Climate Finance | November 16, 2022

Indonesia aims to cut emissions with $300 million coal-plant deal

Dan Keeler
Guest Author

Dan Keeler

The Asian Development Bank is teaming up with an Indonesian fossil fuel-based power producer to decommission a 660 megawatt coal-fired power station and accelerate the country’s transition to renewable energy. 

Under the deal, which was announced at the G20 leaders meeting taking place in Bali this week, the ADB will provide $250-$300 million in debt financing to enable Cirebon Electric Power to shut down the plant up to 15 years before the end of its expected 40-50 year life, eliminating as much as 33 million tons of greenhouse gas emissions. 

With a heavy reliance on fossil fuels for power generation, Indonesia is one of the world’s most prolific producers of greenhouse gas. More than 60% of its electricity comes from coal, according to the ADB.

The power of blending

The agreement is the first of its kind under ADB’s Energy Transition Mechanism (ETM), a blended-finance-based program aimed at helping Asian nations wean themselves off fossil fuels by prematurely retiring coal-fired power plants and replacing them with clean energy generation. 

The goal is to create a replicable model to retire as much as 15 gigawatts of coal-fired electricity from Indonesian power plants.

The deal involves a mix of concessional capital, including donor-supported funds and a portion of Indonesia’s $500 million allocation from the Climate Investment Funds, and capital from ADB’s Private Sector Operations Department.

Just transition

At the G20 meetings, Indonesia also launched a $20 billion Just Energy Transition Partnership with countries including Japan, the U.S., the U.K., Denmark and Italy. Also participating are financial institutions including Deutsche Bank, HSBC, Macquarie and Citi. 

The JETP will provide at least $10 billion from the public sector and $10 billion from the private sector to accelerate Indonesia’s transition to net zero by 10 years to 2050, reduce its 2030 power-sector emissions target and sharply accelerate its deployment of renewable energy supplies. 

Those hoping for a quick end to power production at Cirebon’s plant might be disappointed, though. The facility is contracted to deliver electricity until 2042, but could last another 20 years beyond that. Even cutting its life by 15 years could see it still running until 2047, the ADB says, although it hopes to retire the plant much sooner than that.