Early coal retirement could save Indonesia $2bn

London, UK, 23 May, 2023: Indonesia could save $2 billion by retiring its least profitable coal plants early and replacing them with a mix of solar PV with battery storage and other cleaner power sources.

Early closure of coal would avoid 1.3 gigatonnes of CO2, equivalent to halting global shipping emissions for two years, according to new analysis by climate analytics non-profit TransitionZero.

These are the headline findings from TransitionZero’s new first-of-its-kind open source energy system modelling tool Model Builder. The tool was calibrated to compare the financial and environmental costs of running Indonesia’s electricity system out to 2050 under various scenarios.

Indonesia has a target to achieve net zero emissions by 2060. To accelerate the country’s clean energy transition, a $20 billion Just Energy Transition Partnership (JETP) deal was unveiled at last year’s G20.

One purpose of the JETP is to finance the early closure of Indonesia’s coal fleet. Previous analysis by TransitionZero found that this fund, if it materialises, could buy out more than half (21.7 GW) of the country’s coal capacity up to ten years early by targeting the least profitable plants first.

Until now, there was no publicly available tool for calculating the most cost-effective way of replacing lost coal capacity at each node in Indonesia’s power grid. Model Builder, a high-resolution system model backed by rich asset-level data, is designed to fill the knowledge gap.

The first model runs show that the total cost of running the system between now and 2050 would fall by $2 billion, if the JETP funds are used to close those 21.7 GW of surplus coal plants. The Early Coal Retirement scenario would avoid 1.3 gigatonnes of CO2, meaning Indonesia could save $2 for every tonne of CO2 avoided if the JETP capital is allocated efficiently.

Notably, carbon emissions fall more quickly between now and 2028 under Early Coal Retirement than in a different scenario modelled around Indonesia’s Net Zero by 2060 target. This is due to the 13 GW of new coal that is under construction in Indonesia; in the Early Coal Retirement scenario, plant closures outpace planned coal additions in the first five years.

However, the results also reveal that emissions could start to rise again as soon as coal buyout funds are exhausted, because the JETP as currently envisaged is not big enough to end coal burn in Indonesia. This underscores the importance of international donors funding Indonesia's coal phaseout delivering on their promises to back up the JETP with grants and soft loans – and ideally for them to deliver a much more ambitious climate finance package.

Interestingly, the analysis also finds that there is little variation in Indonesia’s 2050 power mix across the modelled scenarios. Indonesia embraces solar PV plus battery storage as the cheapest power source, ending reliance on coal – regardless of emissions targets. The modelling reveals how quickly solar can undercut expensive old coal plants, and where in the network this transformation will take place.

In terms of installed capacity, solar PV grows to between 15 GW and 21 GW in 2030, depending on the scenario. It then increases tenfold to between 170 GW and 210 GW by mid-century. This is a significant increase from the current installed solar base of ~170 MW.

Seb Kennedy, Head of Data Insights at TransitionZero, commented:

“Our findings show that shutting Indonesia’s old coal plants early is a win-win for emissions and costs. Not only can Indonesia save $2 billion by closing its least profitable plants, but in doing so, it can accelerate the decarbonisation of its power sector, save 1.3 gigatonnes of CO2 and get onto a net zero-aligned pathway more quickly. Indonesia’s electricity system is laden with costly overcapacity, making it ripe for an overhaul. Our modelling reveals the cost and emissions savings available from redesigning the grid around cleaner, more cost-efficient power sources.”

Isabella Suarez, Analyst at TransitionZero commented:

“Indonesia’s coal overcapacity issue is hindering the clean energy transition. Clear policy signals and tender processes aligned with renewable development plans are necessary to accelerate the deployment of clean energy. This needs to be backed by a build of transmission infrastructure and a modernisation of the grid. Indonesia must start preparing for coal phaseout now to ensure a smooth and rapid transition. We hope that the highest resolution open-source systems model ever made publicly available for the Indonesian market will support Indonesian energy planners at this critical moment in the country’s energy transition.”

About TransitionZero

TransitionZero is a climate analytics non-profit established in 2021. We build accessible, auditable and open energy transition planning products, supporting mission-aligned organisations. For more information on how your organisation or initiative can access our data and analytics, visit our website or contact us.

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