Clean-energy projects in Indonesia’s coal regions could attract US$9.4 billion in investments: report
Potential boost to renewable energy sector could also help mitigate loss in jobs as demand for the fossil fuel declines
PLANNED clean-energy projects in Indonesia’s biggest coal-producing regions, which include South Sumatra, East Kalimantan and South Kalimantan, could create 50,000 jobs and attract US$4.3 billion (S$5.65 billion) in investment, according to estimates by energy think tank Ember Climate.
This is based on existing plans to add on 2.7 gigawatts (GW) in renewable energy capacity in coal-producing regions under the country’s electricity-supply business plan.
The recently published report by Ember Climate also stated that an additional 46,000 jobs and another US$5.1 billion in investments could come about if the planned 5.8 GW of new coal capacity to be added in these regions until 2030 is reallocated to solar power projects.
This brings the total number of new jobs added close to 100,000 and the amount of investments at US$9.4 billion in the country’s clean-energy industry. Converting these new coal plants into renewable energy could also prevent 18 million tonnes of carbon dioxide equivalent from being emitted, read the report.
While Indonesia is still largely reliant on coal for energy – with fossil fuels accounting for 81 per cent of electricity generation – and the growth in renewable energy capacity has been slow, the report highlighted that the new coal plants currently in the pipeline still face high risks of being stranded.
For one thing, the Covid-19 pandemic has led to a slower growth rate in Indonesia’s electricity demand in recent years, causing an overcapacity in the islands of Java and Bali, even as coal power capacity went up.
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The report highlighted that the capacity utilisation of existing coal plants stood at 48 per cent in 2023, an indication that some of them are not operating at full capacity.
Even with a projected 4.9 per cent rise in electricity demand between 2021 and 2030 as a result of the pandemic recovery, an improvement in the efficiency of these coal plants could still lead to excessive electricity generation by as much as 42 terawatt-hour by 2030, noted the report.
Besides excessive electricity capacity, the report also highlighted that the value of coal exports from Indonesia has gone down by 26 per cent in 2023 from a year ago due to declining commodity prices.
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India, which is the second-biggest importer of Indonesian coal, is keen to reduce its reliance on coal imports in a bid to boost its own clean-energy industry.
All these could mean that domestic coal production might eventually drop to 250 million tonnes in 2060, said Indonesia’s energy and mineral resources ministry.
China, the largest investor in Indonesia’s coal power plants, has also announced it will stop building new coal power projects overseas. This decision could limit funding for Indonesia and cast doubts on the future of coal power projects.
“This suggests new coal plants have high stranded-assets risk and hence should not be considered... This presents opportunities to grow clean power and avoid unnecessary coal investment, even with rising demand,” read the Ember Climate study.
Indonesia’s major coal-producing regions are particularly susceptible to such risks, which could have spillover effects on local employment and regional gross domestic product contribution.
In 2022, South Sumatra, East Kalimantan and South Kalimantan contributed around 590 million tonnes of coal, accounting for over 85 per cent of Indonesia’s total coal production.
“Economic activities in these provinces are highly dependent on the coal sector. In East Kalimantan and South Kalimantan, coal contributes more than 44 per cent and 30 per cent of gross regional domestic product, respectively. Nationwide, the sector also supports more than 150,000 jobs. As the energy transition progresses, a decline in the coal sector is expected to significantly impact the economies of these provinces,” read the report.
Even though these three provinces are the largest coal producers in Indonesia, the Comprehensive Investment and Policy Plan – a document that contains a pathway for the country’s power sector to reach its goals under the Just Energy Transition Partnership (JETP) – showed that renewable energy projects being prioritised are concentrated in Java.
The JETP is a US$20 billion climate deal that South-east Asia’s largest economy inked with several developed economies to help the country bring forward the closure of its coal power plants and decarbonise its power sector.
The report also noted that investors and financial institutions are increasingly aware of environmental, social and governance (ESG) issues and are more hesitant about investing in the coal sector.
“These corporate shifts will likely impact the coal sector in the regions, as financial resources are reallocated to other sectors and potentially other locations,” it pointed out.
Hence, these coal-producing regions could gain greater benefits by replacing additional coal capacities with solar.
New renewable projects could offset job losses from coal mine closures. Investment opportunities in clean technology manufacturing, such as solar modules and other components, could also further boost both investment and job creation, the report added.
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