New Study Finds Cancelling Coal Plants as Cost-Effective Way to Cut Global CO2 Emissions

Preventing nine planned Indonesian coal plants would avoid nearly 300 million tons of emissions for less than 80 cents per ton of CO2, per IESR analysis supported by The Rockefeller Foundation

JAKARTA, INDONESIA | May 30, 2023 ― The Institute for Essential Services Reform (IESR), a leading energy and environment think tank based in Jakarta, Indonesia, released a first-of-its-kind analysis, commissioned by The Rockefeller Foundation, which examines what it would take to prevent planned coal plants from being built. Delivering Indonesia’s Power Sector Transition found that nine coal plants in Indonesia could be cancelled with minimal repercussions for supply or grid stability and affordability, while avoiding an estimated 295 million tons of CO2 emissions. The study recommends cancelling planned, permitted, or pre-permitted plants as one of the most cost-effective and environmentally impactful approaches to accelerating just energy transitions in Indonesia.  

 “We developed an entirely new approach to undertake this analysis. We looked individually at each planned coal plant in Indonesia. Based on a multi-criteria scoring system, we identified plants that could be cancelled, and then assessed the legal, financial, system resilience, energy security, and carbon emission implications of this intervention. Our team used satellite images to track plants’ development progress over time, “said Fabby Tumiwa, Executive Director of IESR.  

“There are some 950 coal plants planned or under construction around the world, which if built, would emit an estimated 78 billion tons of CO2 into the atmosphere over their lifetime,” said Dr. Joseph Curtin, Managing Director for Power and Climate at The Rockefeller Foundation. “This first-of-its-kind analysis illustrates that, in many cases, there are better options available to policy makers, utilities, regulators, and systems planners that can accelerate the shift from fossil fuels. This analysis could also be replicated in other countries with a large coal pipeline.”

If constructed, the nine coal plants, which are predominantly at the financing state, would account for nearly 3,000 megawatts (MW) of coal capacity, or about 20% of total planned additions in Indonesia. A power system analysis was undertaken using seven separate models, representing each part of the country’s existing grid, to examine the power system reliability and affordability associated with cancelling. IESR’s analysis found that cancelling the nine plants: 

  • Would avert 295 million tons of CO2 emissions. With USD 238 million already invested to date into the nine, the calculated carbon abatement is less than 80 cents per ton of CO2 emissions avoided.
  • Could be achieved without compromising system stability, and that the power would mostly be replaced by existing power plants operating at greater capacity. This route, however, would likely imply additional costs from power system operation of $2.5 billion per annum in the period to 2050. It also should be noted that IESR’s analysis did not include adding more renewables to the energy mix, which would help reduce the average generation costs even further. 
  • Requires incorporating the legal risks associated with the unilateral cancellation of any project for the Republic of Indonesia and PLN, Indonesia’s government-owned electricity company, which were identified in the study. Independent power producers (IPPs) enjoy long-term power purchase contracts with PLN on favorable terms, and negotiations will be necessary in each case to ensure that cancellations do not amount to a breach of existing agreements. In some cases, offering the project developer the option to replace the power with renewables could be considered.
  • Will not be sufficient to meet Indonesia’s Just Energy Transition Partnership (JETP) target.

More than two-thirds of Indonesia’s electricity currently comes from burning coal, and with the PLN predicting an additional 13,822 MW of capacity via new coal plants by 2030, Indonesia has the third largest coal pipeline in the world, following China and India. At the same time, through JETP, Indonesia also aims to achieve peak emissions from the power sector at 295 million metric tons of CO2 per annum by 2030 and net-zero emissions in the power sector by 2050. In order to do so, the Republic of Indonesia and International Partnership Group (IPG) signed a JETP agreement in 2022, and in March 2023, the Indonesian Ministry of Energy and Mineral Resources signed a Memorandum of Understanding with the Global Energy Alliance for People and Planet (GEAPP), which is funded by The Rockefeller Foundation, IKEA Foundation, and Bezos Earth Fund. 

