IESR and Unhan (University of Defense in Indonesia) Sign a Memorandum of Understanding for Renewable Energy Development

Bogor, 30 March 2021 – Institute for Essential Services Reform (IESR) signed a memorandum of understanding for cooperation with Pertahanan University (Unhan). This collaboration aims to showcase each other’s potential in research and community service on renewable energy and energy security.

Pertahanan University is opening a vocational school located in Atambua, East Nusa Tenggara. One of the focuses of this vocational school is to develop renewable energy sources such as solar and wind in these locations to provide reliable energy sources for schools, as well as providing qualified human resources. In his remarks, the Rector of  Unhan, Amarulla Octavian, stated that through this collaboration, his party is open to collaborating in education, research and community service related to renewable energy.

“We can start to conduct seminars and workshops, as well as joint research. Please also involve our students as interns in projects and research in the future, “he said.

On a separate occasion during the IESR’s Pojok Energi interview, Amarullah Octavian stated that the Pertahanan University plans to open 10 vocational schools in frontier areas of Indonesia.

“Atambua is the first and will become a pilot project, if this is successful we will replicate it in other places,” concluded Amarullah.

Fabby Tumiwa, Executive Director of IESR emphasized that the trend to use clean energy will bring demand for skilled labourers as installers in the clean energy sector.

“As a think-tank that concerns on renewable energy and environment, we support the Unhan to open vocational schools and develop renewable energy in the frontier regions of Indonesia. One of the implications of developing a microgrid that comes from renewable energy is the need for skilled workers as installers. So, we must see this phenomenon and opportunity so that we can catch it up to develop energy security,” said Fabby in his speech. 

Local Government Has a Great Potential to Develop Regional Bonds for Green Development

Apart from the APBN (National Income and Expenditure Budget) and APBD (Regional Income and Expenditure Budget), local governments can now innovate to finance its infrastructure spending, especially those related to Sustainable Development Goals (SDGs), by issuing regional bonds and/or regional sukuk as a source of sustainable finance.

Istiana Maftuchah, Representative of the OJK (Financial Services Authority) in the online workshop Introduction to Sustainable Finance and Regional Bonds held by the Institute for Essential Services Reform (IESR), supported by the British Embassy Jakarta (9/3), explained in detail.

“The global push has been felt until now as we are facing the Covid-19 pandemic. The direction of the financial services industry has been aimed towards sustainability, and now there has been a paradigm shift: People, Profits, Planet,” said Istiana.

In her opinion, this development is connected to Indonesia’s commitment to the SDGs and also the Paris Agreement, which has been ratified in Law no. 16/2016. She emphasized that investors’ interest in green products is getting bigger and is not only focused on profit.

Istiana explained that there is an opportunity for green investment to become a global trend in emerging countries, up to USD 23 trillion, for renewable energy, transportation, waste processing, and green building sectors.

“We need around IDR 67 trillion to fulfill the investment and financing needs of Indonesia’s SDGs (2020-2030), consisting of 62% from the government and 38% from non-government,” said Isti.

To achieve this target, OJK issued a road map for sustainable finance, including the issuance of OJK Regulation (POJK) 51/03/2017 about the Implementation of Sustainable Finance for Financial Service Institutions, Issuers, and Public Companies and POJK 60/04/2017 concerning Issuance and Securities Requirements Environmental Friendly Debt (Green Bond).

“POJK 60 is securities and debt, the results of which will fund environmentally friendly activities. There are 11 categories of environmentally friendly activities, we add one sector, i.e MSMEs, so a total of 12 environmentally friendly activities, “added Istiana.

On the same occasion, Ferike Indah Arika, Young Expert Policy Analyst, Center for Climate Change and Multilateral Policy (PKPPIM), Fiscal Policy Agency, Ministry of Finance discussed the need for innovative funding for green development.

Ferike said that since 2016, the Ministry of Finance has identified government budgets aimed at controlling climate change, as well as to measure and evaluate the budgeting. The average spending of ministries and agencies on climate change reached up to IDR 86.7 trillion.

“That is a large number, which is equivalent to 34% of the financing needs for climate change mitigation in the Second Biennial Update Report (Rp. 266.2 trillion per year),” she said.

