Closing the gap between those who have electricity and those who do not is no easy feat, especially in an island nation like Indonesia. With over 17,000 islands—6,000 of them inhabited—the country's scattered Pacific geography defies construction of a national transmission grid. Nonetheless, the country's economic ambitions and its substantial coal reserves have encouraged developers to rely on big, centralized, coal-fired power plants.
A solution is at hand. New generating technology and changing energy markets are making it easier and cheaper to supply electricity with smaller power stations more readily distributed across regions. A sweeping global pivot away from centralized power plants and fossil fuels and toward cleaner wind, solar, geothermal, and small hydropower is gaining momentum.
Global Pivot Away From Coal
The details of the pivot away from coal are emerging in the research findings of a select group of small non-profit investigative organizations operating around the world. One of them is the Institute for Energy Economics and Financial Analysis, a United States-based research group that is pushing Indonesia to join an Asian-led transition away from coal-fired power that is shaking the world. IEEFA's research, focused on the ever more apparent mismatch between the rising cost of fossil-fueled power and diminishing price of renewable technology, is helping to tilt the views of utilities and government administrators not swayed by environmental or public-health concerns.
In its newest report on the Indonesian electricity market, released in August, the four-year-old non-profit warned Indonesia that a central provision of its coal-based electrical strategy risked wasting $76 billion over the next 25 years. IEEFA also asserted that Indonesia underestimated savings from energy efficiency. As a result, the country's planners overestimated how much power it would need to electrify every home and business.
Essentially, said IEEFA, energy authorities, influenced by Indonesia's large coal reserves and mining job prospects, ignored both the escalating cost of fossil-fueled electricity and the plunging prices for efficiency and renewable energy. Indonesia's program of building big, coal-fired power plants, argued the IEEFA, was obsolete.
"As renewable energy costs have come down drastically," wrote Yulanda Chung, the report's author, "renewables are forcing utility policy makers and regulators around the world to rethink the way the electricity sector is structured."
In a nation that exports more coal than every other except Australia, and wants to use more of it to fuel its domestic power plants, such a message could be expected to be roundly dismissed. As recently as May of 2015, Indonesia President Joko Widodo pushed for a new plan to finish electrifying all of his big country, once again focusing on large, centralized fossil-fuel plants.
Widodo said Indonesia would raise $75 billion to add 35 gigawatts of new electrical generating capacity, 60 percent more than exists in Indonesia today. He proposed that more than half of the new capacity—20 gigawatts—would come from building 117 new coal-fired power plants.
A gigawatt is 1,000 megawatts. It's a lot of electricity, equivalent to the generating capacity of a big power plant. Never had Indonesia added 35 gigawatts in new generating capacity during any four-year period. For that reason and others, Widodo's plan quickly began to implode. Within weeks, pricing turbulence occurred in electrical markets. Lenders grew nervous. Within months, Indonesia's big state-owned utility, Perusahaan Listrik Negara, which was charged with executing the plan, began reneging on power plant construction contracts.
In April of 2017 Widodo blinked. He replaced the 35-by-2019 target and introduced a smaller proposal to add 15 gigawatts of capacity by 2019. That plan also is in trouble—just like coal-centered electricity programs all over the world.
Tiny Organization With Global Influence
None of what is happening in Indonesia's electrical sector surprises the Institute for Energy Economics and Financial Analysis. Headquartered in a tiny office in Cleveland, Ohio, with revenues of close to $2 million, IEEFA has a 12-member staff of energy analysts who have served in government finance departments, investment institutions, and energy market research firms. Working from offices in Boston, London, Manila, New York, Sydney, and other cities, IEEFA acts like an auditing firm. It has dug deep into the accounts of the coal mining and electrical sectors in 13 nations, including Australia, Bangladesh, China, India, Japan, Russia, and the U.S.
What they've found has been influential. IEEFA's 2014 report on the mounting costs of India's Ultra Mega Power Program anticipated the country's decision last year to curtail building any more 4,000-megawatt coal-fired power plants, and to cease reliance on imported coal.
