Indonesia’s Commitment to Energy Transition is Impacting Financing Opportunities

press release

Jakarta, September 18, 2023 – An energy transition in the electricity sector that prioritizes equitable principles and is affordable for society requires a combination of strategic factors, long-term commitment, and policies that lead to investment opportunities for the development of renewable energy and technological innovation. This was stated by Deon Arinaldo, Program Manager of Energy Transformation, Institute for Essential Services Reform (IESR).

“All forms of investment, especially for energy infrastructure with a lifespan exceeding 20 years, it is essential to have long-term policies and legal certainty in place to ensure success. This is important for project developers and financial institutions to calculate the project risks. Moreover, renewable energy projects require relatively large initial investments compared to other energy sources. By committing to long-term targets and synergies from various existing policies and regulations, the level of investment risk can be reduced so that renewable energy projects remain bankable with low-interest funding,” explained Deon.

Febrio Nathan Kacaribu, Head of the Fiscal Policy Agency, Ministry of Finance of the Republic of Indonesia in the 2023 Indonesia Energy Transition Dialogue (IETD), said that energy transition carried out by a developing country like Indonesia must take place in just and affordably. He assessed that to achieve an Updated Nationally Determined Contribution (NDC) of 29% unconditionally (with its own efforts) in 2030 in the energy sector, it would reach IDR 3,900 trillion.  However, the financial requirements of an Enhanced NDC (ENDC) with an unconditional emission reduction target of 31.89% are still being estimated.

Febrio explained that his party had made several breakthroughs in efforts to finance the energy transition in Indonesia, including expanding investment through green sukuk, with the total investment mobilization from the issuance of green sukuk reaching USD 6.54 billion from the 2018-2022 period as well as implementing several regulatory frameworks in Energy Transition Mechanism (ETM) has been carried out. Febrio emphasized that collaboration for blended finance with the private sector has increasingly great opportunities.

“One of the obstacles for the private sector (to invest in the energy transition, ed) is the lack of a common understanding or taxonomy. This year, with Indonesia as chairman of ASEAN, one of the things agreed was that transition activities would also include the early termination of coal-fired power plant operations, which are included in the transition finance taxonomy. There are green provisions with certain limits that can be financed by the private sector; for example, if early retirement of coal fired power plants (CFPP) before 2040, then the private sector will join in (financing-ed),” said Febrio.

Dadan Kusdiana, Secretary General of the Ministry of Energy and Mineral Resources (MEMR) mentioned that the trend in the cost of renewable energy tends to decrease while fossil energy, such as coal, is increasing. Dadan mentioned, although the investment needs for the energy transition are very large, Indonesia has the potential for renewable energy and various forms of financing, which also come from various international organizations.

“Large investment (for the energy transition, red) is an opportunity to transition the energy sector. Indeed, there will be an increase in costs, but we will feel the benefits of reducing the costs of renewable energy in the long term,” explained Dadan.

Jonathan Habjan, Economic Counselor at the United States Embassy in Indonesia, said that the energy transition is a challenging process and involves many people over a long period, so it needs to be done correctly and efficiently.

“Of course, this will cost a lot of money, require a lot of effort, and change how business is done in many ways,” he said.

 

Jonathan added that to ensure that the energy transition somewhat takes place, it is necessary to involve people classified as vulnerable, including those who still work in the coal industry.

The Indonesia Clean Energy Forum (ICEF) and the Institute for Essential Services Reform (IESR), in collaboration with the Ministry of Energy and Mineral Resources (MEMR), held the 2023 Indonesia Energy Transition Dialogue (IETD) on 18-20 September 2023.

Transforming the Electricity Sector as a Strategic Step to Accelerate Emission Reduction

press release

Jakarta, September 18, 2023 – The Indonesia Clean Energy Forum (ICEF) and the Institute for Essential Services Reform (IESR) are urging Indonesia to accelerate the transformation of the electricity sector. This has been the focal point of discussion at the 2023 Indonesia Energy Transition Dialogue (IETD), organized by ICEF and IESR in collaboration with the Ministry of Energy and Mineral Resources (MEMR). IESR and ICEF view the energy transition in the electricity sector as a strategic step that will simultaneously reduce emissions in other sectors such as transportation and industry.

“The current focus should be on developing renewable energy to become the backbone of Indonesia’s primary energy. Technological innovation in energy generation from potential renewable sources such as biomass, geothermal, hydro, solar, wind, and others needs to be enhanced,” stated Bambang Brodjonegoro, Chairman of ICEF.

Bambang highlighted that the Indonesian government has demonstrated a clear commitment to energy transition, actively advocating for it in various international and diplomatic forums with the aim of promoting more environmentally friendly cooperation and investments for the energy transition.

Arifin Tasrif, Minister of Energy and Mineral Resources, stated in his remark at IETD 2023 that energy transition requires significant infrastructure transformation, especially for developing countries. He noted that this presents its own challenges in the energy transition process in Indonesia.

“The lack of supportive infrastructure, high investment costs with limited funding are some of the challenges of energy transition in Indonesia. Indonesia collaborates with other countries to address these challenges, providing competitive technologies, sustainable financing accessibility, and human resource capacity building,” explained Arifin.

Yudo Dwinanda Priaadi, Director General of New Renewable Energy and Energy Conservation at the Ministry Of Energy And Mineral Resources, also explained, “Our energy transition funding is obtained through trust; therefore, ongoing programs must align with global plans. Currently, funding for JETP (Just Energy Transition Partnership) is being pursued and refined through discussions between the Indonesian government and the International Partners Group (IPG) in New York, USA.”

Fabby Tumiwa, Executive Director of IESR and ICEF, mentioned that one of the remarkable aspects of IETD 2023 is that it is held in collaboration with MEMR for the first time. He also emphasized that for the energy transition to be fair, safe, and beneficial for all citizens, it requires careful planning and the involvement of all community groups. According to Fabby, the energy transition in the electricity sector is a strategic sector for emission reduction due to three factors: the feasibility of alternative technologies (renewable energy), planned electricity grid integration, and the economic benefits of increasingly affordable renewable energy.

“These technological factors encompass the integration of renewable energy, energy storage solutions, grid integration that can be planned, and the economic benefits of competitive renewable energy technologies compared to fossil fuels,” concluded Fabby.