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Coal-powered industrial parks test Indonesia’s climate pledges – and China’s too

Growth in parks with their own coal power plants is proving hard to stop, in spite of national pledges to reduce coal use. 

Coal barges ready to be pulled up the Mahakam River in Samarinda, East Kalimantan. Indonesia is reliant on coal for about 60% of its power. (Image: Reuters/Alamy)

In February, a Chinese company began building a “power island” project on Indonesia’s Obi Island, five months after President Xi Jinping had announced China would stop building new coal power plants overseas.

The 4 x 380 megawatt (MW) project, which some sources suggest will be home to a coal-fired power plant, is designed to provide power solely to a heavy industry park. Such parks are increasingly the Indonesian government’s chosen format for capital-intensive economic development. Over the past few years, a series of regulatory changes has sought to boost domestic industries to capture more value from natural resources like nickel and aluminium before they are exported. Industrial parks house the energy-intensive refineries and smelters needed for these processes, equipment owned predominantly by Chinese companies and which so far relies on coal-fired power.

Since the government banned the export of unprocessed nickel, first in 2014 and then again in 2020, and with another ban expected on bauxite, Chinese companies have answered the call to build up Indonesia’s ore-processing capacity. Additional regulation changes, collectively called the Omnibus Law, also make it easier for companies to obtain land and harder for communities to find resources to defend claims to land rights.

Xi Jinping’s announcement to stop support for new coal power plants overseas would be felt most acutely in these industrial parks, whose advocates have nonetheless sought to present them as climate-saving initiatives that support clean energy. Battery manufacturers can use the nickel processed at park facilities to produce millions of lithium-ion batteries for electric vehicles and grid storage; meanwhile, to meet climate goals, solar power installations across the world will require millions of tonnes of aluminium, derived from bauxite. Indonesia’s own climate plans, however, have been deemed “highly insufficient” by Climate Action Tracker, as it continues to build coal-fired power while targeting net-zero emissions only by 2060.

Speaking of the Obi Island development, Aiqun Yu, China researcher at Global Energy Monitor, says: “It’s worrisome because this project might be out of the [Chinese] government’s radar, or fall into a grey zone, or be tolerated.” In 2021 alone, state-run Chinese firms announced 1.3 gigawatts (GW) of planned coal power in Indonesia. The fate of these projects is now in question.

Renewable target under threat

In 2017, Indonesia announced a goal to derive 23% of its energy from renewable sources by 2025. However, its most recent 10-year energy plan (2021–2030) indicates that it is still reliant on coal for 60% of its power, while renewables currently make up just under 12% of the energy mix.

“Any new coal power will hinder the achievement of that target,” says Deon Arinaldo, a programme manager with the Institute for Essential Services Reform, a think tank based in Jakarta.

The government risks missing its own target. Just 7.8% of energy investment went towards renewable sources in 2020, but the state electricity company plans for half of added capacity in the next 10 years to come from renewables, prompting the 2021–2030 roadmap to be called the first “green” plan of its kind. Indonesia’s energy minister, Arifin Tasrif, said 9 GW of coal power would be retired early by 2030, almost double the previous plan. But at the same time, as the 2021–2030 plan details, the state intends to build 13.8 GW of coal power before a moratorium on construction begins in 2023. 

The government’s plans seem to contrast with companies’ own disclosures. More than 26 GW of coal power is at various stages of development in Indonesia – only China, Turkey and India have more planned – with over 15 GW of this amount currently under construction, according to data from Global Energy Monitor, which uses publicly available data on company plans. The national government’s energy plan shows that Java Island will host 60% of this new growth over the next 10 years, but GEM data suggests that projects in planning outside Java are more than double the growth reported for the island.

Masitah and Edi Suriana live next to the Suralaya power plant in Java. They and fellow residents have protested the plant’s expansion. (Image: Adi Renaldi / China Dialogue)

“The financing process of these captive coal power plants [those run by industrial producers for their own consumption] has very little transparency, making it almost impossible to trace the financial responsibilities,” says Global Energy Monitor’s Yu. Before GEM accessed Chinese industry sources, it was unaware of roughly 5,000 MW of planned capacity, exclusively at captive plants for industrial parks that focus on turning ore into metal products. Public awareness about these projects suffers in the absence of information, often because their electricity generation remains off-grid.

While captive power for industrial parks currently accounts for 15% of the country’s coal power output, this figure will grow to 24% if all the recorded projects are completed, according to GEM data. Coal-power generation is set to increase by 9,510 MW to feed a minerals industry increasingly dominated by nickel and aluminium centres.

Climate-saving minerals, powered by coal?

