Indonesia’s gasification plans could be costly for budget and environment

In late January, Indonesian President Joko “Jokowi” Widodo participated within the groundbreaking ceremony for a brand new, $2.1 billion coal gasification plant in Tanjung Enim, South Sumatra. The venture, a partnership between Indonesian state-owned coal mining firm PT Tambang Batubara Bukit Asam (PTBA) and U.S.-based Air Merchandise and Chemical substances, goals to supply a kind of liquid gas known as dimethyl ether (DME) from the nation’s wealthy coal shares, changing imported liquefied petroleum gasoline (LPG).

Indonesia is at present one of many world’s prime producers and exporters of thermal coal. Coal gasification is seen by proponents as a approach to keep coal manufacturing even when export demand decreases. It has additionally not too long ago been designated a “new vitality” supply by Indonesia’s authorities.

Now, a brand new evaluation from the Institute for Vitality Economics and Monetary Evaluation (IEEFA) is elevating considerations that the venture would require large subsidies from the federal government to fulfill its projections — and that the prices of what quantities to a brand new fossil gas subsidy may very well be borne by Indonesian customers and taxpayers.

Revenue or loss

In January 2022, Indonesian officers introduced they’d agreed to a hard and fast worth for DME of $378 per metric ton. Nonetheless, the IEEFA’s evaluation discovered that, assuming a conservative 15% return every for the coal provider and the DME plant operator, their estimated worth for DME can be $601/ton, a worth that might, based on the IEEFA, be unprofitable.

The federal government’s $387/ton calculation assumes the gasification plant will be capable to purchase coal at $20/ton. Nonetheless, the present common manufacturing price is $42/ton. The IEEFA additionally estimates larger processing prices, and better operator returns, than the federal government.

Andri Prasetiyo, program supervisor at Development Asia, an Indonesian nonprofit that focuses on accelerating the transition to scrub vitality, mentioned he’s involved that the federal government could also be placing out figures that make the DME venture look extra viable than it truly is.

“There’s a massive distinction between the federal government and the IEEFA figures,” he mentioned, including he finds the latter extra lifelike. “The federal government is setting a decrease price as a result of they wish to discover a manner for the coal business to outlive.”

Andri mentioned the federal government could find yourself closely subsidizing DME to make sure its business viability, creating a brand new, de facto fossil gas subsidy.

Home coal utilized in gasification is already set to be exempted from authorities royalties, which Andri mentioned quantities to an oblique subsidy. On prime of that, he mentioned, Indonesian customers received’t go for DME except it’s cheaper than LPG, which is already extensively used for cooking and different functions. “It wants subsidies,” he mentioned of DME. “In any other case individuals select LPG.”

Andri mentioned he would fairly see the federal government help renewables as an alternative. “Why is the federal government giving subsidies for an additional type of soiled vitality? Why doesn’t the federal government redirect the subsidies in the direction of renewable vitality?”

In keeping with the IEEFA’s evaluation, the one manner DME can be market aggressive is that if LPG costs are excessive, greater than $858/ton, a determine that has solely occurred for six% of the final 20 years. Conversely, if costs fall, DME may turn out to be pricey, rapidly.

“When costs fall to the ground, any person has to bear the losses, however when costs undergo the roof, somebody has to bear the earnings,” Ghee Peh, an vitality finance analyst on the IEEFA and writer of the evaluation, mentioned in a phone interview.

In keeping with Peh, the way in which the venture is ready up means it’s possible the federal government and taxpayers would pay the prices, whereas non-public corporations would reap any earnings. He mentioned he hopes the IEEFA’s evaluation shall be utilized by the federal government to reassess the viability of its DME crops.

“I hope there’s a dialogue between all events, to know the true price of the DME,” Peh mentioned, including that they’ve discovered the federal government receptive. “They’re fairly open to the truth that we’re placing numbers on the desk. We’re simply telling you the fee.”

With a number of extra DME crops in varied phases of planning, every with a life span of no less than 20 years, there’s not a lot time for Indonesia to forestall the entrenchment of an extended, pricey, coal-dependent future.

“We have to give extra consideration to this situation,” Andri mentioned, “as a result of if the federal government efficiently builds the venture in South Sumatra, they plan to construct greater than 10 extra.”

Banner picture: Coal mining in South Kalimantan, Indonesia. Picture by Dominik Vanyi by way of Unsplash.

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