The $20 billion deal could enable Indonesia to retire those coal plants early without as much economic pain, says Kaimuddin, whose ministry is leading negotiations. "Instead of operating for X amount of years, we reduce it by 5 years, by 10 years," he says.

But there are questions about how fast Indonesia's transition off coal will be, in part because of a potential loophole to allow the country to build even more coal plants. "You're paying this country to shut down some coal power plants while [it's] also still building new ones? That just, it just doesn't make sense," Suharsono says.

Not long before Indonesia signed the deal, Indonesia's president made a commitment to stop developing new coal plants. But the new regulation includes an exemption to build coal plants if they are already in the pipeline or attached to nationally strategic projects like the green park in Indonesian Borneo. "They keep saying 'no new coal, no new coal, no new coal,'" Suharsono says. "It's like they put that clause there to give a loophole."

As the country plans new industrial parks to take advantage of its huge nickel reserves, a key component for batteries and EVs, the exemption for new coal plants should raise alarm bells, says Flora Champenois, coal research analyst at Global Energy Monitor, a climate data organization. "The nickel industry is booming in Indonesia," she says. "That can't be powered by coal to meet climate goals."

Kaimuddin's office notes that new coal plants linked to strategic projects must shut down by 2050 and reduce emissions by 35% within 10 years through technology or carbon offsets. Experts say there is no good way to know if carbon offsets really work. And the International Energy Agency recently reaffirmed that to keep warming less than 1.5 degrees Celsius and avoid the worst effects of climate change, there must be "no new development of unabated coal-fired power plants."

John Kerry, U.S. special presidential envoy for climate, said in an emailed statement, "Indonesia made these commitments not only to combat the climate crisis, but also to transform and grow their economy, ​​and the Just Energy Transition Partnership is squarely focused on supporting Indonesia's aspirations."

Indonesia's political elite have links to coal, say analysts

Overshadowing Indonesia's energy transition are links between the country's political establishment and the coal industry, says Putra Adhiguna, analyst at the Institute for Energy Economics and Financial Analysis, a nonprofit think tank.

The green park that plans to build new coal plants is a project of coal billionaire Garibaldi Thohir, whose brother, Erick Thohir, is Minister of State Owned Enterprises. And the official running the deal to get off coal, Luhut Pandjaitan, Coordinating Minister for Maritime Affairs and Investment, has coal assets himself. Indonesians worry there might be political conflicts of interest over which coal plants get shut down, which still get to operate, and which new ones get built, Adhiguna says.

Luhut Pandjaitan's office says in an email that "transparency and accountability continue to be critical components of Indonesia's decarbonization efforts." His deputy minister, Kaimuddin, adds: "Pak Luhut is my direct supervisor, and I can say so far he's been very, very supportive of this decarbonization and never once he mentioned, like, you know, 'What about my asset?' or whatever."

Indonesia's solar industry worries the nation won't reach its targets

The new deal to get off coal includes an ambitious target: at least 34% of Indonesia's power coming from renewable sources by 2030. Now only about 12% of the grid comes from renewables, mostly hydropower and geothermal. Less than 1% of Indonesia's power comes from solar. The idea is that some part of the $20 billion could help build Indonesia's renewable sector.

But NPR spoke to half a dozen Indonesian renewable energy executives and investors who worry that the country won't actually reduce the roadblocks that have in recent years kept more solar and wind from coming online.

"A lot of things that are appearing on the news and to the public can be quite different from what is being actually implemented," says Josh Ching, CEO of Solardex, an Indonesian solar company. While the Indonesian government says it wants to promote renewables, Ching says it also creates obstacles towards them being profitable.

For example, the country has a price cap that keeps coal prices artificially low, says Fabby Tumiwa, executive director of the think tank the Institute for Essential Services Reform and chairman of the Indonesia Solar Energy Association. That makes things challenging for renewable energy producers who — in much of the country — have to sell power lower than the average price for electricity. "It makes renewables actually very, very difficult," Tumiwa says. "They cannot compete in the situation where coal is actually subsidized."

A statement from world leaders says Indonesia will phase down domestic coal subsidies. But Adhiguna says it's unclear what that means, especially as the country continues to find new ways to invest in domestic coal. Last year Indonesia and a Pennsylvania-based company began constructing a $2.3 billion facility to turn coal into gas for cooking, which, in addition to having high emissions, is expensive and requires subsidies, Tumiwa says.

"It's really important to keep an eye on phasing down coal power in the traditional sense, but also in the sort of emerging technology sense," Champenois says, "There's sort of no such thing as clean coal."

International banks still fund new Indonesian coal plants

As Indonesia and its international partners wrap up the first stage of the deal, Adhiguna says the government needs to start disclosing more details to the public, like the criteria around which coal plants get retired and which new ones get built.

Ultimately Suharsono says the strongest message from the international community to help move Indonesia off coal would be for international banks to commit to not financing any of the country's new coal developments. "If you wanna send a message, you want us to get off coal, stop funding us."

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