The Asian Development Bank (ADB) and partners in Indonesia have signed a Memorandum of Understanding (MOU) to begin discussions for the early retirement of Cirebon-1, a 660 megawatt (MW) coal-fired power plant in West Java. ADB’s MOU with Cirebon Electric Power (CEP); PT PLN (Persero), Indonesia’s state-owned power utility; and the Indonesian Investment Authority (INA) represents a major breakthrough for ADB’s Energy Transition Mechanism (ETM), which seeks to use blended finance to help Asia and the Pacific accelerate the retirement of power plants that use coal and other fossil fuels and replace them with cleaner, more renewable sources of energy.

1) Why was this plant chosen?

The plant was chosen for several reasons. Firstly, it has the right combination of an interested owner, being a middle-aged plant, and having a financial structure that was suitable for refinancing. Secondly, the project company already has an active corporate social responsibility program, is engaged with the community, and is therefore suited to ensure the coal plant will be retired with strong just transition considerations. While each ETM transaction will have specific characteristics, ADB believes this is a great model case that can be replicated with other independent power producers.

2) What is the timeframe for the early retirement of the plant?

The final structure of the transaction will determine when the plant will be retired, and this will be negotiated. The power plant is currently contracted to deliver electricity until 2042, by which time the plant will be 30 years old. A coal-fired power plant has a technical life of between 40 and 50 years, meaning that when the initial contract expires, it would typically be re-contracted for an additional 10-20 years of operation. If this power plant were to permanently terminate operations in 2037, for example, that would reduce its operating life by at least 15 years using a conservative operating life of 40 years.

3) ETM is about reducing greenhouse gas emissions. What would the emission reductions be if the plant can be retired 15 years early?

It is too early to tell; this is one of the things the MOU and future discussions will aim to answer. However, ADB estimates that accelerating the retirement of a coal-fired power plant with the characteristics of Cirebon-1 by 15 years could reduce greenhouse gas emissions by up to 30 million tons—the equivalent of taking 800,000 cars off the road.

4) What is the expected size of the transaction?

The final structure of the transaction will determine its size, but it is expected to be between $250 and $300 million. It is important to note that the size of the transaction is less relevant than the ability to demonstrate that this approach is viable and can be replicated with other plants in Indonesia and in other countries.

5) Who are the proposed financiers of the early retirement? Would ADB be providing financing?

The financing is expected to be a blended structure, including both concessional capital and capital from ADB's Private Sector Operations Department. The concessional funds include donor-supported funds to ADB’s ETM Partnership Trust Fund and a portion of the recently approved Indonesia allocation from the Climate Investment Fund’s Accelerating Coal Transition window. The transaction structure is not yet finalized and a number of financial entities and philanthropies have expressed interest in participating in the transaction.

6) How much electricity does the plant provide and to whom?

Cirebon-1 provides electricity to PLN, Indonesia’s state-owned power distributor, as the sole off-taker of the electricity. It began operations in 2012 with a 30-year contract, ending in 2042. PLN is a signatory of the MOU and must agree to shorten the contract period for electricity production when the plant permanently terminates its operation.

7) What is the plan for replacing the power that will be lost when this plant is retired?

ETM is committed to accelerating the retirement of coal-fired power plants and replacing them with cleaner renewable energy. ADB and PLN have agreed to develop a plan for the replacement power that would be lost when this plant is retired. Several renewable technologies, as well as distribution and transmission system upgrades, are being considered. As renewable energy and battery storage costs continue to decrease, there is optimism that replacement electricity can be done at a cost that is equal to, or lower, than contracted tariffs. Key considerations will include the fact that the existing plant provides baseload power, contrasted with solar and wind technologies that provide power only when the sun shines or the wind blows.

8) How many people does the plant currently employ? What will be done to find alternative employment for these workers?

Cirebon-1 employs about 200 people. ADB is committed to adopting a comprehensive approach to just transition under ETM that provides support for workers, communities, and regions impacted by the associated projects. ADB will work with the Government of Indonesia, PLN, and CEP to assess the impact on the livelihoods of workers and local communities. CEP will mitigate direct impacts on workers, local vendors, and parties. In consultation with all key stakeholders, ADB will work with the government and relevant municipalities to support financing and implementation of mitigation measures for direct, indirect, and induced impacts on the local community and other parties.

9) How does ADB’s ETM integrate with Indonesia's energy transition mechanism country platform?

ADB’s ETM is a transformative program that aims to help Asia and the Pacific retire existing coal-fired power plants on an accelerated schedule and replace them with clean power capacity. Every country that develops an ETM will need country leadership to take into account its power sector context, including demand, market structure, generation resources, and policy and regulatory approaches—while also prioritizing a just and affordable transition that shares the benefits equally and leaves no individual, community, or region behind. The Government of Indonesia has taken on this role and created an Indonesia ETM Country Platform, which will be a vehicle to fund, manage, and monitor energy transition activities in the country. This platform is country-owned and country-managed. ADB’s work on the energy transition, together with other development partners, will progress hand-in-hand with Indonesia’s ETM Country Platform.

10) What is the relationship of JETP to ETM?

The Just Energy Transition Partnership (JETP) program is an innovative approach by the G7 and partner countries for harnessing and pooling diverse financial resources to back overarching climate goals and accelerate the energy transition. This will include support for a range of models and initiatives, such as ETM, which is a specific program aimed at accelerating the retirement of coal and other fossil fuel-based power plants and replacing them with cleaner, renewable energy sources.

ADB is closely supporting the Government of Indonesia on its ETM Country Platform and coordinating with the US and Japan who are co-leading the JETP proposal for Indonesia. There is expectation for ETM to be one of the key delivery mechanisms to ensure successful implementation of JETP.

11) Which plant will be next?

ADB is in discussions with a number of coal-fired power plant owners in Indonesia and the Philippines but cannot provide more details at this time due to non-disclosure agreements. ADB is also working with a number of stakeholders including Indonesia’s sovereign wealth fund, INA, as well as industry associations, to find other potential transactions that can accelerate the shift from coal to clean energy.