24.4 C
  • Time
1 USD = 16,118 IDR

Indonesia, ADB launch first coal power plant retirement deal

Most Read

Cirebon 1 power plant in West Java would be refinanced on the condition it ends operations 10-15 years early.

Indonesia, the Asian Development Bank (ADB) and a private power firm are teaming up to refinance and retire early the first coal-fired power plant under a groundbreaking new carbon emissions reduction project that moves from concept to reality on Monday.

The 660-megawatt Cirebon 1 power plant in West Java would be refinanced in a $250-300m deal on condition that it be taken out of service 10 to 15 years before the end of its 40- to 50-year useful life under a memorandum of understanding (MOU), ADB officials said.

The Manila-based lender and Indonesian Finance Minister Sri Mulyani Indrawati are set to announce the MOU with independent power producer Cirebon Electric Power on Monday in Bali on the sidelines of the G20 summit.

The deal, final details of which would be refined under the MOU, could eliminate as much as 30 million tonnes of greenhouse gas emissions over a 15-year period – the equivalent of taking 800,000 cars off the road, ADB estimates.

The agreement is the first under the ADB’s Energy Transition Mechanism (ETM), an initiative to blend private investment funds, public finance and philanthropic donations to buy up or refinance coal power plants in Southeast Asia to retire them early as the region shifts to renewable energy sources.

The ETM project, first reported by the Reuters news agency last year, was developed by ADB with input from private sector firms including Prudential, Citi and Black Rock to eliminate decades of future carbon emissions by altering the economics of coal plant operations.

“The problem of legacy coal-fired power in Southeast Asia qualifies as one of the single biggest problems for the energy transition, if not the world,” ADB regional vice president, Ahmed M Saeed, told Reuters in an interview.

“With this announcement, we’re taking the first steps in what was an ambitious project and making it real,” he added.

The deal does not change the ownership structure for the 12-year-old Cirebon 1 plant, a key power supplier to Jakarta with a 30-year supply contract with state grid operator Perusahaan Listrik Negara (PLN).

Instead, it would compensate owner Cirebon Electric for the present value of foregone profits from the plant’s early retirement with a new, lower-interest concessional loan arranged through ADB’s private sector arm, said David Elzinga, ADB’s senior climate change energy specialist.

The deal will include funds from Indonesia’s $500m allocation from the Climate Investment Fund, but the structure is still coming together, Elzinga said, adding that ADB had initially requested a $50m contribution from the fund.

ADB also said a number of financial firms and philanthropic groups have expressed interest in participating in the transaction.

The deal also marks a shift of the initial ETM concept of an “acquire and retire” model to a “refinance and accelerate retirement” model, Saeed said, adding that Cirebon, whose shareholders include Japan’s Marubeni Corp 8001.T and Korean Midland Electric Power Co, was motivated to take an active role in the transition rather than simply offload the plan.

“It became clear that it’s a simpler structure to leave the existing owner in place,” Saeed said. “And so we could deliver economic value through financing as opposed to a change in equity ownership.”

The ADB officials said they expect the Cirebon deal to give private investors more confidence to explore future participation, and that the development finance institution’s leadership may help shield them from any negative public perceptions regarding new investments in coal financing.

The deal comes amid growing calls for multilateral development banks to stretch their balance sheets and harness more private sector capital to finance the massive investments needed to fight climate change. The World Bank is due to produce an evolution roadmap to meet these challenges in December.

Source: Reuters

Latest Articles

error: Content is protected !!