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Indonesia's bumpy clean energy transition

December 23, 2022
topics: Renewables
by: Leo Galuh
located in: Indonesia
tags: energy, G20, Indonesia, Sustainable Development

Indonesia obtained billions from G20 countries to meet its climate goals, but no public won't participate in monitoring the grant's allocation. Meanwhile, the private sector is hesitant to invest in the country's renewable energy schemes due to regulatory oversight.

Indonesia has pocketed in mid-November USD 20 billion from International Partners Group (IPG) during the Partnership for Global Infrastructure and Investment (PGII) event at the G20 Summit in Bali. 

At the summit, the Indonesia Just Energy Transition Partnership (JETP) was launched with the support of countries including the United States, Japan, Canada, Denmark, France, Germany, Italy, Norway, and the United Kingdom. The programme seeks to help Indonesia develop a comprehensive investment plan to meet its climate and energy goals, drive up renewable energy generation, invest in communities and workers and reduce emissions while enhancing security, according to The White House release.

Private sector needs assurance

Trissia Wijaya, a researcher at the Center for Indonesian Policy Studies (CIPS), assessed that such direct investment from JETP members will require active involvement from the Indonesian government to mitigate the regulatory and political risks.

Wijaya told FairPlanet that in this Public-Private Partnership (PPP), the government has a role as an 'off-taker,' which means the guarantor of profit for the private sector. This 'off-taker' role, she noted, can be mandated to the Indonesia’s state owned-electricity company Perusahaan Listrik Negara (PLN).

"In terms of renewable energy, surely there are more financing alternatives, but which one is really feasible with Indonesia is not clear yet," she cautioned.

Wijaya referenced the example of the 330 megawatt geothermal Sarulla power plant in Indonesia's North Sumatra province, which is one of the biggest geothermal power plants in the world. The government engaged in years of negotiation and PLN assumed the role as an off-taker, Wijaya added.

"The private sector tends to see uncertainty regarding the PLN’s roles, whether it will be a price maker or a price taker," she said.

This echoes the comments of another expert, Ery Wijaya - a senior analyst with the Climate Policy Initiative (CPI). The government should use such grant to favour the creation of an excellent investment situation, he said.

"For example, providing tax and non-tax incentives, guarantees or any instruments to reduce investment risk," Ery Wijaya told FairPlanet.

People’s livelihoods

Meanwhile, Wijaya warned that the government must exercise extreme caution when developing a strategy to use the funds, adding that the USD 20 billion could be used to improve the economy and people’s welfare in an equitable way.

He said that JETP prioritises efforts to increase energy efficiency in the demand sector and ensure that energy transition efforts run fairly, in addition to efforts to accelerate the termination of coal power plant agreements.

But as the largest country in Southeast Asia, Indonesia may need USD 37 billion to shut down its 118 existing coal plants and up to 10 years of contracted coal power generation, according to a Bloomberg report.

"The energy transition will undoubtedly entail an enormous cost, both direct and indirect," Wijaya told FairPlanet.

Thus, there are social costs to be anticipated for the commitment to accelerate an energy transition, such as loss of economic resources for coal-producing areas, job losses in the coal sector and the possibility of higher energy costs due to the use of green technology, according to Wijaya.

To meet these challenges, the Indonesian government launched the Indonesia Energy Transition Mechanism Country Platform (ETM) in November this year, according to a press release by the Ministry of Finance.

The ETM Country Platform is primarily responsible for managing the funding and financing framework of the country's energy transition. According to the release, this energy transition measure is expected to reduce around 50 million tons of carbon emissions by 2030, or 160 million tons by 2040.

The ETM Country Platform in Indonesia will use a hybrid finance approach to accelerate the transition from fossil fuels to green energy.

The long-term partnership plans to raise an initial USD 20 billion in public and private financing over the three to five years, using a combination of grants, concessional loans, market-rate loans, guarantees and private investments.

But given the short timeline for implementing the JETP fund, Andri Prasetiyo, a researcher with Trend Asia, believes the Indonesian government will be rushed. He added that this will be detrimental to the country as the government lacks structural and regulatory preparedness.

"There is no technical guide yet from the government," Prasetiyo told FairPlanet.

Lack of civil engagement

Some ministries will be involved in the ETM Country Platform, including the Ministry of Finance, Ministry of Energy and Mineral Resources and the Ministry of Forestry and Environment, as well as several NGOs such as the Climate Policy Initiative, Rocky Mountain Institute and Climate Bonds Initiative. 

Nonetheless, the ETM Country Platform does not provide room for civilians to play a role despite the involvement of NGOs, Prasetiyo said.

Another concern is the transparency and accountability on how ETM Country Platform manages the fund. Ery Wijaya of CPI also highlighted the importance of civil involvement to help the government identify the indirect impact of its energy transition.

"Civilian involvement will be beneficial for the government to hinder some of the economic and social impacts," Wijaya told FairPlanet.

The government, he went on, could obtain some positive impacts, for example if they introduce some strategies to develop countries’ human resources, open job opportunities, create a new economy sector and initiate a green economy transition.

What type of green energy can Indonesia develop?

Indonesia’s General Planning for National Energy (RUEN) 2030 said that the government plans to build additional hydropower plants outside of Java island, totalling at 25.7 gigawatts. In addition, the government also aims to generate an additional 9.3 gigawatts from geothermal power plants.

Each region in Indonesia has different needs and geographical conditions, according to CIPS researcher Trissia Wijaya.

She believes that rivers in regions such as the area around the new capital Nusantara and North Kalimantan on the island of Borneo are more economically viable for development into green infrastructure, specifically hydropower.

Local media reported that the East Kalimantan province has around eight to 10 rivers, while there are four rivers in the North Kalimantan province. The Indonesian government has yet to provide official data of rivers.

But despite the fact that there is still great untapped potential for hydropower and geothermal energy generation in Indonesia, the future development of such enterprises is severely hampered by environmental concerns for hydroelectric power plants, Ery Wijaya said.

For instance, building a dam might mean drowning some areas and disrupting the environmental balance; it also takes a massive amount of investment to build a geothermal power plant, he added.

Solar energy resources, on the other hand, are quite abundant in the country, said Trissia Wijaya. 

"One of the main obstacles is local content policy requirements often change, thus confusing business players," she said.

Ery Wijaya, however, pointed out that expanding the solar power plant would be difficult. To date, Indonesia has installed 154 megawatts of rooftop solar power, which accounts for less than 10 percent of the government’s ambitious target of 2.14 gigawatts of rooftop solar installations, as previously reported by FairPlanet.

"Solar power plants will be widely developed in the future in Indonesia because they can be generated throughout the country and can be installed on a small scale, such as at the household level," Ery Wijaya told FairPlanet.

Image by Nuno Marques.

Article written by:
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Leo Galuh
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Indonesia
Indonesia has pocketed USD 20 billion from International Partners Group (IPG) during the Partnership for Global Infrastructure and Investment (PGII) event at the G20 Summit in Bali.
This programme seeks to help Indonesia develop a comprehensive investment plan to meet its climate and energy goals.
Indonesia’s General Planning for National Energy (RUEN) 2030 said that the government will add 25.7 gigawatts of hydropower in the Java island.
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