In a world pursuing renewables, Indonesian coal miners don’t want to be left behind

Indonesian coal miners looking to embrace a changing energy landscape are increasingly of the view that diversifying into renewables has to happen now or never.

As global coal trade flows saw one of the worst disruption due to the Russia-Ukraine war, Indonesia’s silent efforts to increase renewable energy capacity over the longer term has attracted eyeballs, a move many believe is to shun extreme dependency on coal while also meeting its clean energy targets.

From developing new renewable energy business verticals to building captive green projects for self-consumption, Indonesian coal mining companies are exploring various avenues of diversification to include environmentally benign sources in their asset portfolios.

Many miners are still in the early days of planning, but some have already formed subsidiaries and joint ventures in the green energy sector.

To keep up, the Indonesian government has chalked out its own renewable energy roadmap in the Electricity Procurement Plan 2021-2030, which states that renewables would account for half of the total power capacity addition planned this decade.

Further, to fulfill its Paris Agreement commitment of reducing national emissions by 29% within 2030, Jakarta is expected to use 23% of its requirements from renewable energy sources by 2025 from the current level of around 12%.

Indonesia is the world’s largest coal exporter. In 2021, its coal output touched 609.61 million mt while it exported 318.56 million mt, according to data from MODI website, under the aegis of the federal energy ministry of Indonesia.

Miners’ energy strategy

In its latest update to investors in May, Adaro Energy said that its power generation subsidiary Adaro Power “continues to study renewable power projects such as biomass, wind power, and solar photo voltaic to support PLN [Perusahaan Listrik Negara, the state-owned electricity producer and distributor] through unsolicited proposal and tenders.”

The company is also in the process of developing captive use power generation projects such as solar and small hydro plants for the group’s other business units.

Bumi Resources is also looking at investments in solar technologies, but the final decision will be taken around 2027 after wrapping up its restructuring and debt settlement processes, said Dileep Srivastava, director and corporate secretary of the company.

“We have not finalized the direction and have to be careful about the rates of return before investing in any project,” Srivastava said, adding that the investments will depend on government incentives in the sectors, prices and offtake interest of such products.

Bumi is in discussion with the Indonesian government as well as overseas collaborators on developing potential rooftop solar projects.

Compared to its peers, miner Indo Tambangraya Megah, or ITM, has taken more concrete steps on the path to green energy. It created Cahaya Power Indonesia, or CPI, a subsidiary to tap into the solar rooftop business. CPI has signed a solar rooftop power purchase agreement with a total capacity of 5.9 MW in the first quarter of 2022.

CPI is also constructing a solar PV hybrid plant which will support mining operations of the Trubaindo coal mine. Without disclosing additional details, the company yes informed investors that is also exploring the possibility of building another hydro power plant.

Indonesian miner Indika Energy has formed a joint venture with India’s Fourth Partner Energy called Empat Mitra Indika Tenaga Surya, or EMITS, to develop solar power business, which plans to install 500 MW of green generation capacities in the next five years in Indonesia.

The new business unit aims to become a renewable energy solutions platform for Indonesia’s commercial and industrial sectors.

EMITS also signed a partnership to develop green sustainable ports in Sabang and the Krakatau International Port in Banten.

Energy transition challenges

Even though the world is trying its best to cut down its fossil fuel usage, recent geopolitical developments have led to a surge in appetite for coal.

As the European Union readies itself to take out Russia from its sellers’ basket, it looks to alternatives to fill the void.

Quite naturally, Indonesian miners have been witnessing pockets of inquiries surfacing from Europe for low-ash, low-sulfur high-to-mid calorific value coal.

The sudden surge in demand on the back of an existing supply tightness has also pulled up Asian thermal coal prices.

The Indonesian 4,200 kcal/kg GAR rose from $79.05/mt FOB Feb. 24 – when Russia invaded Ukraine – to $85.45/mt FOB June 28, according to data from S&P Global Commodity Insights.

Lingering doubts

Market participants, however, do not have an optimistic view about Indonesia’s attempts to turn to renewables.

“Renewables cannot catch up with fossil fuels anytime soon. It is not an easy alternative,” a Singapore-based trader said.

An Indonesia-based trader echoed the same view pointing out that Indonesia’s abundant fossil fuel reserve remains a more profitable business option than renewables.

“Indonesia does not have much renewable capacity. Miners are trying to take these steps to set up renewable energy projects to show that they care about nature but it might not have a major impact,” another Indonesian trader said.

It remains to be seen if the pace of renewable capacity addition can match the pace of surge in power demand in the coming decade.

Source: https://www.spglobal.com/commodityinsights/en/market-insights/blogs/coal/062922-indonesia-coal-energy-transition-renewables