Commentary: Indonesia’s coal industry is on its last legs
JAKARTA: The Indonesian coal industry is running out of options.
The pot of money for coal power is running out. On April 22, South Korea announced that it would no longer provide financial support for overseas coal projects. China appears to be the only country willing to provide the immense financial assistance that the Indonesian coal industry needs to continue.
East Asia has always been the source of funding for the Indonesian coal industry, where market controls in favor of coal and state support for intensive coal mining have made fossil fuels good. market and abundant. Coal represents almost 40% of the country’s energy mix, and what remains is mainly exported to China.
China, South Korea and Japan account for around US $ 25 billion in financial support for 17.4 gigawatts of coal production capacity in Indonesia.
READ: Commentary: US-China cooperation at world climate summit could yield significant benefits
But all three economies are taking action to reduce coal. Prior to South Korea’s engagement, Japan’s major public and private banks all individually signaled the end of coal investments.
China is now seen as the only option for Indonesia’s coal industry, but even that could change. At the Climate Leaders’ Summit in April, China announced that it would “strictly limit” the increase in coal consumption until 2025, and “gradually reduce” it from there.
While not surprisingly given previous projections that China’s coal consumption would drop after 2025 with the peak of utilities and other industries, it was a wake-up call for Indonesia. China will not remain as an investor and a buyer indefinitely.
(Can China meet its climate targets? A Chinese observer speaks on The Climate Conversations 🙂
LOWER DEMAND FOR COAL AS AN ENERGY RESOURCE
Politicians and businessmen claim that coal enables Indonesia to be energy independent, given its domestic abundance. With Indonesia being one of the world’s largest coal exporters, proponents say local coal-fired power plants are not dependent on foreign governments or companies.
This ignores the financial structure on which the Indonesian coal industry is based, which is in decline globally. According to the International Energy Agency, in 2020, global demand for coal fell 5% from 2019 levels – the biggest drop since World War II.
A short-lived rebound is expected in 2021, but without further increases from 2021 to 2025, even as economies recover from the pandemic.
Indonesia’s oil industry also offers an edifying tale of resource depletion and the level of energy security they can provide. Once a net exporter of oil, the country now suffers from serious deficits due to oil imports.
As countries around the world and Southeast Asia have taken steps to diversify their national energy mix, Indonesia has doubled its coal production and overlooked the potential for energy security in renewable energy development.
In February, the director general of the Ministry of Energy and Mineral Resources, Dadan Kusdiana, said the coal lockdown was limiting the space for renewable energy growth.
READ: Commentary: Indonesia’s clean energy ambitions face new hurdles
READ: Commentary: Why Indonesian farmers could disappear in about 40 years
SOLAR SUCCESS STORY IN VIETNAM
Other countries in the region are showing that this should not be the case. Vietnam has been transitioning its coal-dependent energy market to more solar power since 2016, due to falling solar prices and growing environmental concerns.
Vietnam has used innovative financing mechanisms to encourage developers to turn to renewable energy. It implemented a Purchase Tariff (FIT) in 2016, which guarantees fixed prices paid to solar companies for each unit of renewable energy supplied to the electricity grid.
The first round of feed-in tariffs was so successful that a second FIT phase and auction process were both introduced in 2020, indicating a maturing market.
Overall, Vietnam’s solar sector has grown exponentially by 2019, and by 2020, its solar sector was a hub for foreign investment. The industry continued to grow by 7% even as COVID-19 reduced global demand for energy.
Meanwhile, in Indonesia, coal exports and domestic coal consumption have failed to meet national targets. The sector is still not expected to recover before the second half of 2021.
Several studies also suggest that solar power in Vietnam created more jobs than coal in the respective value chains of the two sectors in 2020.
The contrast between Vietnam and Indonesia shows the resilience of renewable energies in the context of a global economic slowdown. “Renewable energies appear to be immune from COVID-19,” noted IEA executive director Fatih Birol, energy analyst.
READ: Comment: Going to net zero may not hurt as much as we think
HOW INDONESIA CAN GET OUT OF COAL
Indonesia currently has the greatest solar power potential in Southeast Asia and could more than double that potential if the power grid were better tuned to efficiently absorb renewables.
Realizing this potential requires government support followed by solid investment. Three years after the launch of Vietnam’s FIT incentive program, its solar sector was a major destination for foreign investors; most of them are from South East Asia.
Meanwhile, Indonesia is isolated and may be totally dependent on Chinese investment alone. It is time to end the myth that coal will make Indonesia feel safe.
READ: Commentary: Much to everyone’s relief, the US is back in the driver’s seat on climate change
To get the government’s foot off the neck of the solar home industry, Indonesia needs to create an exclusion policy for new coal and gas now. The country already suffers from an overcapacity of coal-fired power stations.
Then, it must remove the subsidies linked to the price of coal energy in order to improve the development of the renewable energy market. To set a goal that is both ambitious and realistic, Indonesia should strive to achieve 50% renewable energy in its electricity mix by 2030, against the current target of 23% by 2025.
Indonesia’s dependence on coal places it at the end of an extremely fluctuating global coal industry. It is also not sustainable in a world increasingly constrained by the climate crisis.
Indonesia set an unambitious net zero commitment for 2070, which at the leaders’ summit showed disregard for the risks associated with climate change and little foresight in moving the energy sector forward.
The impact on global emissions could be enormous if Indonesia does not accelerate the green transition, when the country is expected to become the fourth most powerful economy in the world by 2050. The costs of shedding its dependence on coal would then be higher.
But there is still time. Indonesia’s natural renewable energy resources have the potential to become a leading destination for sustainable investments, a growing trend in global finance.
By strengthening its renewable energy capacity and attracting multiple investment partners, Indonesia will not only be energy independent – it will have options independence.
Tata Mustasya is the regional climate and energy campaign coordinator for Greenpeace South East Asia in Jakarta, Indonesia.