(Bloomberg) -- Indonesia has moved a step closer to the early retirement of the privately owned Cirebon-1 coal-fired power station, a milestone deal that could shutter the plant nearly seven years early and create a blueprint for others to follow.
Under a non-binding accord signed on the sidelines of United Nations climate talks in Dubai, the Asian Development Bank, Indonesian state-owned utility PT PLN, the Indonesia Investment Authority and the plant’s owners have agreed to allow the operation to close by the end of 2035, earlier than expected after previous phase-out discussions.
It had originally been scheduled to operate until July 2042.
The ADB and other signatories didn’t disclose the financial arrangements or terms, however. Those are the critical details which will determine whether the deal can be a blueprint for state-owned and private coal plants in Indonesia or for similar efforts around the world.
While crucial to global efforts to limit climate damage, early phase-outs like this one hinge on funds. Existing investors need to be compensated for the loss of future earnings, and efforts to blend private and concessional financing have struggled.
A final agreement is due next year.
Cirebon, a few hours’ drive east of Jakarta, is emblematic of Indonesia’s struggle to wean itself off the dirtiest fossil fuel. It was commissioned in 2012 during a coal construction boom and could easily operate for another four decades.
The deal is part of the ADB’s Energy Transition Mechanism program, one of several ongoing efforts by international funders to accelerate the transition from fossil fuels to clean energy. Indonesia’s state wealth fund signed a non-binding agreement late last year to help fund the early retirement of the 660-megawatt coal-fired plant.
Indonesia has pledged to shut all coal plants by 2050 as part of its net zero emissions goal. Several challenges hamper its efforts, including the large-scale use of coal for industrial purposes, but also financing, given the vast sums required to manage not only renewable energy deployment but improvements to grid infrastructure, energy storage and the human impact of a dramatic change for the world’s largest coal exporter.
The ADB agreement is subject to the conclusion of due diligence including environmental and social reviews, according to the statement. It also depends on the results of an ongoing study of the technical and financial impact of the early closing of the plant on PLN’s electricity system.
The owners of Cirebon-1 include Marubeni Corp., PT Indika Energy and Korea Midland Power Co.
--With assistance from Clara Ferreira Marques.
(Updates with context, background.)
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