The report also includes a series of further recommendations that outline a systematic approach to reaching net-zero emissions by 2050 or earlier. 

Building Collaboration Between CSOs in ASEAN to Accelerate Energy Transition

press release

Jakarta, May 16, 2023 – As the Chair of ASEAN in 2023, Indonesia can engage civil society in enhancing ASEAN’s relevance in various aspects aligned with global development challenges. These include increasing ambitions for regional climate targets, developing renewable energy, and promoting sustainable development.

The Institute for Essential Services Reform (IESR) believes that following the success of the energy transition agenda at the G20, Indonesia can foster cooperation among ASEAN countries to implement energy transitions in line with the targets of the Paris Agreement. This collaboration can help build joint efforts to strengthen resilience in the face of various threats and impacts of climate change, through sustainable development.

ASEAN already has the ASEAN Working Group on Climate Change (AWGCC) and ASEAN Working Group on Forest and Climate Change (AWGFCC), as well as ASEAN Energy Cooperation. However, achieving climate mitigation targets and advancing renewable energy require additional efforts and collaboration between these working groups, along with civil society organizations and transnational communities, to increase their contribution to the region.

IESR believes that Indonesia, as the Chair of ASEAN, can provide space for civil society at the regional level to be involved in the process of its chairmanship agenda in 2023, particularly regarding energy and climate issues.

“As one of the regional organizations projected to experience 4.7% economic growth in 2023 amidst weakening global demand, ASEAN is a promising region for investment, especially in the renewable energy sector. Leveraging its leadership in ASEAN, Indonesia can encourage and embrace civil society organizations in ASEAN to focus on the energy transition. By initiating concrete collaborations, together we can accelerate the energy transition in the region and tackle climate change,” said Fabby Tumiwa, IESR Executive Director, during the public discussion titled “Making Energy Green and Low Carbon to Support Sustainable Growth: Advancing the Role of Civil Society in Southeast Asia Energy Transition During Indonesia ASEAN Chairmanship 2023,” organized by IESR.

Economic growth in the ASEAN region needs to align with commitments to reduce greenhouse gas emissions following the Paris Agreement. ASEAN has set a target of achieving 23% of the renewable energy mix by 2025. However, according to the IEA, 80% of the primary energy mix in the Southeast Asian region still comes from fossil fuels. Reducing the cost of renewable energy is predicted by the IEA to increase the penetration of renewable energy in ASEAN by up to 70% by 2040. This can be achieved through intensive coordination and collaboration among stakeholders (government, civil society, and business stakeholders) in ASEAN, especially in the regional policy-making process.

Nevertheless, Arief Rosadi, Coordinator of the IESR Climate Diplomacy Project, highlights that ASEAN currently lacks a formal channel for civil society to express aspirations, particularly on climate and energy issues. Therefore, Indonesia needs to lead ASEAN in providing an inclusive and constructive dialogue space for civil society in the decision-making process within the region.

“One immediate step to take is to increase the intensity of communication between civil society in the region, enabling the sharing of information and the latest developments in each country regarding energy and climate issues. This aims to strengthen solidarity and a sense of ownership of ASEAN as a collective region,” said Arief.

According to him, Indonesia can encourage more public discussions that focus on knowledge exchange and provide data-based policy recommendations that support the acceleration of the energy transition through the development of renewable energy at the regional level. Additionally, this approach can offer opportunities for developing human resource capacity in the renewable energy sector.

“Another important action is to strengthen grassroots collaboration and civil society networks at the regional level. This collaboration can contribute to the achievement of the climate agenda and energy transition in the region by sharing good practices and technical knowledge,” Arief added.

Implementation of ASEAN Taxonomy Version 2 Encourages Sustainable Development

press release

Jakarta, May 4, 2023 – The ASEAN Taxonomy Board (ATB) published the second version of the ASEAN Taxonomy for Sustainable Finance (ATSF v2) in March 2023. This taxonomy acts as a guidance to help classify economic activities, particularly those related to green financing. The Institute for Essential Services Reform (IESR) welcomes the publication of the second edition of the green taxonomy as a strategic step to attract global investment to ASEAN in supporting sustainable development.