Industrial parks at three of Indonesia’s nickel hotspots – Obi Island, Morowali and Weda Bay – aim to have 14 coal power plants with 71 turbines, totalling 12,579 MW, according to GEM data. That’s more than double the 6,109 MW of captive power the nation’s nickel industry already has in operation.

The Morowali Industrial Park, or IMIP, grew over the last 15 years in response to high demand for Sulawesi Island’s nickel ore for the production of stainless steel and, more recently, battery-grade nickel. The entire industrial area, which stretches across the border between the provinces of Central Sulawesi and Southeast Sulawesi and into neighbouring Konawe, plans on adding 3,470 MW of coal-fired power. Nearby, residents often speak of the “dust season”, when the wind shifts and coal dust settles in homes. 

Tsingshan, which runs the park, pledged a year ago to develop 2 GW of wind and solar power for its smelting operations, and said it would follow Xi Jinping’s policy not to build coal power abroad. But it has several projects in the pipeline that were sealed before the announcement. Just Finance International, a research body in the Netherlands, noted that one month before the pledge, Tsingshan secured a contract for the construction of 1,140 MW at Morowali’s Labota coal plant. Tsingshan has also begun developing a similar park, Indonesia Weda Bay Industrial Park (IWIP), where there are plans to install 3,400 MW of coal power. 

Bantaeng district in South Sulawesi is another area that was set to become a nickel-processing hotspot. Huadi Nickel-Alloy Indonesia, a Chinese–Indonesian company, announced plans in 2015 to develop a smelter, and the state electricity company, PLN, supported the construction of a coal plant. But after hundreds of people from local communities protested against potential air and water pollution, the project stalled in 2018. PLN returned last year to tell the company that it would provide an additional 90 megavolt ampere (MVA) to the project to increase smelting capacity, without specifying the type of energy source.

Nickel production at a plant owned by PT Vale in South Sulawesi, Indonesia (Image: Hariandi Hafid / Alamy)

“PLN is ready to service investors’ electricity needs, especially for smelter industries,” a regional director of PLN told media at the announcement.

At total planned capacity, captive power for aluminium – an essential material for constructing many things from EVs to wind turbines – would number 31 units across two locations with 3,180 MW of installed capacity. The majority is dominated by Shandong Nanshan Aluminium, which is investing in 2,860 MW, roughly as much coal capacity as is operating in France.

This park is found on Bintan Island, a resort island just an hour’s ferry ride from Singapore. In January, President Joko Widodo visited Nanshan’s fast-developing industrial park. “I would like to extend my appreciation to companies that have the courage to build with investment, with the amount of risks involved. Hopefully, we can process all of our raw materials in the country,” Jokowi said. Like the nickel projects in Morowali and Konawe, he added, industrial parks like this can provide tens of thousands of jobs. 

The European Commission has an ongoing complaint with Indonesia at the World Trade Organization because of the Southeast Asian nation’s ban on nickel ore exports. But the Indonesian president remains defiant, and has suggested they may not stop at nickel. “Then if we ban bauxite exports and someone has to sue, it’s okay. We can face it,” Jokowi said in January.

Greener electricity 

Coal power is often believed to be the most reliable form of energy for industrial projects, says Arinaldo. Smelter and refineries need to run 24 hours a day, while energy from the sun and wind is intermittent. 

However, research from think tank the Institute for Essential Services Reform (IESR) suggests there is a great opportunity for both energy generation and energy storage in areas with industrial parks. For example, in Southeast Sulawesi, there is high potential for solar generation, as much as 200 GW, while in West Kalimantan, there’s almost five times that. Meanwhile, Central Sulawesi holds the most potential capacity for pumped hydro energy storage, whereby water is pushed uphill using excess energy and released when needed. However, it should be noted that each of IESR’s scenarios explores technical potential, and these massive capacities would require significant land use trade-offs to realise. 

Although these high-end scenarios may be unlikely, the report highlights the widespread possibilities for renewables in the country. “There’s enough potential in the area [Sulawesi] such that renewable energy could be used to supply a renewable-based industrial development,” Arinaldo says. 

President Joko Widodo has also pushed what he has called “the world’s largest green industrial region”, planned for a river system in North Kalimantan. The project plans to build five hydropower dams on the Kayan River, which could generate 9 GW for several industrial centres, including nickel and aluminium-processing factories. A similar hydropower project in Sulawesi, which has been slated to feed energy to Morowali, has experienced strong opposition for displacing and harming communities and wildlife.

Indonesia has also announced a partnership with the Asian Development Bank’s Energy Transition Mechanism, a tool that uses financial and policy instruments to accelerate the retirement of operating coal power. Such tools, however, struggle to address captive power plants, because data is less accessible in privately owned industrial parks.

“Most [captive power plants] are quite old, and it will be beneficial to re-invest in something more green, especially the ones for these industrial parks,” Arinaldo says.

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