Case Study

Integration of Just Transition into financing mechanism supports the early retirement of CFPPs in Indonesia

Developing a just transition framework enables a multilateral development bank to seamlessly incorporate the principles of a just transition into its financing mechanism. This framework plays a pivotal role in supporting the timely phase-out of coal-fired power plants in Indonesia.

The Story

Better defined guidelines and activities

The MDB needed more defined guidelines and activities for what individual assets should do to advance just transition in their early retirement.

Just transition activities need to be complementary to the applicable legal requirements and safeguards processes. 

Coal retirement is considered a key activity in the transition to a low carbon economy. This process may have negative consequences for workers at the plants and surroundings communities. Furthermore, the retirement of Coal-Fired Power Plants (CFPPs) can have knock-on effects along the supply chain all the way up to the mining sector.

The client needed to ensure affected workers, communities and stakeholders that potential socio economic impacts from the CFPP retirement would be properly managed. 

A framework to categorize actions

Neyen developed a comprehensive framework that organizes actions into three distinct phases and identifies the corresponding types of just transition activities. This framework is based on the client’s overarching just transition framework, providing a structured approach to effectively categorize and implement necessary actions.

What did the framework achieve?

The client is now equipped with a framework that specifies just transition activities to be carried out during the pre-retirement, retirement and post retirement phases. It presents options to make it applicable to diverse countries taking into account their particularities.

Drivers of change

An asset-level framework facilitates the advancement of just transition in energy transitions

Early retirement of coal-fired power plants has been recognized as a key activity to support a transition to a low carbon economy. At the same time, it is important to recognize that coal retirement may negatively impact workers, communities and government income not only at the location of the plant but along the supply chain. 

It is critically important for affected stakeholders to understand that workers and communities affected will be taken care of through compensation, creation of alternative green jobs and other actions. To advance coal retirement and the transformation of the energy sector, stakeholders and society in general need to understand that a just transition framework will ensure the potential negative impacts will be properly managed and opportunities will emerge throughout the process. 

Lessons Learned

At the asset level, existing labour regulations and lender safeguards processes already set a baseline for dealing some of the potential negative impacts. Depending on the specific compensations and actions required by those processes, it will be necessary to complement those actions to really ensure a just transition. In addition, best international practices should also be analyzed to produce a just transition plan that integrates regulatory requirements, lender/investor requirements and other just transition activities.