One of the new things and, for the first time, considered in the second version of the ASEAN Taxonomy is the gradual termination of coal-fired power plant operations as an effort to significantly reduce greenhouse gas emissions to achieve the target of the Paris Agreement. The discontinuation of coal-fired power plants (CFPP) procedures will facilitate the diversity of understanding of ASEAN member countries regarding an equitable energy transition. The ATSF v2 also includes technical screening criteria (TSC) for energy transition financing, including the termination of coal-fired power plants, into the Green and Yellow categories. TSC is a quantitative or qualitative criterion that forms the basis for assessing the classification of whether an activity is included in Green activities (Green, contributes very important to environmental goals); Amber (Yellow, does not meet the criteria for Green but shows progressive steps to achieve sustainable ASEAN development) or Red (Red, not by environmental goals).

Fabby Tumiwa, Executive Director of IESR, said that IESR welcomed the presence of ATSF v. 2 as a common ASEAN standard for green financing. He mentioned that the influx of funding for the early termination of the CFPP indicates that the region’s government is supporting the achievement of net-zero emissions in the middle of this century.

“More than half of the electricity in ASEAN comes from coal-fired power plants. Meanwhile, to achieve the target of the Paris Agreement, all CFPPs should be retired by 2040. The fact that more than 50% of CFPPs operating in the Southeast Asia region are less than ten years old has the consequence that the early termination of CFPP requires a sizable source of financing, which is combined with financing for the construction of renewable energy generators to ensure the security of energy supply in areas with fast-growing economies. In this context, ATSF v.2 can accelerate the termination of CFPP operations in ASEAN through green funding,” said Executive Director of IESR Fabby Tumiwa in a written statement from Media Luncheon: Getting to Know Green Taxonomy and Development of Energy Transition in ASEAN.

IESR considers that implementing this ASEAN taxonomy needs to be optimized in line with Indonesia’s chairmanship in ASEAN 2023. Indonesia can strengthen cooperation among ASEAN countries in overcoming energy transition challenges, including low investment in the renewable energy sector and the termination of coal-fired power plants. Indonesia has had several international funding opportunities for the development of renewable energy and the termination of coal-fired power plants through the Just Energy Transition Partnership (JETP), Energy Transition Mechanism (ETM), and Clean Investment Fund-Accelerated Coal Transition (CIF-ACT) with a total of USD 24, 05 billion. However, IESR assesses that at least USD 135 billion is needed by 2030 for energy transition costs in Indonesia, including the termination of CFPPs operations.

“Including financing for the termination of CFPP operations into the yellow and green categories will increase the opportunity to conduct funding related to the energy transition or transition finance. There needs to be clear communication from the regulator to business actors and financial institutions to allow financing for these activities. This is because several financial institutions have committed to no longer supporting coal-related funding. However, of course, this activity category is different,” explained Farah Vianda, Project Coordinator for Sustainable Financing, Green Economy, IESR.

Based on IESR analysis, over the last five years, the average investment in renewable energy has only reached USD 1.6 billion per year or 20 percent of the total investment needed to achieve the renewable energy mix target of 23% in 2025. Meanwhile, highlighting international support, based on IESR calculations, there is potential international funding of USD 13.1 billion or 35.4% of the total projected financing needs of USD 36.95 billion in 2025 to achieve the 23% renewable energy mix target.

“It is important to accelerate the energy transition to attract investment, increase industrial competitiveness, and ensure sustainable economic growth. Therefore it needs to be accelerated by building an ecosystem to develop clean emission technologies such as renewable energy. The green taxonomy is the first step. Furthermore, the government can formulate long-term policies that provide certainty for investment in renewable energy and create a regulatory framework that is at least equal between renewable energy and fossil energy,” said Deon Arinaldo, Energy Transformation Program Manager, IESR.

Deon explained that these two factors are essential to reduce investment risk in renewable energy and attract funding for renewable energy projects. On the other hand, incentives for the clean energy technology industry must be built so that Indonesia and other ASEAN countries can benefit from more optimal economic growth from the energy transition.