IEEFA's various studies on the escalating costs of the $16 billion to build two coal mines in Australia's Galilee basin influenced that nation's four biggest banks to not fund development of any mining projects in new coal basins.
IEEFA studies also helped convince major financiers, among them the $960 billion Norwegian Sovereign Wealth Fund, one of the world's largest investors, to divest their portfolios of interests in coal mines, coal-fired power plants, and utilities dominated by coal-fired power.
"The fundamental economics show that coal is on its way out, maybe not as fast as it needs to be for climate reasons," said Michael Noble, co-founder and executive director of Fresh Energy, an American clean energy advocacy group in St. Paul, Minnesota. "It's great that a group from Cleveland is on the front lines showing that coal economics is getting worse."
Focus on Indonesia's Electricity Sector
Like nearly all of IEEFA's researchers from around the world, Yulanda Chung, the IEEFA analyst and author of the Indonesia report, focused not on environmental or public-health concerns, but rather on the enormous financial risk of pursuing electrical power with anything having to do with coal. An investment banker and former head of Standard Chartered's sustainable finance team in London and Singapore, Chung reached deep into the guts of Indonesia's national energy policy. She highlighted a popular incentive program designed to encourage development of privately owned power stations that also presented serious financial risks for taxpayers.
For decades Indonesian energy authorities and PLN, the government-owned utility, paid fixed fees to private power plant builders based on a new plant's generating capacity. The fee payments were guaranteed regardless of how much electricity the plant actually produced. And the so-called "capacity payments" were guaranteed up to 30 years. These payments formed the financial certainty that builders and lenders needed to construct billion-dollar power plants.
The problem, said Chung, is that the strategy is inordinately expensive. The most current plan calls for PLN and private developers to produce 24 gigawatts of new electrical generating capacity from coal-fired power plants between 2017 and 2026. If PLN signs capacity agreements for those new plants it will saddle the country and its ratepayers with $76 billion in payments for coal-fired electricity that IEEFA argues are a waste. Such payments, Chung writes, "stand to defeat efforts to achieve energy security at the lowest cost possible."
Why? Chung offers three primary reasons:
- First, new coal-fired power plants are much more expensive, more difficult to build and manage, and more socially disruptive than smaller and cleaner renewable energy plants.
- Second, Indonesia needs less generating capacity than it projected earlier in the century when annual economic growth rates were higher than they are today.
- Third, Indonesia plans to spend $12.5 billion annually to electrify all of its residences and businesses. The steadily declining cost of cleaner, renewable sources of energy are a much better investment.
Certainly in the $18 billion Indonesia export coal industry, which generates more foreign exchange revenue than any of the country's other industries, outside groups advocating sharp pivots in coal use are not welcome. Until 2014, when global demand fell and coal prices plummeted, Indonesian authorities proposed immense rail, port, and mine infrastructure projects to increase production for export and domestic markets.
IEEFA asserts that implementing plans to increase coal consumption is foolish. Largely due to declining imports from India and China, Indonesia's two biggest customers, production in Indonesia coal mines fell to 419 million metric tons in 2016, 12.3 percent less than the peak of 474 million metric tons in 2013, according to the Ministry of Energy and Mineral Resources. (The Indonesian Coal Mining Association, which publishes its own annual production numbers, reported the industry mined 440 million metric tons in 2016, a smaller decline than reflected in ministry figures. The association projected that production could rise 5 percent in 2017, largely due to rising exports to China, which has halted imports from North Korea.)
Indonesia's coal industry, like coal sectors in every other fossil fuel-producing nation, is operating in an unstable market. Global coal production peaked in 2013 at eight billion metric tons and has been falling 1 to 2 percent annually in the years since, according to the International Energy Agency. Coal exports worldwide are declining. Prices are erratic. Public concern about water supply and water and air pollution from big coal-fired power plants has escalated in Indonesia and other coal-producing countries, along with construction delays and expenses.
