Indonesia and AfDB Launch First Coal Power Plant Withdrawal Agreement

NUSA DUA, Indonesia, Nov 14 (Reuters) – Indonesia, the Asian Development Bank and a private power company said on Monday they were teaming up to refinance and prematurely decommission a coal-fired power plant, the first project of its kind under a revolutionary carbon emissions policy. discount program.

The 660-megawatt Cirebon 1 power plant in West Java would be refinanced under a $250-300 million deal on the condition that it be decommissioned 10-15 years before the end of its useful life of 40 to 50 under a memorandum of understanding (MOU), Asian Development Bank (AfDB) officials said.

Manila-based multilateral lender and Indonesian Finance Minister Sri Mulyani Indrawati announced the memorandum of understanding with independent power producer Cirebon Electric Power in Bali on the sidelines of the G20 leaders summit.

The deal, the final details of which would be worked out as part of the memorandum of understanding, could eliminate up to 30 million tonnes of greenhouse gas emissions over a 15-year period – the equivalent of removing 800 000 cars off the road, estimates the AfDB.

The deal is the first under the AfDB’s Energy Transition Mechanism (ETM), an initiative to combine private investment funds, public finance and philanthropic donations to buy back or refinance coal-fired power plants in Southeast Asia in order to remove them quickly as the region transitions to renewable energy. sources.

The ETM project, first reported by Reuters last year, was developed by the AfDB with input from private sector firms including Prudential (PRU.L), Citi (CN) and Black Rock (BLK. N) to eliminate decades of future carbon emissions by changing the economics of operating coal-fired power plants.

“The problem of coal-fired power in Southeast Asia is considered one of the biggest problems of the energy transition, if not the world,” AfDB Regional Vice President Ahmed M told Reuters. Saeed, in an interview.

“With this announcement, we are taking the first steps in what was an ambitious project and making it a reality,” he added.

The coal-fired power plant deal was announced alongside a broader national platform for energy transition in Indonesia, which depends on coal for 60% of its electricity. Sri Mulyani said at the event that the government had identified power stations generating 15 gigawatts of electricity which could be withdrawn earlier.

“Fifteen gigawatts – that’s a very large size,” she said, adding that it would require “a significant investment.”

A new “just energy transition partnership” between rich countries and Indonesia is expected to be announced at the G20 summit on Tuesday.

SAME OWNER, SHORTER LIFE

The Cirebon 1 deal does not change the ownership structure of the 12-year-old power station, a key electricity supplier in Jakarta with a 30-year supply contract with public grid operator Perusahaan Listrik Negara (PLN).

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

The deal will include funds from Indonesia’s $500 million allocation from the Climate Investment Fund, but the structure is still being put in place, Elzinga said, adding that the AfDB initially requested a contribution. $50 million to the fund.

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

The deal also marks a shift from ETM’s original concept from an “acquire and withdraw” model to a “refinance and accelerate retirement” model, Saeed said, adding that Cirebon, whose shareholders include Japan’s Marubeni Corp ( 8002.T) and Korea’s Midland Electric Power Co was motivated to play an active role in the transition rather than just offloading 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 rather than change in ownership.”

AfDB officials said they expected the Cirebon deal to give private investors more confidence to explore future participation, and that the development finance institution’s leadership could help them protect against any negative public perception regarding new investments in coal finance.

The deal comes amid growing calls for multilateral development banks to stretch their balance sheets and mobilize more private sector capital to fund the massive investments needed to tackle climate change. The World Bank is expected to produce an evolutionary roadmap to address these challenges in December.

Reporting by David Lawder; edited by Diane Craft, Raju Gopalakrishnan and Louise Heavens

Our standards: The Thomson Reuters Trust Principles.

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