The Government Needs to Provide a Level of Playing Field for Renewable Energy Development

Jakarta, 24 March 2023 – Achieving Indonesia Net Zero Emission (NZE) target in 2060 or sooner needs to be escorted by a shift from fossil energy to renewable energy. Unfortunately, renewable energy development in Indonesia is still hindered by uneven competition with subsidized fossil energy. Meanwhile, in various countries, the decline in the price of renewable energy generation has encouraged significant renewable energy adoption.

The Institute for Essential Services Reform (IESR) launched a report entitled Making Energy Transition Succeed: A 2023’s Update on The Levelized Cost of Electricity and Levelized Cost of Storage in Indonesia and a web-based simulation tool accessible to the public to estimate energy generation costs for any energy generation and storage technology. This levelized cost of electricity (LCOE) and levelized cost of storage (LCOS) calculation can help policymakers, renewable energy developers, investors, and the general public in planning for renewable energy development and determining energy technology options that are cheaper, with low GHG emissions.

In Indonesia, the development of renewable energy capacity in the last five years has been below the planned target. Between 2015 and 2021, renewable energy capacity increased by an average of 400 MW or less than one-fifth of the growth required to achieve the target of 23 % of the renewable energy mix in 2025. In 2022, renewable energy generating capacity will increase by 1 GW, yet still, be far from the expected growth.

“The development of renewable energy is less significant because there is no level of playing field. So far, renewable energy development has been neglected by coal-fired power plants. There is a wrong view that coal is the cheapest energy source. What is happening is that coal-fired power plant (CFPP) electricity is cheap because it is supported by the Domestic Market Obligation (DMO) policy and other subsidies starting in 2018. Meanwhile, renewable energy does not receive support,  instead, the price is always demanded to compete with electricity from CFPP and gas power plant electricity which receive state subsidies, “said the Executive Director of IESR, Fabby Tumiwa.

IESR analysis shows the LCOE of renewable energy is decreasing and competitive. Medium-scale hydropower plants have the lowest average  LCOE which is 4.1 cents/kWh. In the second and third lowest positions respectively were mini/micro hydropower plants and solar power plants worth 4.9 cents/kWh and 5.8 cents/kWh. However, this generation cost calculation does not include land use costs and project preparation costs, so there will be a possibility of an increase in LCOE of at least 6% for medium-scale hydropower plants, and 18% for utility-scale solar power plants.

“Currently, the investment climate for renewable energy development is not yet conducive. One reason is caused by some regulations that increase high costs. For example, for the development of utility-scale solar PV, there is local content requirement regulation requiring the domestic components whose product prices are still more expensive, and inferior in terms of quality to imported components. The price of more expensive components causes the required investment costs to increase. Meanwhile, the lack of quality assurance and compliance with standards also makes project funding more expensive, especially from abroad, becoming difficult,” said His Muhammad Bintang, IESR Researcher who is also the main author of this report.

Nonetheless, the downward trend in technology prices is expected to make renewable energy generation more competitive. Solar PV, for example, the projected LCOE of new utility-scale solar PV in 2050 will reach 3 cents/kWh or lower, much cheaper than the operating costs of existing CFPPs. In the 2030s, the combination of Solar PV and BESS will be more affordable and competitive compared to electricity from CFPP. Moreover, the government has started implementing emission reduction regulations, for example through carbon pricing mechanisms and limiting exhaust gases which can increase the LCOE of PLTU.

“The competitive price of energy storage systems certainly helps the development of renewable energy. One of the challenges for renewable energy generators such as solar PV and wind turbine is the interval that requires an integrator to maintain the stability of the existing system. This energy storage system is the most popular integrator because of its varied functions,” explained Bintang.

Examining the carbon capture storage (CCS) in coal-fired power plants to reduce GHG emissions, Deon Arinaldo, Energy Transformation Manager, IESR, stated that this would increase the LCOE of coal-fired power plants.

