A midsized, 11-year-old coal power station in West Java is an unlikely bellwether for global climate finance. Cirebon-1 helps keep the lights on and factories whirring in the port city it’s named after, a few hours’ drive east of Jakarta. Like much of the coal fleet that generates some 60% of Indonesia’s…
A midsized, 11-year-old coal power station in West Java is an unlikely bellwether for global climate finance.
Cirebon is just the beginning. This week, an investment plan is due for a $20 billion climate finance package, the Just Energy Transition Partnership or JETP, signed by Indonesian President Joko Widodo and US President Joe Biden in Bali in November. That entire project hinges on the ability of deals like this one to “crowd in”, or encourage, private capital. So far, few details have been made public. Meanwhile, the world is moving fast towards missing crucial goals.
“From a climate point of view, the ideal time frame would be tomorrow, or today if we could make it,” said David Elzinga, a senior energy specialist at the ADB who has been working on Cirebon. “But we have to consider that capital has been invested.” This is the same thinking that underpins the JETP, with which the Cirebon deal would overlap. Half of the money in that package will come from the Group of Seven countries plus Norway; the other half will come through large financial institutions like HSBC and Citigroup, under the Glasgow Financial Alliance for Net Zero — institutions that have often made their own pledges to cut emissions.
As a test case, Cirebon has plenty working in its favor. It’s privately owned, less exposed to the messy politics around state-owned assets. The ADB is engineering and supporting its refinancing and early retirement, as part of a wider Energy Transition Mechanism program, and has the financial clout required to carry the transition if others fail to materialize. The plant’s Japanese, Korean and Indonesian owners are on board.
There is underlying emerging market risk to contend with—banks demand higher returns for jurisdictions that are perceived to be economically or politically unpredictable, and that applies even to BBB-rated Indonesia. Investors still have a fiduciary duty to their shareholders. For a deal that is intended as a model to be scrutinized and copied, it isn’t yet clear how much of the details of Cirebon can or will be made public, a hint of far larger issues around transparency, in part given non-disclosure agreements. Indonesian coal has also been especially intertwined with political and financial power, making accountability vital, but also explaining just why the dirtiest fossil fuel has been so hard to dislodge. Even the expansive JETP deal allows for captive coal.
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