Given the very limited state budget for Indonesia, and to attract green investment flows to Indonesia, the Ministry of Finance has issued a fiscal policy to control climate change. It includes 3 (three) policies; the state income policy, state spending policy, and financing policy.

Ferike explained that in the state income policy, the most significant change was the tax holiday facility in which previously the percentage of tax reduction was 10-100%, now it is 100%. Besides, the period of the tax holiday has been shifted from originally 5-15 years to become 20 years depending on the investment value.

From the aspect of financing policy, the Ministry of Finance issued a Sovereign Green Sukuk to finance the government’s climate change mitigation and adaptation projects.

“In early 2018, we issued the 1st Global Green Sukuk worth USD 2.25 billion. Meanwhile, in November 2020, the issuance of Green Sukuk reached the value of Rp. 5.42 trillion,” said Ferike.

Furthermore, the Ministry of Finance is considering the application of Carbon Pricing, among others, to promote sustainable growth and encourage Green Investment.

“Regulations related to Carbon Pricing are currently under discussion coordinated by the Coordinating Ministry for Maritime Affairs, and the regulation will be in the form of a Presidential Decree,” she said.

 

Local Government Opportunities to Use Regional Bonds for Green Development

 

Simon Saimima, Head of Sub-Directorate for Special Allocation Funds (DAK), Directorate of Regional Balancing Funds and Regional Loan Facilitation, Directorate General of Regional Financial Development, Ministry of Internal Affairs, explained about Green Bonds or Regional Bonds.

Following the regional bond issuance policy, Simon explained that it is a regional right to provide regional loans in synchronization with the Regional Medium Term Development Plan (RPJMD) and related regulations. Furthermore, regional loans will be repaid from the local government in the form of bonds on the capital market. Green Bonds or bonds are included in the long-term loan category.

Simon explained that the capital market issues the bonds. However, the guarantor is the local government in the form of assets and activities in certain provinces carrying out. The regions are responsible for all risks resulting from the issuance of these bonds.

To follow the procedures, the regional head and the Regional House of Representatives (DPRD) must approve the issuance of bonds. The Regional Representative Council (DPD) was also involved in the process.

“There are 9 (nine) required documents for regional bonds, and these must be fulfilled to meet the requirements of the Ministry of Internal Affairs,” he said.

Bonds that have been issued are the obligation of the local government to pay the loan principal and coupons by the agreement. If the local government fails to pay, they will also receive administrative sanctions.

Russell Marsh, Green Finance Lead, ASEAN Low Carbon Energy Program Ernst and Young, in his presentation, explained that although the need for sustainable funding is increasing, there are many identified challenges found in its development.

First, the lack of awareness and understanding of Environmental, Social, and Governance (ESG) risks and the importance of sustainable finance both from the demand and supply side. Second, there is a lack of constant definitions, measurements, standards, and disclosures so that financial services institutions can evaluate potential sustainable projects and so that project owners can prepare supporting documents. Third, there is a lack of coordination between stakeholders in implementing regulations. Fourth, green bonds may not create “additionality”, for example, the projects that are financed to support environmentally friendly purposes but these projects were not previously financed. 

There are several solutions that Russell offers, i.e providing incentives for sustainable finance, developing transitional finance, and increasing understanding and building the capacity of financial service institutions and project owners.

 

Constraints of Local Government and Financial Institutions in Issuing of Bonds to Support Green Development

 

Present as speakers at the workshop on the second day (10/3) were Darwin Trisna Djajawinata, Operations & Finance Director of PT Sarana Multi Infrastruktur (SMI); and Rahul Sheth, Executive Director, Head of Sustainable Bonds at Standard Chartered Bank.

In his presentation, Darwin shared valuable information on the criteria for projects that were eligible to get financial support from financial institutions. The feasibility of a project to be financed depends on several things, for example, whether an infrastructure project is included in the Regional Medium Term Development Plan (RPJMD).

“For projects aimed to fulfill the rights and empower the poor, much more mature planning is needed because this financing is a loan, and it is impossible to impose this loan on the poor, so the regional government must repay the loan. Well, these schemes need to be planned carefully, “said Darwin

The ability of the regions to see potential sectors for development, compile proposals and manage debt will determine the confidence of financial institutions. Especially regarding the issuance procedure of municipal bonds which are very dependent on the track record of the region in managing debt.