“The initiative to use CCS in coal-fired power plants should no longer be an option for two reasons. First, there has been no implementation of CCS in a coal-fired power plant that has successfully achieved its emission reduction target. Second, the LCOE of coal-fired power plants with CCS will increase to at least double or be greater than 10 cents per kWh. This is equivalent to imposing a carbon tax of around 50 dollars per tonne of CO2e on all coal-fired power plant emissions. All renewable energies are far more competitive and proven to produce electricity without GHG emissions,” explained Deon Arinaldo.

For renewable energy to compete fairly with CFPP, IESR recommends the government and utility companies such as PLN accelerate the coal-fired power plants phase out, as well as, provide incentives for renewable energy and energy storage technologies and gradually abolish the coal DMO provision in 2025. The development of renewable energy will create various economic opportunities that have the potential to increase economic growth in Indonesia.

“Renewable energy manufacturing industries such as solar and battery have the opportunity to create a new economic base, create green jobs, and drive LCOE and LCOS of renewable energy and Energy Storage Systems (ESS) even cheaper in Indonesia for the long run. Therefore, there is a need for an integration strategy for renewable energy and ESS electricity development with the development of the local manufacturing industry. For example, for solar energy, it is necessary to allocate a large renewable energy market in Indonesia to help the growth of the local industry and also to incentivize the local industry to build a complete supply chain and produce tier 1 modules of export quality,” continued Deon.

Furthermore, IESR encourages PLN as the electricity system operator to actively implement solutions to overcome renewable energy interruptions, for instance, by adjusting its operating system and increasing system flexibility. In addition, the utilization of energy storage systems needs to be prepared when the massive penetration of renewable energy in the energy system in Indonesia.

“PLN as the main operator of the electricity system in Indonesia, needs to initiate several pilot projects of energy storage systems with various types of technology to find good practices in technology selection and operating procedures. However, the implementation of energy storage systems is still limited to off-grid systems, even though energy storage can have many functions in large-scale systems, apart from the integration of renewable energy generators. With so many project initiatives and clear regulations, investors, technology producers and developers can increase their confidence to develop supply chains for energy storage systems in Indonesia that will further reduce costs,” concluded Bintang. ***

Mitigating the Risk of DME Project Failure by Encouraging the Adoption of Induction Electric Stoves

Jakarta, 17 March 2023 – The decision by Air Products and Chemicals Inc (APC), a company from the United States, to withdraw from the coal gasification project consortium in Indonesia will affect the plan to substitute Liquefied Petroleum Gas (LPG) with 1.4 million metric tons/year of Dimethyl Ether (DME) results from coal gasification or equivalent to 1 million tons of LPG. The Institute for Essential Services Reform (IESR) believes that it is a good decision for APC to withdraw from the DME project. Meanwhile, for the government, the mitigation effort to overcome the failure of the DME project, reduce LPG imports, and reduce greenhouse gas emissions is to encourage the conversion of gas stoves to induction electric stoves nationally, followed by an increase in the renewable energy mix.

“APC’s decision to withdraw from the DME project in South Sumatra and the ethanol project with PT Kaltim Prima Coal (KPC) in East Kalimantan is the right decision. These projects do not economically align with rising coal prices and increasing investment costs by incorporating Carbon Capture and Storage (CCS) technology to capture carbon. APC’s withdrawal from this project can save state finances in the future because it does not have to subsidize DME products whose production costs are more expensive than imported LPG,” said IESR Executive Director, Fabby Tumiwa.

Fabby explained, even so, the government still had to try to suppress LPG imports which had reached 80% of supply in Indonesia. The scheme is to encourage the use of induction electric stoves. Last year, the public criticized this program plan until it was finally canceled due to problems with poor public communication. However, the induction cooker program must be discussed again and supported for its implementation.

The use of induction electric stoves will also cut LPG imports which are a burden on the state budget. Citing data from the Ministry of Energy and Mineral Resources, the majority of LPG is consumed by the household sector as much as 96%, the commercial sector 2.5%, and the industry 1.5%. According to the Coordinating Ministry for Maritime Affairs and Fisheries, Indonesia has imported LPG worth IDR 80 trillion out of a total requirement of IDR 100 trillion. Meanwhile, the LPG subsidy provided by the government reaches IDR 70 trillion. LPG consumption in 2021 will reach 7.95 million tonnes, with 6.4 million tonnes coming from imports.