Simultaneously new and cleaner fuel sources are becoming mainstream. Electric plants that rely on wind, solar, geothermal, and small hydropower dams are easier and cheaper to build and operate. Investments worldwide in new generating capacity from water-conserving wind and solar energy reached $286 billion in 2015, twice as much as investments in fossil fuel-generated electricity, according to a study by the United Nations Environment Program.
Results in Australia
IEEFA has been instrumental in digging out the statistics that help illustrate this momentous story of transition. Arguably, in no other country has its work been more influential than in Australia, where IEEFA has been diligent in uncovering the massive $16 billion cost of constructing two mammoth coal mines in Australia's Galilee Basin and building new rail lines to transport coal to proposed Pacific Coast ports.
The Galilee mines are meant primarily to serve export markets in India and China, both of which are introducing long-term policies that permanently diminish the demand for imported coal. India vows to halt almost all coal imports by the end of the decade.
Though the Galilee development has attracted the support of the provincial and national governments, IEEFA researchers produced various studies that show the projects are not possible without enormous public subsidies. Moreover, IEEFA notes that the market capitalization of Adani Enterprise Ltd., the Indian industrial developer of the $5 billion Carmichael mine, fell to $1.8 billion this year from $10 billion in 2015. Adani, in other words, is not nearly big enough to take on such a costly project.
IEEFA's research has played a role in turning the Galilee development into a prominent political struggle in Australia over coal-fired power, subsidies, and common sense. Not surprisingly, IEEFA has come under attack from conservative political leaders and the coal industry. "The activist movement has turned the creation of spurious, pseudo-intellectual reports on the coal industry into high art," said Brendan Pearson, chief executive of the Minerals Council of Australia, in a typical statement following a 2014 IEEFA report.
An investment analyst and IEEFA's Sydney-based director of energy finance studies, Tim Buckley authored the Galilee reports and takes the criticism in stride. "IEEFA's examination of the proposal to export low quality Carmichael coal to India found the project economics and risk analysis did not stack up," Buckley said in an email message. "Our discussions with Australian governments and leading financial institutions over the last four years have highlighted the economic and strategic shifts in India that have made the Carmichael proposal a stranded asset unable to make a viable economic return. The Australian government's response has bizarrely been to offer a multitude of subsidies to try to prop up the project. But subsidies alone won't change the fact that India no longer wants low-quality Australian thermal coal. India has more than enough of their own."
IEEFA's allies in Australia's environmental community anticipate the Galilee project will collapse. "IEEFA's work has been indispensable to the work of many non-governmental organizations and community groups in Australia in recent years," said Tim Hollo, executive director of the Green Institute in Canberra, Australia, in an email message. "It is helping us get a very clear understanding of the global economics of fossil fuels that Australia operates in. Their superb quality analysis has informed a tremendous amount of the work that has been going on, helping shift opinions broadly in the public, in the media, and very much in the investment community."
In Indonesia, following IEEFA's latest study, national authorities issued no statements of support or criticism. One reason is that IEEFA added financial certainty to a case Indonesia government and business executives were already starting to make about the expense, and myopia, of generating more electricity from the country's reserves of coal.
The most recent energy plan issued by the Ministry of Energy and Mineral Resources still projects adding coal-fired electricity by 2030, about 50 gigawatts. But the agency also envisions diversifying its electric supply by producing over 60 gigawatts from wind, solar, geothermal, biomass, and from big and small hydropower plants over the next 13 years.
IEEFA counters in its newest study that little of the 50 new gigawatts of coal-fired power is needed. Virtually all of it can come from clean, renewable energy sources constructed much more quickly at much lower cost in small plants, or affixed to roofs, and distributed across every one of Indonesia's inhabited islands.
This story originally appeared at the website of global conservation news service Mongabay.com. Get updates on their stories delivered to your inbox, or follow @Mongabay on Facebook, Instagram, or Twitter.