“The issuance of municipal bonds depends on the ability of the regions to manage their debts well, and currently there are not many regions that can manage their debts properly,” added Darwin.

Rahul Sheth, Executive Director, Head of Sustainability from Standard Chartered Bank added that the readiness of the regions to issue these bonds varies. Regions that will issue bonds for the first time need more careful preparation. Financial Institutions usually have 2 types of bonds that are commonly issued to finance projects with specific issues, i.e green bonds to finance projects related to the environment and climate, and social bonds to finance social community projects such as infrastructure, access to finance for MSMEs.

“The social bond market is one of the largest,” said Rahul. This shows great potential for local governments to develop regional bonds. At the end of his presentation, Rahul answered questions from the participant, Yugo from Bank South Kalimantan, about the challenges that often arise when issuing bonds.

“Data and data automation are challenges that often come. When the data is complete, various things can be done and monitored automatically, such as taxes, balances, and other financial reports. Data collection and data management are critical processes in this industry,” concluded Rahul.

Participants shared some of the obstacles in issuing regional bonds regarding regulations such as the sovereign guarantee that is given only to State-Owned Enterprises (BUMN), not Regional-Owned Enterprises (BUMD), which automatically makes it harder for local governments to plan bond issuance for strategic projects.

Indonesia Needs Specific Strategy to Develop Hydrogen For Decarbonization

Several countries and large companies today have committed to becoming carbon neutral (net-zero emission) by 2050. The declining cost of solar and wind, the two sectors predicted to become the backbone for decarbonization, opens the opportunity for the realization of this commitment. Moreover, the electrification of the transportation system and hydrogen development, also become important tools to achieve carbon neutrality.

On the first day of the Berlin Energy Transition Dialogue 2021, which was held virtual on (18/3), several international think-tanks gave their views and opinions on decarbonization efforts towards net-zero emissions 2050 and specifically on hydrogen development strategies. Compared to other renewable energy sources such as solar and wind, hydrogen is more recently developed. Representing Indonesia in the forum, the Executive Director of the Institute for Essential Services Reform (IESR ), Fabby Tumiwa, explained the status of Indonesia’s decarbonization development and the role of hydrogen in it.

“Indonesia still does not have a long-term strategy towards net-zero by 2050 yet. Even in 2050, it is projected that fossil energy will still dominate the national energy mix by 70%. Indonesia’s current energy fulfilment strategy has not yet reflected an energy transition approach,” said Fabby.

Fabby also added that hydrogen development in Indonesia is still very far away because energy policymakers are still not familiar with this new technology.

Challenges in the widespread use of hydrogen in Indonesia, namely in developing significant storage or battery technology. IESR has conducted a study, and it showed that in an optimal decarbonization scenario where hydrogen will receive a larger portion of Indonesia’s energy system, the demand for power storage will increase significantly, which means that the supporting infrastructure must also be prepared. A full version of this study will be launched by IESR soon.

Facing this energy transition era, the Indonesian government as the policymaker must understand the role of green hydrogen in the decarbonization process. Furthermore, an integrated strategy must be created and implemented for the development of hydrogen from both the research and policy development point of view.

Globally, hydrogen is targeted to enter several sectors, i.e: industry, electricity, transportation, buildings, and exports. The stability of hydrogen power during the storage period can be a solution for generating power in remote areas.

Also attending the discussion were Pil Seok Kwon, director of the Green Energy Strategy Institute of South Korea, Yuko Nishida, Senior Manager of Renewable Energy Institute Japan, and Bruce Raw Chief Strategy Officer of Green Cape, South Africa. Each of them conveyed the status of hydrogen development in their country and submitted input for future development. All parties agreed that a specific international strategy is needed for hydrogen development globally.

CASE Indonesia Encourages Synergy of Multi Stakeholders for Energy Transition in Indonesia

CASE (Clean, Affordable, and Secure Energy) project embraces many parties to encourage the energy transition in Indonesia by conducting online discussions within operational planning workshop for 3 days (February, 22-24 2021). Stakeholders from various government agencies, financial institutions, academia, and civil society organizations, shared their opinion and ideas about the activities they have undertaken to contribute to the energy transition.

This meeting was crucial to ensure that CASE activities would later remain aligned and complementing activities that are currently or have been planned by other relevant agencies regarding the energy transition, as well as reflect the inclusiveness of the CASE project.

