Practically two years after Indonesia’s multibillion-dollar Simply Vitality Transition Partnership (JETP) mechanism was launched to a lot fanfare, not one of the pledged US$21.6 billion in vitality transition financing from wealthy nations has translated into new clear vitality initiatives or the early retirement of coal-fired energy crops.
In accordance with the nation’s JETP Secretariat, 19 programmes totalling US$144.6 million have been lately launched or are present process dialogue as of end-June 2024. A test by Eco-Enterprise, nevertheless, confirmed that these programmes, funded by nations together with the US, Canada and Germany, are largely grants for feasibility research or technical help.
“Indonesia has these funding plans that record a bunch of initiatives, [but those] initiatives don’t essentially imply investments [are happening],” stated Grant Hauber, strategic vitality finance advisor for Asia on the Institute for Vitality Economics and Monetary Evaluation (IEEFA).
One key planning doc in relation to JETP and Indonesia’s vitality transition is the Complete Funding and Coverage Plan (CIPP), revealed in 2023 by the JETP Secretariat. Whereas the plan has been criticised for not excluding coal-fired built-in energy crops in industrial areas and for ignoring community-based clear vitality initiatives over giant scale ones, it additionally lays out the nation’s most bold targets for the renewables in Indonesia’s vitality combine by 2050 [see Figure 1].
Putu Indy Gardian, the JETP Secretariat’s technical specialist, stated that these bold targets have been set to spur varied authorities ministries and even Perusahaan Listrik Negara (PLN), Indonesia’s state-owned energy utility, in aligning their renewable vitality targets, which have traditionally been mismatched, with Indonesia’s decarbonisation targets. The nation’s lately up to date Nationally Decided Contribution targets a 32 per cent discount in emissions by 2030 with out worldwide help, and 43 per cent with worldwide help.
Nonetheless, it’s as much as the federal government to determine whether or not the CIPP’s extra bold state of affairs will translate into nationwide coverage adjustments and mechanisms, stated Gardian. Indonesia will see Prabowo Subianto take over the nation’s presidency from Joko Widodo later this month, on 20 October, and the present Renewable Vitality Invoice might be handed on to his administration to move into regulation. Critics take into account the invoice underwhelming.
“ Indonesia’s renewable vitality invoice that might be enacted later this 12 months, it’s fairly bleak as a result of it categorises new vitality as probably fossil fuel-derived vitality” stated Dinita Setyawati, senior electrical energy coverage analyst at unbiased assume tank Ember. “There’s not a lot emphasis positioned on renewables [such as] photo voltaic and wind.”
And but, a vital a part of CIPP is an exponential rise in photo voltaic photovoltaic capability from 100 megawatts in 2022 to 4.1 gigawatts (GW) in 2025 – a rise of greater than 40 occasions. The speed of renewables capability addition is predicted to extend seven occasions by 2030, to 29.3GW, and will attain 264.6GW by 2050. [see Figure 2]
“How [is Indonesia going to achieve that]? What insurance policies and course of mechanisms will make that occur?” Hauber requested at IEEFA’s latest Vitality Finance 2024 convention, the place Gardian additionally spoke. A number of consultants on the occasion shared their ideas with Eco-Enterprise on sensible steps Indonesia can take to finance its vitality transition.
Answer 1: ‘Tender manufacturing facility’ wanted
In the case of the CIPP’s renewables targets, what is required is for “dozens of initiatives to be cranked out virtually like a manufacturing facility course of,” stated Hauber. Every photo voltaic venture, as an example, requires a number of elements to succeed – from bodily wants like an applicable website and transmission interconnections, to making sure there are rigorous contracts, pricing mechanisms and a bidding course of that always takes months, if not years.
This “tender manufacturing facility”, a specialised unit that will establish, plan and execute initiatives, is at the moment lacking from JETP, he stated. “This type of work is boring – that’s the explanation [for the sluggishness].”
Nonetheless there’s “completely no shortcut” for having to do tender designs and consulting with stakeholders together with legal professionals, bankers and engineers, he stated. “This has been the bugbear of all infrastructure improvement in Asia for years – [there] is excessive ambition and excessive coverage targets however low implementation functionality.”
Nonetheless, Indonesia doesn’t have to reinvent the wheel – there are home and regional examples of presidency companies which oversee public-private partnership (PPP) initiatives which have labored nicely prior to now, stated Hauber. One instance is PT Sarana Multi Infrastruktur (Persero, or PT SMI), which is a particular mission automobile underneath Indonesia’s Ministry of Finance. Persero has financed greater than 400 infrastructure initiatives since its inception 15 years in the past, however has solely lately been tasked with supporting vitality transition initiatives underneath the nation’s vitality transition mechanism.
One other instance of a profitable operation is the Philippines’ PPP Heart, which has gone from having simply two folks and no initiatives in 2000 to over 200 workers and almost 100 working initiatives at present, stated Hauber.
Answer 2: Liberalising the market
PT SMI’s potential to get extra renewable vitality initiatives off the bottom, nevertheless, is proscribed by present contracts for coal-fired energy crops, managed by PLN, which monopolises Indonesia’s electrical energy provide. Coal is Indonesia’s main supply of vitality, making up 36.4 per cent of the vitality combine in 2030, based on Worldwide Vitality Company knowledge. Vitality-related emissions stood at 652 million tonnes of carbon dioxide and its equivalents (MtCO2e) in 2022, or 1.91 per cent of world emissions.