“LPG subsidy savings can reach 1-2 million per year per household that switches to electric stoves, this range depends on how often the household cooks, of course. The government can launch a gradual transition program for hundreds of thousands of households and increase it every year by providing incentives to purchase electric stoves and increase household electricity,” said Deon Arinaldo, Energy Transformation Program Manager, IESR.

Implementation of the electric stove program will bring economic and environmental benefits to the community. Moreover, besides its less pollution, the costs incurred by the community when using an induction stove can be 10-30% lower than using a gas stove.

“If LPG is without subsidies, electric stove operating costs are more efficient by up to 47% per year as compared to gas stove operating costs,” explained Faris Adnan, IESR Researcher.

In terms of emissions, the electrification of cooking equipment will reduce greenhouse gas emissions if the renewable energy mix in Indonesia’s energy system is more than 50% in 2030. Every one million households using an electric stove can increase electricity demand by ~1 TWh. For this reason, this additional electricity demand must be supplied by renewable energy.

“For electric stoves to have at least the same emissions as gas stoves, the mix of renewable energy in power plants in 2030 needs to reach 54% and the coal mix down to 29%, so that electricity generation emissions become 0.415 kgCO2/kWh from 0.781 kgCO2/kWh. For this reason, the government also needs to ambitiously increase the mix of renewable energy in power plants and reduce the portion of coal in power plants,” said Faris.

However, he added, when compared to using DME, emissions from electric stoves will be lower by 34% in 2025 and 46% in 2030. This calculation assumes that DME production facilities from coal are not equipped with carbon capture and storage technology, resulting in high emissions. If the 1.4 million metric tons/year of DME used for cooking is replaced by electricity, then in 2025 it is predicted to save emissions of 2.92 million tons of CO2 and 3.94 million tons of CO2 in 2030. In addition, transition 1, This 4 million metric tons of DME to electricity can increase electricity demand by 7.2 TWh per year.

The IESR views that the use of electric stoves to substitute LPG, coupled with accelerating the increase in the renewable energy mix, can be one of Indonesia’s GHG mitigation actions, and can be included in the GHG emission reduction plan in the 2nd Nationally Determined Contribution (NDC), which will be published in 2025 future. ***

The Role of Solar Energy in Supporting NZE and JETP Target

Jakarta, 10 March 2023 – Clear and earnest support from the government for the development of solar energy needs to be demonstrated, especially in achieving the Net Zero Emission (NZE) target in 2060 or sooner and the renewable energy mix target in the Just Energy Transition Partnership (JETP) of 34 % in 2030. 

“So far, JETP discussions are still focused on the early retirement of the coal-fired power plants (CFPP). There is no element of accelerated renewable energy yet. It needs to be noted, especially to accelerate the development of solar energy, which is projected to become one of the backbones of electricity generation in achieving the NZE, given Indonesia’s great potential, increasingly competitive economy and relatively short construction,” said Daniel Kurniawan, Researcher, Specialist Photovoltaic Technology and Materials, Institute for Essential Services Reform (IESR) in the Solar Energy Talk: Technology, Policy and Solar Energy Challenges in Supporting the Just Energy Transition Partnership (JETP) and Net Zero Emission (NZE) on Thursday (9/3/2023).

According to him, nowadays is the right time for the government to involve community participation by pursuing these various targets with policies that support the acceleration of solar energy and the use of rooftop solar power plants on a commercial & industrial and residential scale. He regretted that the public hearing held by the Ministry of Energy and Mineral Resources (MEMR) regarding the revision of Minister of Energy and Mineral Resources Regulation No. 26/2021, the government wants to cancel the net metering scheme for the residential sector, which will reduce the economy and customer interest in installing rooftop solar PV.

