Finding (Re)Purpose: The Power of a Pre-Feasibility Analysis in Coal Repurposing
Four lessons from analyzing alternative futures for repurposing an Indonesian coal plant.
This article is the second in a series, exploring coal plant repurposing options from the perspective of a decision-maker.
A successful transition from coal around the globe will be one that keeps the lights on and meets growing energy demands while lowering costs and emissions. Coal plant repurposing — modifying a coal-fired power plant to fit a new use or mode of operation — has emerged as one tool in enabling this transition. When done right, it can meet all of these requirements.
Over the course of 2023, RMI, in partnership with multiple external stakeholders, conducted an extensive repurposing analysis for a coal plant in Indonesia as part of RMI’s ongoing coal transition-related analytical work in the Southeast Asian country. What we found was that repurposing this plant could avoid tens of millions of tons of carbon emissions and provide tens of millions of dollars in free cash flow to equity investors, depending on the sizing of the replacement system. Through this case study, we gained insight into the types of financing that need to be mobilized, how the operating dynamics of an asset influences its repurposing economics, and how land characteristics shape a site’s potential for transformation and successful transition.
Plant Repurposing Case Study
The coal plant we analyzed has the following characteristics:
- It is an integral part of the Indonesian power system.
- It is a high-capacity coal plant providing steady dispatchable power to the Java-Bali grid.
- It is a relatively young plant, with notable plant balance yet to depreciate, and debt and equity obligations to fulfill, before planned termination.
- Much of the land surrounding the site is biologically important or environmentally sensitive, which constrains some of the potential site repurposing options.
RMI assessed the applicability of a variety of potential retirement and repurposing approaches, based on site characteristics as well as regulatory and financial constraints. The repurposing options analyzed represent a balanced set of possibilities at the site: repurposing the site for renewable energy generation following retirement of coal, repurposing for operational flexibility such as flexible coal generation or storage, and potential reduction in operational emissions at the site through biomass co-firing.
Insights
RMI’s analysis resulted in the main takeaway that given adequate land availability and access to cheaper financing for retirement, the preferred repurposing solution for the case study plant following early retirement is its replacement with solar and storage. This solution could lead to tens of millions of tons of CO2 abated and tens of millions of dollars in free cash flow to equity investors, depending on the sizing of the replacement system.
The following insights were generated during the analysis:
- In an early retirement without repurposing scenario, blended financing helps ensure electricity costs do not increase due to the early retirement of the asset. The lower cost of blended financing further supports deal attractiveness to financial stakeholders by allowing for a reduction in costs below the business-as-usual scenario where the coal plant is run to the end of its technical life. This supports a key conclusion about the energy transition in Indonesia and the rest of the Global South — diverse arrays of capital are needed to make the energy transition an affordable and re-allocative one.
- Co-firing of biomass is only profitable under the lowest assumed cost conditions — and will face additional climate and sustainability scrutiny. The additional capital and operational expenses to retrofit and fuel co-firing generally outweigh cost savings. As such, RMI concluded there is likely a stronger financial case to be made for alternative repurposing options that also provide more precise emissions reductions. However, the economics of co-firing vary significantly on an asset-by-asset basis. Given the strong interest in co-firing, modeling asset-specific considerations like we have done here can help inform discussions and future analyses on the co-firing narrative.
- Converting the coal site to a clean energy facility, like solar PV and battery storage, can lead to net profits for investors and meaningful emissions reductions, provided sufficient land is available. The sizing of the clean energy system and its associated benefits are constrained by available land. The key sizing consideration is whether additional land area — and how much land — around the original site can be utilized, which will require further technical and environmental analysis.
- Additional innovative repurposing end-use options could emerge if the regulatory framework recognizes alternative opportunities for generating value. As indicated in the above table, there were a few repurposing end-use options RMI chose not to analyze, primarily because there is not currently a model for remuneration of those services. This included repurposing options like site stand-alone storage, reduced asset utilization, and site hybridization with clean energy. Innovative market and policy solutions could open the door to future business models for these alternative repurposing technologies.
By extrapolating insights from the plant-level to the broader coal transition landscape, we can enhance the effectiveness of site transition strategies, create positive feedback loops for repurposing toolkits, and help foster a more inclusive approach to this transition on a local and national scale.
Our work highlights the important role of up-front pre-feasibility analysis in surfacing key considerations for repurposing. Factors such as the existing regulatory framework and the repurposing options it allows for, available financing options, as well as land availability in and around the coal plant site are important to consider as they determine technical and financially viable repurposing options for successful transitioning of a coal plant site.
For further detail on the highlighted insights, read our repurposing case study here.
This is the second installment of the Finding (Re)Purpose article series. Explore the full series:
