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Indonesia’s Ministry of Energy and Mineral Resources Ignasius Jonan recently announced that there would be no new coal plants in Java. The announcement heralds, at last, a step away from the coal-dominated future that had been proposed. Why has this decision been taken? And how should Indonesia seek to power its economy with coal now taken off the menu?

The Government of Indonesia had planned to add 35 GW of coal power capacity by 2026, as stated in the RUPTL, the procurement business plan of PLN (the state-owned electricity generation company). Most of the new developments and half of the new capacity (13 GW) were planned to take place on Java. In Central Java, six new plants were proposed totalling nearly 6 GW of capacity. These were to be built by independent power producers. The future of these projects has now been thrown into doubt following the reported change of heart. Commentators have previously raised concerns that Indonesia’s pro-coal policy stance was out of step with the true costs of coal, risked creating dangerous levels of air pollution and was a barrier to renewable energy deployment.

A key reason for the decision is that mounting research has shown that the costs of coal far outweigh cleaner alternatives. In addition to the financial cost of building and operating coal plants, research from IISD has been highlighting that the cost of the subsidies that coal producers and generators receive, the cost to society of air pollution and the costs of carbon emissions together make coal a very expensive source of generation.  

Figure 1. Distribution of cost of coal power generation in Indonesia, including subsidies and externalities

When all the costs of coal power generation are included, IISD estimates that the total cost is more than USD 100 per MWh, far more than the cost of renewable energy. The latest results from renewable energy auctions for solar and wind power show that renewable electricity can be delivered in many other countries, including India, China and the United States, for around USD 40–50 per MWh. With renewable costs increasingly converging with the financial cost of coal, and the growing realization that the additional environmental and social costs of coal are very significant, it simply doesn’t make sense to pursue a coal-based energy policy in 2017.

The decision to place a ban on new coal is a welcome step that brings Indonesia, or at least Java, into line with the growing global consensus that the costs of new coal far outweigh the benefits. However, there are still barriers in place preventing the deployment of renewable technologies, including the recent caps imposed on renewable power purchase agreements, which could replace the cancelled coal plants and ultimately replace the coal plants that are already operating. Creating a political environment in which renewable energy projects that can thrive should be a priority for the government if they are to achieve their renewable energy commitments of 23 per cent by 2025.

More information and research on subsidies and coal work on Indonesia can be found here.