New Agreement Aims to Retire Indonesia 660-MW Coal Plant Almost 7 Years Early

The 660-megawatt coal-fired power plant Cirebon-1 in Indonesia will likely be retired almost 7 years earlier than scheduled as a result of discussions with the plant’s owners and the Government of Indonesia under the Energy Transition Mechanism program of the Asian Development Bank.

A nonbinding framework agreement signed at COP28 today by ADB, Indonesian state-owned power utility company PT PLN, independent power producer PT Cirebon Electric Power (CEP), and the Indonesia Investment Authority (INA) stated that they have conditionally agreed to shorten the power purchase agreement for Cirebon-1 and end the plant’s obligation to provide electricity in December 2035 instead of the original July 2042. The transaction is to be finalized in the first half of 2024.

Indonesia Minister of Finance Sri Mulyani gave a keynote speech at the event where she witnessed the signing together with ADB President Masatsugu Asakawa.

CFPPs typically operate for 40 years or longer. Since Cirebon-1 was commissioned in 2012, retiring the plant in 2035 would avoid over 15 years’ worth of greenhouse gas emissions. Replicating this transaction with other power plants in Asia and the Pacific and beyond, would achieve significant carbon dioxide emission reductions.

“This framework agreement is a key development for this transaction and Indonesia’s energy transition that will lead to a significant cut in greenhouse emissions,” said Mr. Asakawa. “We are grateful to the Government of Indonesia and to Cirebon Electric Power for their perseverance and leadership on the energy transition. ADB will continue to work closely with our partners in Indonesia and across the region to demonstrate that coal and other fossil fuel plants can be retired early in a just and affordable manner—a win for climate and a win for communities.”

“ETM provides an innovative approach for companies like CEP to make the transition from coal to clean energy while providing reliable and affordable power for Indonesia’s energy infrastructure,” said CEP President Director Hisahiro Takeuchi. “This framework agreement is a significant step towards finalizing this transaction. We are proud to be working in partnership with the Asian Development Bank, PLN, and Indonesia Investment Authority.”

“PLN is committed to being the leader in Indonesia's energy transition toward net zero emissions in a just and affordable manner," said PLN's President Director Darmawan Prasodjo. “PLN has put great effort into decarbonizing by cancelling 13.3 GW of planned CFPP, terminating a power purchase agreement of 1.3 GW CFPP, and halting new developments of CFPP. Early coal retirement is an extraordinary initiative that requires international support such as ETM. Working through the ETM with CEP signifies PLN's commitment to clean energy and exemplifies collaborative actions taken by PLN to accelerate energy transition in Indonesia."

"INA’s mandate is to contribute to Indonesia’s sustainable economic development and build wealth for the country’s future generations," said Chief Executive Officer Ridha D. M. Wirakusumah. "We are committed to enhancing our partners' efforts for scaling up ETM activities. This journey towards reducing carbon emissions is key to our transition to renewable energy, crucial for Indonesia’s resilience and prosperity."

ETM is a scalable, collaborative initiative that leverages a market-based approach to accelerate the transition from fossil fuels to clean energy. It will use concessional and commercial capital to retire or repurpose coal and other fossil fuel plants on an accelerated schedule and help direct investments toward reliable and affordable clean energy.

The framework agreement is subject to the conclusion of due diligence including environmental, social, and just transition reviews. The framework agreement is also subject to the results of an ongoing study of the technical and financial impact of the early closure of the plant on PLN’s electricity system—currently being undertaken by PLN and ADB.

The agreement confirmed the parties will continue discussing the financing scheme for the early retirement of Cirebon-1, as well as the impact of its early retirement on PLN’s plan to meet power demand through more clean energy or renewable energy generation.

So far, ADB’s ETM program is active in five countries: Indonesia, Kazakhstan, Pakistan, the Philippines, and Viet Nam, with ETM in Indonesia at the most advanced stage. It is also considering transactions in two other countries.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

www.adb.com

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