New analysis from Oil Change International and Auriga finds the following:
- Risk guarantee and credit enhancement programs that subsidize coal-fired power plants could cost the Government of Indonesia and Indonesian ratepayers as much as tens of trillions of rupiah – many billions of U.S. dollars – over the coming decade.
- A multitude of guarantees, credit enhancement programs, and policies that transfer risk from project developers to the government are currently benefiting coal-fired power plants, while increasing the risk borne by the Government of Indonesia, Indonesian ratepayers, and the Indonesian public. This analysis considers loan guarantees, business viability guarantees, and foreign exchange (or currency risk). Additional guarantee mechanisms – including those provided by dedicated guarantee funds such as the Indonesian Infrastructure Guarantee Funds – are also benefiting coal projects and increasing public risk.
- For coal projects, loan guarantees provided through 2017 alone could easily cost $2.1 billion (using moderate risk assumptions) and could cost twice as much – $4 billion – under high risk assumptions. These numbers would rise as the volume of loan guarantees rise beyond 2017. It is also likely that billions of dollars of additional risk is created from the business viability guarantees and foreign exchange guarantees.
- Multiple scenarios could result in large numbers of guarantees for coal-fired power plants in particular being called in a short period of time – from lack of freshwater causing coal-fired power plants to close, to climate change or air pollution policies limiting the ability of coal plants to operate, to regional oversupply of electricity resulting in payments for electricity that is never used. If many gigawatts of coal-fired generating capacity are underpinned by government guarantees, any one of these scenarios could put Indonesia’s finances under great stress.
- In weighing whether guarantees for electricity producers serve the public interest, the government can consider whether coal – with its attendant risks and high externality costs – is worthy of support and subsidy, or whether subsidies and support should be concentrated at energy solutions that provide the highest net public benefit and cause the least harm.