Steps are being made at a nationwide stage to handle this. Indonesia’s authorities introduced in August that it’s planning to close down or decommission 13 of its coal-fired energy crops, which have a complete capability of 4.8 GW and generate 66 MtCO2e. A few of these are previous crops which are scheduled to retire naturally, stated the director normal of Indonesia’s Vitality and Mineral Sources Ministry, Eniya Listiani Dewi.
In the meantime, PLN introduced final month that it could be switching 800 of its coal-fired energy crops to gasoline by 2060. It has but to announce particulars of which crops could be closed and when.
One solution to pace up the transition is for Indonesia to loosen PLN’s monopoly on the electrical energy market by permitting for third events to purchase and promote renewables, stated Hauber. Different Southeast Asian nations have already begun doing this – PLN’s counterpart in Vietnam, EVN, additionally held the same monopoly over electrical energy technology and transmission till the authorities introduced in July that direct energy buy agreements (DPPA) could be allowed. Malaysia additionally lately granted third-party entry to the electrical energy grid by giant firms seeking to purchase renewable vitality immediately from producers, though business gamers say extra must be finished.
“What I’m longing for is that Vietnam’s DPPA goes to point out the best way [for an energy market] that may virtually be absolutely non-public,” stated Hauber.
The 600-megawatt Cirebon 1 coal energy plant in West Java, Indonesia. The Asian Growth Financial institution is main efforts to shut this unit 10 to fifteen years early. Progress on early coal retirement has been gradual, because of the problem of drafting possible financing packages. Picture: ResponsiBank Indonesia.
Within the meantime, PLN doesn’t have to attend on JETP funds to speed up its vitality transition, stated Ember’s Setyawati. “Bolder dedication from PLN can occur parallel to JETP developments,” she stated.
The state utility is already within the strategy of a pilot venture to decommission coal-fired energy plant Cirebon 1 with the assist of the Asia Growth Financial institution’s Vitality Transition Mechanism, which had been organized separate from the launch of JETP.
In truth, Setyawati believes that JETP at the moment performs solely a complementary function to Indonesia’s broader vitality transition plans. “I feel JETP financing helps initially with decarbonisation eventualities, prioritisation of renewables and making knowledge out there for the electrical energy sector,” she informed Eco-Enterprise. Nonetheless, different sorts of financing can and needs to be disbursed “parallel with JETP” to keep away from an inefficient use of funds.
“As an example, we don’t want a number of feasibility research on one venture,” she stated. “The part out [of coal-fired power plants] will occur steadily, however the good thing is that discussions and consciousness of the vitality transition is now all over the place.”
Answer 3: Rerouting subsidies
One other stumbling block for Indonesia’s JETP has been the dearth of beneficial financing phrases. Concessional loans from multilateral improvement banks usually provide extra beneficial rates of interest than industrial loans, and might subsequently entice a lot bigger quantities of personal capital, stated Shantanu Srivastava, analysis lead for sustainable finance and local weather threat at IEEFA.
Nonetheless, these sorts of loans usually are not at the moment being structured and supplied as a part of Indonesia’s JETP programme, he stated.
“That’s the reason the entire JETP programme has been questioned. If [the G7 countries] are offering loans with industrial phrases, that doesn’t clear up the issue [of inaccessible finance],” stated Srivastava.
However one other supply of funding which might be extra catalytic in financing Indonesia’s vitality transition is public finance, stated Anissa Suharsono, vitality coverage affiliate on the Worldwide Institute for Sustainable Growth (IISD), an unbiased assume tank. This consists of subsidies, investments from state-owned enterprises, in addition to loans from public monetary establishments resembling state-owned banks, she stated.
“These funds are all underneath authorities management and will have been the primary to maneuver as a result of it could sign the federal government’s dedication in transitioning [towards cleaner energy],” stated Suharsono. “[Such a signal] performs a vital function in derisking clear vitality investments and ultimately attracting a bigger quantity of personal investments.”
Indonesians have already benefited from such a “subsidy swap”, which entails taking funds which are at the moment used to subsidise fossil fuels and utilizing them to subsidise renewable vitality improvement as a substitute. Suharsono pointed at how in 2015, the federal government reaped about 276 trillion rupiah (US$20.4 billion) in financial savings from reforming fossil gas subsidies. A examine by IISD discovered that this led to extra finance being dedicated to social safety and infrastructure improvement, together with programmes for training, medical health insurance, housing and clear water.
Banking on the federal government
In the end, JETP should pave the best way for a extra coordinated response to Indonesia’s vitality transition, stated Aditya Lolla, Asia programme director at Ember. “In the event you take a look at offers like JETP, they’re very prime down – just like the remainder of policymaking in Asia,” he stated.
This forces the “complete equipment” of civil service, the non-public sectors and buyers scramble to ship on prime line targets set by politicians, he added. “It may be or unhealthy factor, however whenever you’re speaking in regards to the urgency [of climate action], mechanisms have to turn into extra holistic and coordinated.”
Robust authorities management may also be essential in driving non-public capital. “The problem in most Southeast Asian nations is that the non-public sector received’t transfer except they know the cash will circulation,” stated Hauber. “If firms are ready for permission from the federal government or some contract to be negotiated, that’s a delay threat. Delays add price and uncertainty,” he stated.
“The most important factor [governments] can do is to take away uncertainty – create commonplace, replicable templates which are predictable. That’s what Indonesia is missing,” stated Hauber.