Currently, the energy transition is deemed as an exclusive topic or only discussed by certain groups. On the other hand, the topic of the energy transition arose because of scientific concerns about the climate crisis that is experiencing and will impact human nature and our ecosystem, so it is important to introduce this process to form collective awareness of measures to avoid the more extreme impacts of the climate crisis through the energy transition, especially in the power sector.

Input and opinion from various parties are also important to see the various constraints and situations experienced by each party and how the project can play a role in CASE in these situations.

From the financial sector, for example, there are still difficulties in providing funding for renewable energy projects because they are hampered by several things, one of which is the risk assessment of renewable energy projects.

“We need to understand the risk of investing in renewable energy, and how to mitigate it, so that this renewable energy project is more bankable,” explained by an executive from one of the banking institutions in Indonesia who was involved in this discussion.

He continued, “In addition, there should be a body that can become a kind of consultant to provide an objective assessment of supply and demand in this sector, especially to answer the question, is this project in line with the government’s development plan? More importantly, how about government support for this particular project? “

The government has not responded to these questions. Several institutions have taken the initiative to find solutions to these questions, but a definite answer from the government in the form of official policies or regulations is still considered important and crucial as a positive signal of government support.

“Institutionally, we already have a target and work plan for 2021 that can be collaborated with the CASE program. Some of them are campaigns to raise awareness from financial institutions and investors about the potential of renewable energy projects, as well as inter-institutional meetings to discuss green recovery and green. jobs, “explained one ministerial official in Indonesia.

“As academics, we are open to being involved in making studies and developing pilot projects of the activities for the CASE project. We also have study groups focused on developing clean energy, so we look forward to having discussions about the activities we can do together,” said a lecturer of Technical University in Indonesia.

All parties agree that synergy is needed from all parties to respond to the issue of providing clean energy that is affordable and sustainable. However, the government still needs to be the initiator who first moves these parties.

“As the title of this project is CASE, Clean and Affordable, if we talk about affordable, it must be related to price and business model. So PLN must find the right business model to provide affordable clean energy for the community, ”said an official from a state-owned company in Indonesia.

This activity was closed by agreeing on a joint commitment from all parties present to make the program agenda for the provision of clean, affordable, and sustainable energy a success. The moderator at the plenary session emphasized that the Ministry of National Development Planning/BAPPENAS really hopes for the cooperation and synergy from each stakeholder invited to the workshop so that the achievement of the project will be good even better, as stated in the tagline “To Mobilize Stakeholders, to Make the Output Better.”

The CASE project is an initiative of the German government, funded by the German Federal Ministry for the Environment, Nature Conservation, and Nuclear Safety (BMU). In general, this program aims to encourage an increase in public understanding of the energy transition issues in Southeast Asia.

The CASE program covers regional working areas in 4 Southeast Asian countries, namely Indonesia, the Philippines, Vietnam, and Thailand. In Indonesia, the CASE program is run by GIZ Indonesia in collaboration with the Institute for Essential Services Reform and the Ministry of National Development Planning / BAPPENAS as government representatives to partner with CASE. Globally, this program is also supported by international consortium partners Agora Energiewende and the New Climate Institute.

IESR: The Importance of Reliable and Green Energy for the Operations of Indonesia’s Data Center

Currently, Indonesia is one of the countries with high economic growth in the Southeast Asia region. This economic growth has also been accompanied by the growth of massive internet users, with around 65% of Indonesia’s population being active internet users. The growth of internet users demands the availability of reliable data centers in Indonesia.

One of the characteristics of the data center is 24 hours of operation, and the energy required is relatively large. Globally, energy use for data centers is 200 Terawatt Hour, so there need to be anticipative steps to get around this large amount of energy demand. Looking at the global trend towards being carbon neutral, it is believed that using renewable energy to meet energy demands in data centers is the right thing to do.

Fabby Tumiwa, executive director of the Institute of Essential Services Reform (IESR) in the Sustainability in Digital Age Webinar, explained that there will be at least two direct benefits when using renewable energy as a power supply in the data center.

(1) Increased energy efficiency

The need for energy supply for 24 hours non-stop makes the data center must look for reliable resources to ensure its prime performance. Seeing the trend of renewable energy becoming more affordable, developing renewable energy is not only a reliable and clean power supply but also financial efficiency in the long term.

