The promise of Indonesia’s just energy transition and the perils of not getting it right

The world’s fourth most populous country and sixth-largest greenhouse gas emitter, Indonesia’s shift towards cleaner energy is crucial to the success of the Paris Agreement and attempts to limit global temperature rise to 1.5°C. But this developing country’s economy is highly dependent on coal which generates more than half its electricity and its export, primarily for use in coal-fired power plants in other Asia countries, is a major source of revenue. L. Michael Buchsbaum reports.

Unable and unwilling to decarbonise without significant international support, at the November 2022 G20 Summit in Bali, a group of wealthy nations, led by the US and Japan, announced an agreement to finance a $20 billion Just Energy Transition Partnership (JETP).

Turning off Indonesia’s coal spigot

Not only do black diamonds now generate some 60% of its own electricity, for decades Indonesia has ranked number one or two in global coal exports, particularly for thermal coals burned in power plants across Asia.

US-based non-profit Global Energy Monitor reports that coal accounted for 195 million tonnes (mt) of Indonesia’s CO2 emissions in 2022 – the seventh-highest for any country’s coal fleet in the world, just below the figure for Germany – while total energy sector emissions grew to 650mt in 2019.

This has been driven by a massive expansion of coal-fired power generation capacity over the past 15 years, a figure that’s accelerated of late in response to other nations reducing their financing of new overseas coal-fired power plants.

According to shipping data from consultancy Kpler, Indonesia’s exports to India, South Korea, Taiwan and the Philippines all rose during 2022, despite shipments to its biggest market, China, dipping slightly.

While producers planned to mine another 695 million tonnes of coal during 2023, with a record 518 million tonnes earmarked for export, Indonesia’s domestic coal consumption is forecast to drop below 180 million tonnes in 2023, down from 193 million tonnes burned in 2022.

Given coal’s vital role in the nation’s economy, a consortium of wealthy nations led by the United States and Japan and including Canada, the UK, France and Germany, announced their joint support for a $20 billion Just Energy Transition Partnership (JETP) in November 2022 during the G20 Summit in Bali, Indonesia.

According to the initial joint statement, the goals are to peak “total power sector emissions at 290 million tons by 2030”, bring the sector’s net-zero target forward by ten years to 2050 and “accelerate the deployment of renewable energy… to at least 34% of all power generation by 2030″.

Though the plan calls for a swift reduction in coal usage and no new coal-fired power plants, there’s an exception for on-grid power plants that are already in the construction pipeline.

This also applies to existing power plants that are attached to a variety of national strategic projects, such as so-called “green parks” which produce or refine various critical minerals necessary for the global green energy transition.

Global Energy Monitor estimates that some 5 GW of captive coal power is operating nationwide, with another 4 GW now under construction.

Some of these plants are being built to power aluminium smelters and processing facilities for minerals like cobalt and nickel for use in the global electric vehicle and battery supply chains.

Nonetheless, Indonesian investment minister Luhut Pandjaitan said the JETP was a “groundbreaking model of international cooperation” which would fulfill a promise to his granddaughter to “make policy that would benefit future generations”.

The second JETP proposed globally following one announced for South Africa in 2021, Indonesia’s plan was followed by a third for Vietnam just weeks later in late 2022.

Lack of financial details

As of early March 2023, the US, Japan, Canada, France, Germany, Italy, Denmark and Norway have not announced how much they are contributing to Indonesia’s JETP, nor how their contributions will be spent.

Additional details, specifically how much of the promised $20 billion in funding will come in the form of loans versus grants, also remains unclear.

However, according to US-based non-profit Rocky Mountain Institute (RMI), half of the JETP’s budget will be mobilised from private financial institutions that are part of the Glasgow Financial Alliance for Net Zero (GFANZ).

One of the few entities to reveal its contribution is the EU-funded European Investment Bank (EIB), whose commitment is counted as €1bn ($1.06bn).

But a spokesperson told outlet Climate Home News that this amount was just what it is “willing to consider committing” and is “subject to agreement on key policy aspects and to a suitable pipeline of eligible investments”.

These questions are significant given that when a similar deal with South Africa was announced at COP26, only the public money ($8.5 billion) was included in the announcement.

Subsequent deals with Vietnam have increased the headline figure by including private money.

Details of South Africa’s deal were kept secret until Climate Home revealed the figures.

When published, they showed that only 3% of the funding was grants with the remainder coming in the form of loans, which will add to South Africa’s already significant global debt.

Signs of progress despite lack of renewable capacity

Despite abundant available solar and wind resources across the archipelago nation, Indonesia currently gets only a paltry 0.2% of its electricity from solar, and just 0.5% from wind power.

Given the lack of incentives such as a feed-in tariff combined with high guaranteed prices for coal power, the state power utility, Perusahaan Listrik Negara (PLN), makes it very difficult for renewables to get on the grid.

However, Elrika Hamdi, energy finance analyst at the Institute for Energy Economics and Financial Analysis, an energy think tank, sees some positive signs that Indonesian coal companies are starting to diversify energy production.

“The top ten coal companies have started to invest in greener technologies like solar, wind, hydro, geothermal and electric vehicle-supporting facilities like batteries and charging stations,” she says.

One example is Adaro Energy, the second-largest coal miner by production volume, which launched a “Green Initiative” to invest in biomass, hydrogen and solar power in 2021.

To help speed the energy transition, in late February Indonesia launched the first phase of it’s new carbon trading mechanism for coal-fired power plants.

The initial stage of this mandatory program will cover 99 power plants with a total installed capacity of 33.6 gigawatts directly connected to power grids owned by PLN.

Under the mechanism, power plants that emitted more carbon than their quota can buy carbon credits from plants with below-quota emissions or from renewable power plants.

Though the scheme only applies to power plants with a capacity of at least 100 MW, Energy minister Arifin Tasrif revealed it will later be rolled out to smaller coal and other fossil-fueled power plants, as well as facilities not connected to PLN’s grid.

The views and opinions in this article do not necessarily reflect those of the Heinrich-Böll-Stiftung European Union.




L. Michael Buchsbaum is an energy and mining journalist and industrial photographer based in Germany. Since the mid-1990s, he has covered the social, environmental, economic and political impacts of the transition from fossil fuels towards renewables for dozens of industry magazines, journals, institutions and corporate clients. Born in the U.S., he emigrated to Germany and Europe to better document the Energiewende. He is also the host of The Global Energy Transition Podcast.

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