“The government should not remove policy support for the community in adopting rooftop PV mini-grid, especially for the household and the small business sector, at this very early adoption stage. On the other hand, policy support must be increased to encourage adoption to a mature market stage,” he stressed again.

On the same occasion, Widya Adi Nugroho, Sub Coordinator for Supervision of Renewable Energy Businesses, Ministry of Energy and Mineral Resources (MEMR), said that Indonesia has a renewable energy mix target of 23% in 2025. However, until 2022 it has only reached around 12.3 %. He said the utilization of new renewable energy power plants was prioritized according to the planning of the Electricity Supply Business Plan (RUPTL).

“Based on the 2021-2030 RUPTL, solar energy will increase by 4.6 GW in 2030. Solar will be the backbone of Indonesia’s electricity reaching 461 GW in 2060. In addition, the price trend for solar PV is getting lower and more competitive. Likewise, supporting components such as batteries so that development opportunities are increasingly open. However, there are challenges in developing solar PV, one of which is that the room for electricity generation is still full, so it requires community participation as consumers and producers to utilize renewable energy through solar energy. In addition, the system needs to maintain intermittent conditions, both with backup generators that can compensate for solar PV and also related to the local content requirement (LCR),” explained Widya Adi Nugroho.

Anindita Satria Surya, Vice President of Energy Transition and Climate Change, State Electricity Company (PLN) explained, his party continues to implement energy transition initiatives to achieve net zero emission (NZE) in 2060 or sooner. For this reason, it is necessary to increase internal capabilities and technology supported by innovation, policy and finance. Anindita estimates that the investment needed to reach the NZE in 2060 is around USD 700 billion. In addition, Anindita emphasized that the implementation of the de-dieselization program or the conversion of diesel power plants is a strategy to increase the energy mix, especially solar energy in the electricity system.

“There are several PLN strategies for integrating renewable energy, including in the short term achieving RUPTL (2021-2030) with around 4.7 GW or 22% coming from solar PV,” said Anindita.

In his presentation, other renewable energies that will be developed to achieve RUPTL include hydropower (44%) and geothermal (16%). In addition, his party will carry out de-dieselization, early retirement of coal, and co-firing of biomass. Then, in the long term to achieve NZE (2031-2060), steps to be taken include encouraging battery-based electricity storage and interconnection, as well as hydrogen co-firing. On the technology and ecosystem development side, PLN will focus on, among others, solar PV and electric vehicles.

“As an illustration, in the beginning, we built a powerful system, namely the baseload generator, built a strong transmission and coupled with strengthening the use of renewable energy, including solar PV. At the end of the 2035 period, most of the solar PV has entered our system,” he said.

Anindita emphasized that solar PV could be one of the solutions to increase the energy mix but the readiness of the infrastructure, especially batteries, to reduce intermittent nature must also be seen. For example, there are no batteries to support solar PV in Lombok, West Nusa Tenggara (NTB). Not only rooftop solar PV, but PLN is also trying to take advantage of the potential of floating solar PV. As part of supporting the implementation of the Indonesian Presidency’s G20 activities, a 100 kWp floating PLTS has been built in the Muara Reservoir, Nusa Dua, Bali.

Meanwhile, Rosyid Jazuli, a researcher at the Paramadina Public Policy Institute, explained that Indonesia has enormous solar potential. Unfortunately, currently, more than 60% of electricity in Indonesia still comes from coal. This is due to several challenges in implementing solar energy to support the implementation of the Just Energy Transition Partnership (JETP), such as unclear plans, overlapping regulations, and potential funding in the form of loans. Rosyid suggested that there should be coordination between ministries and agencies in supporting the implementation of JETP, considering that this issue is a complex matter.

“On the other hand, the potential for green funding, which reaches USD 20 billion should also be optimized, especially since the current world trend is towards sustainable development. Funding is also needed for research and development of solar energy and the potential to attract investment in solar power,” said Rosyid.