(2) Increasing Use of Renewable Energy

In the national scope, currently, Indonesia still has to comply with the Paris Agreement target of achieving 23% of renewable energy. Currently, Indonesia is only at around 11.5%. According to IESR calculations, a mix of 23% will only be achieved if 70% of the electricity generation is from renewable energy. By encouraging industrial sectors such as data centers to use renewable energy it will contribute to the fulfillment of the energy mix target.

In addition, the use of renewable energy on-site will be very relevant for the company’s pursuit of becoming RE100. That big tech companies like Google, Microsoft, or Amazon have joined the RE100 alliance which means they are committed to go zero carbon in a few years.

Fabby said that in order to support the acceleration of renewable energy, especially for rooftop PV, it is necessary to have policy reforms such as improving net-metering rates, revising procedures for changing rooftop PV, as well as disseminated comprehensive information.

“Any changes in terms of regulations and policies will be a positive signal for investors,” he said.

I Made Aditya Suryawidya, Head of Business Solution for SUN Energy, added that the use of renewable energy in the data center will have a positive impact in 3 sectors, i.e: business, costs, and the environment.

From a business perspective, using renewable energy, data center companies will gain relatively fixed rates for the long term, thus helping companies to predict operational costs that must be incurred. Meanwhile, from cost savings, renewable energy will be subject to electricity costs of up to 30%. No less important from an environmental perspective, renewable energy will be able to track the company’s carbon footprint, support the Sustainable Development Goals (SDG) and government programs to increase the use of renewable energy and as a bonus, companies will get a spotlight related to clean energy.

IESR: The establishment of the Renewable Energy (RE) Implementing Body Won’t Solve the Problem

Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), assessed that the establishment of the RE Implementing Body, which was initiated in the RE Bill, won’t solve the problem of the slow development of renewable energy in Indonesia.

“Don’t get trapped in the logic of cutting the compass, hoping (the formation of) an institution will solve the problem, but instead it will raise new problems (later),” he explained in the FGD FPKB DPR RI (RI House of Representative) (2/2/2021).

Fabby viewed that the RE Bill should have identified the main obstacles in achieving the renewable energy mix target, such as in terms of the policy, institutional, social, technical, and infrastructure so that it can accelerate the development of renewable energy.

“The formation of a special business entity is closely related to the national target, and the institution must adapt to the supporting environment. Meanwhile, the RE Bill is aimed at forming an ecosystem for the development and utilization of renewable energy and overcoming the obstacles that we have experienced so far, “

He analyzed that all this time, the development and utilization of renewable energy was constrained by the PLN factor. As long as PLN’s financial problems are not resolved, the penetration of renewable energy into the PLN system will be hampered. He also mentioned the renewable energy mix target of 23 percent by 2025, which until the end of 2020 still only reaches around 10 percent.

“The 23 percent target of RE in PP No. 70/2014 is not immediately integrated into the 2015 RUPTL and the 35 GW program. While the 35 GW program with coal-fired power plants is running, it turns out that electricity demand is not as big as projected. PLN is in a dilemma condition. Meanwhile, in the next 5 (five) years, PLN will have to add more than 10 GW to reach 23 percent even though they have the capability of only 5 GW, for example, “he explained. 

Fabby took the example of a business entity that the Government of India formed, namely the Solar Energy Corporation of India (SECI) in 2007, to solve the problem of climate change. At that time, more than 70 percent of power plants in India used coal. Meanwhile, India is rich in water, solar, and wind. Finally, the Indian government is targeting the development of 20 GW PLTS by 2022. Since the program launched in 2010, India has succeeded in achieving 100 GW of renewable energy at the end of 2020. 

India’s success is inseparable from SECI’s role. For the implementation of PLTS to run smoothly, SECI is tasked with working on various solar rooftops schemes such as VGF, solar parks, grid-connected rooftop PVs, and others. SECI also coordinates between utilities, transmission companies, regulators, finance and others, so that the development of renewable energy projects is not impeded.

