ADB Helps Indonesia Transition to Climate-Friendly Energy

On 14 November 2022, The Asian Development Bank (ADB) and entities in Indonesia signed a memorandum of understanding (MOU) to facilitate the early retirement of its first coal-fired power plant. The plant is owned by an independent power producer (IPP) under the ADB’s Energy Transition Mechanism (ETM).

The MOU opens discussions on accelerating the retirement of Cirebon-1, a 660 MW plant owned by Cirebon Electric Power (CEP) in West Java.

The transaction “aims to achieve significant carbon dioxide emission reductions through a replicable model that can be applied to other IPPs in Indonesia, other parts of Asia and the Pacific, and beyond” (ADB and Indonesia, 2022).

The MOU signing occurred during the G20 Leader’s Summit in Bali, attended by ADB President Masatsugu Asakawa, Cirebon Electric Power (CEP) President Director Hisahiro Takeuchi, PT PLN (Persero) President Director Darmawan Prasodjo, and Indonesian Investment Authority (INA) CEO Ridha D. M. Wirakusumah.

About the Energy Transition Mechanism

ADB’s Energy Transition Mechanism is a “regional, transformative, blended-finance program that seeks to retire existing coal-fired power plants on an accelerated schedule and replace them with clean power capacity. ETM is one component of a larger set of domestic and multilateral initiatives that aims to help Asia and the Pacific mitigate the worst impact of climate change, such as extreme sea level rise and destructive weather events”.

During the Summit, Indonesia also entered a $20 billion deal (link to related CAP blog post) with Just Energy Transition Partnership (JETP) to help the country transition its electric grid from coal to renewables and achieve its climate targets. JETP donor countries comprise Canada, France, Germany, Italy, Japan, the United Kingdom, the US, Norway, and Denmark.

As one of the world’s top ten biggest emitters, Indonesia is the second country to launch a JETP. Last year at the COP26 Summit in Glasgow, JETP and South Africa pioneered an $8.5 billion partnership.

ADB’s Energy Transition Mechanism (ETM) is a specific program supported by the JETP. ADB is closely supporting the Government of Indonesia on its ETM Country Platform and coordinating with the US and Japan, co-leading the JETP proposal for Indonesia. There is an expectation for ETM to be one of the critical delivery mechanisms to ensure the successful implementation of JETP.

According to Argus, Indonesia currently has 237 coal-fired plants, with plans from the government to open up new ones. Cirebon-1 will be the first coal power plant to be retired early under this ADB partnership.

So why this plant?

According to ADB, the plant was picked because of the following reasons:

• Firstly, it has the right combination of an interested owner, a middle-aged plant, and a financial structure suitable for refinancing.
• Secondly, the project company already has an active corporate social responsibility program, is engaged with the community, and is therefore suited to ensure the coal plant will be retired with strong just transition considerations.
• While each ETM transaction will have specific characteristics, ADB believes this is a great model case that can be replicated with other independent power producers.

A coal-fired power plant has a technical life of between 40 and 50 years old. Retiring the Cirebon-1 coal-fired power plant 15 years early ahead of its expected lifetime could reduce GHG emissions by up to 30 million tons or equivalent to taking out 800,000 cars off the road, according to ADB estimates. 

What happens when they retire the coal-fired plant?

ETM commits to replacing the coal-fired plant with renewable energy. ADB will work with the government and sectors involved in mitigating the impacts the plant’s closure will have on the workers and the community.

Which coal-fired plant will be next?

ADB is in discussions with several coal-fired power plant owners in Indonesia and the Philippines but cannot provide more details due to non-disclosure agreements.

ADB is also working with several stakeholders, including Indonesia’s sovereign wealth fund, INA, and industry associations, to find other potential transactions that can accelerate the shift from coal to clean energy.

Learn more about the just transition initiative in Indonesia by clicking the links below.