Perusahaan Listrik Negara (PLN), a state-owned enterprise (BUMN), is responsible for electrifying Indonesia. The story of PLN could be a tale of two potential paths: one leads to a healthy future powered by clean energy; the other to devastating health and environmental impacts through continued coal reliance. PLN, however, maintains its position as a company still heavily invested in fossil fuel expansion. PLN has not expanded fossil fuels alone - it is funded by global commercial banks Citi, HSBC, Standard Chartered and Mandiri, which continue to finance its operations through bond underwriting and lending. PLN’s fossil fuel expansion is toxic; it perpetuates environmental harm and human rights abuse. Banks must immediately cut ties with PLN’s fossil fuel expansion or risk reputational harm.

The human cost: People impacted by coal

Indonesia's electricity system, heavily reliant on fossil energy, has already severely impacted people's lives and livelihoods. The story of PLTU Ombilin, located in Sijantang Koto Village, Sawahlunto, West Sumatra, operating since 1996 with a 200 MW total capacity, is a reminder of the human cost. After nearly three decades of operation, the presence of this PLTU has resulted in a number of problems that are harmful to the community. According to two health examinations on students of Sekolah Dasar 19 Sijantang Koto between December 2016 and January 2017, over 50 students in grades III and IV experienced pulmonary function disorders, with some of them experiencing mild obstruction, pulmonary bronchitis, and pulmonary tuberculosis.

The Suralaya and Java 9-10 PLTU complexes on the Banten coast, which currently have 10 PLTU units with a combined capacity of 6025MW, tell another sombre story. The community deals with air pollution and fly ash on a regular basis. According to an analysis, this PLTU complex contributes to the air pollution that crosses the border between Banten to Jabodetabek. Costing Rp 5.1 trillion a year in medical expenses and causing over 2,500 premature deaths in addition to other respiratory and cardiovascular health issues. The use of coal as a cheap energy source no longer makes sense and will impede our attempts to meet the Paris Agreement if the government considers the cost of externalities like the ones mentioned above that result from the use of coal-fired power plants.

The entrenched problem: PLN's reliance on coal

In 2022, Indonesia's GHG emissions inventory reached 1,220 million tons of CO2, with the energy sector contributing the most at around 715.95 MtonCO2-e, followed by forestry and peatland fires (221.57MtonCO2-e), and waste (221.57MtonCO2-e), industry (59.15 MtonCO2-e), and agriculture (89.20 MtonCO2-e). The fact that about 90% of Indonesia's primary energy source comes from fossil fuels makes it impossible to isolate the discharge of these pollutants.

As Indonesia’s primary electricity provider, PT PLN is one of the country's largest sources of emissions. PLN does not mine coal itself but is supported by a number of sub-holdings. A sub-holding in the energy supply cluster supplies coal, gas, fuel oil, and biomass for co-firing all PLN-owned power plants. Another sub-holding in the power generation sector transmits and distributes electricity from plants to households and businesses. 

As of December 2023, PLN has the most coal-dominated power plants with 135 units with a total capacity of 20.440MW, gas-fired comes in second with a total installed capacity of 16.924MW, while renewable energy makes up a small percentage with 4,210MW. Despite PT PLN’s heavy reliance on coal power, the company plans to continue to install around 13.8GW (34%) of coal power plants and 5.8GW (14%) of gas and oil power plants, according to its 2021–2030 General Plan for Electricity Supply (RUPTL) document. By 2030, the proposal is expected to increase Indonesia's greenhouse gas emissions.

Although in the same document (RUPTL), PLN also intends to add about 20.9GW (51.6%) of renewable energy, the domination of coal in its energy mix is still concerning. The trend of utilizing electricity from renewable energy in Indonesia is still minimal, only about 20% compared to the country’s potential. However, the take or pay (TOP) strategy, which encourages PLN to prioritize the absorption of electricity supplied from fossil fuels, raises concerns about PLN’s intention to fully utilize the potential of renewable energy. It is more challenging to absorb and distribute electricity sources from renewable energy sources in the Java-Bali and Sumatra regions due to the overabundance of grid systems derived from fossil fuels.

PLN's primary energy supply cluster is supported by a sub-holding that is in supplying generating needs such as coal, gas, fuel oil, and biomass for co-firing to all PLN-owned power plants. This sub-holding has business lines in coal mining, shipping, companies in the field of gas infrastructure, and trading companies.

The government's plan to use biomass co-firing in coal-fired power plants exacerbates Indonesia's energy transition issues. By 2025, PLN wants to use this false solution in 107 PLTU units. According to Trend Asia's analysis, the demand will reach 10.23 million tons annually if wood pellets with a 10% blend rate are the type of biomass used. Energy plantation forests are expected to require at least 2.33 million hectares of land to supply it, which is 35 times the land area of DKI Jakarta. It is estimated that the complete process chain will release up to 26.48 million tons of CO2e emissions. The impending climatic catastrophe necessitates a quick end to PLN's dependence on fossil fuels.

A path forward: The potential for renewable Indonesia

Despite the current challenges, PLN could take on its role in Indonesia's energy transition by fully committing to renewable energy. While PLN is backed by sub-holdings focused on coal, gas, and renewable energy, the company could prioritize the latter. It could actively contribute to Indonesia's commitment to the Paris Agreement by rapidly switching from fossil fuels to sustainable, renewable sources, ensuring a just and equitable transition.

Although in 2023, renewable energy made up a small percentage with 4,210MW compared to Coal (20.440MW) and Gas (16.924MW), a different PLN could actively increase its renewable portfolio. Given Indonesia’s commitment to fulfilling the Paris Agreement and the vital role that PLN plays in supplying electricity, Indonesia ought to take an active part in the process by immediately switching from fossil fuels to renewable energy sources while making sure that the transition is equitable and sustainable.

The role of financial institutions

PLN's choices are not made in isolation. Global commercial banks play a significant role, financing both the potential for renewable energy and the perpetuation of fossil fuel dependence. In 2018, PLN issued a €500 million bond with proceeds used for “capital expenditure requirements and general corporate purposes,” due to mature in October 2025. Book runners for this bond were global commercial banks Citi, HSBC, Standard Chartered, and the Indonesian Bank Mandiri. We know that PLN partially directed the proceeds towards President Jokowi’s much-coveted 35,000 MW program. To this day, PLN continues to be a major buyer of coal and other fossil fuels in Indonesia, and thus, its buying decisions directly impact Indonesia's broader fossil fuel ecosystem, keeping the country dependent on fossil power sources. 

As a major demand driver for the Indonesian coal industry, PLN’s bond maturity gives  banks an opportunity to engage with their client about its chance to drive Indonesia through a just energy transition. HSBC and Standard Chartered have already started to scale back their support for coal projects around the world. They must apply the same commitment to PLN and end finance for its projects that enable and expand coal development. They should eventually consider ruling out all future finance to PLN if the company does not commit to stop expanding coal power in Indonesia. Other former underwriters like Citi and Bank Mandiri must also close the loopholes in their policies that still allow their finance to reach coal projects.

What next?

We call on Citi, HSBC, and Standard Chartered to publicly commit to stopping bond underwriting for PLN’s coal expansion by 2025. PT PLN, too, should capitalize on the momentum of the RUPTL renewal to quickly switch to renewable, sustainable, and fair energy sources and stop using this dirty energy right away.

The future of Indonesia hinges on the choices PLN makes today. Will it embrace a clean energy transition and lead Indonesia towards a sustainable future, or will it remain chained to fossil fuels, perpetuating harm to its people and the planet?