500 Tons of Carbon Emissions in 2050 Potentially could be prevented, if the Government Take Serious Action in Preparing a Road Map for Low Carbon Transportation 

Event Report: A Transition Toward Low Carbon Transportation

Jakarta, Tuesday, October 6, 2020 – With economic development, transportation has become a necessity that is inseparable from our everyday life. If its carbon wastes have not been handled carefully by the government and various parties, the earth’s temperature will be compromised, which endangers human life. It also means that Indonesia will fail to meet its promise in the Paris Agreement with zero emissions by 2050. This urgency was discussed by the Institute for Essential Services Reform (IESR) in the launch of its second series of five reports on the Indonesian Energy Transition Roadmap entitled A Transition Towards Low Carbon Transport in Indonesia: A Technological Perspective. Conducted online this event was attended by Firdaus Komarno, Head of the Center for Sustainable Transportation Management of the Ministry of Transportation, and Faela Sufa, Southeast Asia Director of the Institute for Transportation & Development Policy (ITDP), to respond to the findings and recommendations of the report written by Julius Christian Adiatma.

Julius explained that as the largest fuel consumers, transportation contributed around 150 million tons of greenhouse gas (GHG) in 2017. If the energy consumption pattern remains the same, in 2050, it will produce 500 tons of carbon emissions. He offers three approaches to reduce the use of fossil fuels and mitigate the impact of the energy transition in the transportation sector, namely Avoid, Shift, and Improve (ASI).

“The Avoid approach means that as much as possible, we reduce the number of trips and the number of transportation needs through better urban planning. Meanwhile, the Shift is shifting to a mode of transportation that is more energy-efficient or less carbon-intensive. Improving means increasing the efficiency of the vehicle or the carbon intensity of the vehicles,” he explained.

Discussing energy-efficient modes of transportation, Julius suggested the development of light vehicle electrification. However, this requires careful planning by taking into account the electrical system in Indonesia, which still uses coal, and the lack of supporting infrastructure such as electric vehicle chargers. 

“The point is, whether we like it or not, the energy transition is inevitable. Of course, it causes some side effects, for instance, infrastructure unpreparedness or technology choice errors. A decrease in economic activity or the occurrence of stranded assets, “he added. 

Julius also mentioned the goal of the Ministry of Transportation’s road maps, based on his study, is not comprehending the Paris Agreement.

“If we look at the roadmap of the automotive industry until 2034, if I am not mistaken, only 30 percent of vehicle production is in the form of solar energy vehicles or fuel cells. If so, then the projection in 2020, only 30 percent of electric vehicles will be on the roads, ”he explained. 

He stated that the energy transition road map in the transportation sector must contain infrastructure development that is in line with technological developments, anticipate the economic-social impact of the transition along with its mitigation plans, as well as research and development of alternative low-carbon transportation technologies. Besides, the government must have a plan and ensure that this transition process is successfully implemented while reducing the risks from the transition process that occurs, especially to the stakeholders involved (including industry players, workers, and affected communities). 

Responding to Julius’ explanation, Faela agreed that the government must be more proactive in addressing the need for low-carbon transportation, not only at the national level and even at the regional level. 

“There is a need for road maps and targets at the regional level to switch to public transportation with renewable energy so that it is not only about electricity,” she said. 

She also suggested that the Ministry of Transportation could encourage non-fiscal intensive policies in local governments, such as lower parking tickets for low-carbon vehicles. 

Responding to this, Firdaus Komarno generally agreed on Indonesia’s need to make an energy transition. Through his presentation, Firdaus revealed that the government has issued various policies to encourage energy transition in the transportation sector. However, he admitted that it was not well integrated. 

“Hopefully, in the future, especially the three Ministries, such as Energy and Mineral Resources (ESDM), Transportation and Industry work together, integrate to guard this low-carbon development,” he hoped. 

Firdaus has the same view regarding the challenges of the energy transition in Indonesia. In addition to what Julius has mentioned, one of the obstacles the government faces is the absence of a stipulation of electricity rates, so it does not provide certainty for electric vehicle manufacturers. Moreover, the government has not issued a policy of providing incentives for users of low-carbon vehicles. Furthermore, Firdaus feels happy and open if there is an opportunity for discussion for his party, IESR, or other organizations that have the same vision to achieve low carbon transportation in Indonesia.

Materi paparan

A Transition Towards Low Carbon Transport in Indonesia_ a technological perspective

Unduh

Bahan Webinar IESR 061020

Unduh