The cost of renewable energies – Editorial

Amid the aggravating crises of climate change, economic problems and geopolitical tensions affecting almost every nation, the desire to move the world away from fossil energy is growing stronger.

Countries across the continents are calling loudly for the early retirement of coal-fired power plants (CFPP) and the acceleration of reinvestment in renewable sources. Several Southeast Asian countries have started the movement.

The Philippines, for example, recently announced the divestment of its investment in the coal-fired South Luzon Thermal Energy Corp. by using the Energy Transition Mechanism (ETM) fund, which also marked the first deal of its kind in the world.

The ETM is a new concept offered by the Asian Development Bank (ADB) that aims to anchor low-cost and long-term financing support for the early retirement of coal-fired power plants. As part of the ETM structure, the operating life of the coal plant of up to 50 years will be halved.

The scheme allows ACEN, the parent company of Luzon Thermal Energy, to phase out its 246-megawatt coal-fired power plant in Calaca, Batangas, and transition it to cleaner technology by 2040.

Globally, the gesture may seem like a small step, although it still points a firmer path towards a possible solution to the CFPP withdrawal financing issue, which was hotly debated at the recent United Nations Climate Change Conference (COP27) in Egypt. .

Riding the wave, Indonesia also started raising money for an ETM fund during the just-concluded Group of 20 Summit. With this move, the government aims to withdraw the 12-year-old Cirebon1 CFPP from West Java.

According to ADB on November 14, Cirebon1 has a capacity of 660 MW and would be refinanced in a USD 250-300 million deal, provided it is decommissioned 10-15 years before the end of the 40- 50 years. – year of useful life.

Shortly after the deal was made public, the government announced another $20 billion funding deal under the Just Energy Transition Partnership (JETP) banner, which also aims to preemptively retire CFPPs Indonesian.

Through the JETP, a coalition of wealthy nations is set to mobilize $20 billion in grants and concessional loans over three to five years to help the country shut down coal-fired plants and advance the sector’s peak emissions date by seven years to 2030. .

The JETP deal itself reduces the estimated $600 billion Indonesia will need to phase out coal power in favor of renewables.

Given that these deals may sound too good to be true, experts have reminded the country about prudent use of funds for the early retirement of coal plants and new investments in renewables. The country should also consider its current debt burden, especially given the number of past infrastructure investment projects with “less than stellar results.”

Many fear that much of the deal would consist of onerous loans rather than grants or financing with more favorable terms. In this case, Indonesia would need major assistance in fixing the current policies that make it difficult to add renewable energy to the grid.

Another concern is the lack of early retirement criteria for coal plants. This can lead to overcompensation, as in the case of the Cirebon1 power plant early retirement agreement.

At the end of the day, phasing out coal plants will be a complex and costly task for the Global South, including Indonesia, because of these countries’ vulnerability to climate hazards and dependence on assistance from the Global North.