Solar Energy Talk is a series of public dissemination events about solar energy which are collectively organized by six institutions; Institute for Essential Services Reform (IESR), Solar Scholars Indonesia (SSI), Persatuan Pelajar Indonesia (PPI) Australia, Asosiasi Peneliti Indonesia Korea (APIK), Institut Energi Surya Generasi Baru (Insygnia), and Solarin.

Solar energy thematic dissemination will be held regularly, every two weeks until June 2023, covering topics; Indonesia’s solar energy landscape, current policies, technology, industry, socio-economic and human resource readiness in support of the Just Energy Transition Partnership (JETP) and the Net Zero Emission (NZE) target.***

Electric Vehicle Incentive Effectiveness Needs Government Support to Reform Other Policies

press release

Jakarta, 8 March 2023 – On 6 March 2023, the government established incentives for Battery-Based Electric Motorized Vehicles (KBLBB) in the form of assistance in purchasing KBLBB of IDR 7 million per unit for 200,000 units of new electric motorbikes and IDR 7 million per unit for conversion to electric motorbikes for 50,000 units petrol motorbike. Meanwhile, the exact amount of incentives for electric cars has not been determined, but the government plans to support purchasing 35,900 units of electric cars, and 138 electric buses. The government has also prepared an incentive mechanism that is only intended for manufacturers who have registered the type of electric vehicle that meets the 40% Local Content Requirement (LCR). This incentive is planned to be implemented from 20 March 2023 to 30 December 2023.

The Institute for Essential Services Reform (IESR) welcomes the provision of this incentive to encourage the adoption of electric vehicles and grow the domestic electric vehicle industry to encourage more sustainable economic growth in Indonesia and reduce the demand rate for fuel. However, to encourage more aggressive adoption of electric vehicles and ensure the effectiveness of incentives, some policy reforms are needed, including reducing fuel subsidies and a policy to phase out fuel-fueled vehicles, starting from passenger cars before 2045, and Internal Combustion Engine (ICE) motorcycles. IESR views that although the policy reform is not a populist policy, it needs to be taken by the government with deep consideration.

The use of electric vehicles is also a strategy to achieve the target of reducing greenhouse gas emissions stipulated in the Nationally Determined Contribution (NDC), with the target of adopting 13 million units of two-wheeled and three-wheeled electric vehicles and 2 million units of four-wheeled electric vehicles by 2030.

“Providing this incentive is a good first step to increase demand for electric vehicles. With the 40% LCR requirement, it can encourage investment in the manufacture and supply chain of electric vehicle components. It is hoped that with it, we can achieve economies of scale for electric vehicle production and encourage competition which can have an impact on reducing the price of electric vehicles to boost the adoption of even more electric vehicles,” said Fabby Tumiwa, Executive Director of IESR.

Fabby added that the conversion incentives to electric motors were expected to build the capacity of conversion technicians and workshops, as well as attract business actors to pursue a larger-scale conversion process.

“IESR found that there will be 6 million units of conventional motors per year that can be converted to electric motors by 2030. For this reason, hundreds of certified conversion workshops and skilled technicians are needed. Supply chain support for batteries, electric motors and other components is necessary so that conversion costs are more affordable for the public,” explained Fabby.

Moreover, to the LCR requirements for electric vehicle manufacturers, IESR suggested that the government could add electric vehicle performance requirements in providing incentives next year.

“The government can add additional requirements related to electric vehicle performance to encourage increased reliability of electric vehicles, as well as, the research and development ecosystem of the electric vehicle industry in Indonesia. These standards include vehicle mileage, minimum battery capacity, and conversion efficiency,” said Faris. Adnan, IESR Researcher.

Furthermore, Faris added that another interesting thing about this electric vehicle incentive is the priority of giving incentives for Micro, Small, and Medium Enterprises (MSMEs), especially recipients of Small Business Credit (KUR) and Micro Business Productive Assistance (BPUM), including 450-900VA electricity customers. However, according to him, motorists who provide online transportation or logistics service providers also need to be set as a priority.

“Online motorbike transportation or logistics drivers need to be prioritized in providing this assistance because they have long distances to travel per day so that the economic benefits for users and the government will be greater. The amount of assistance offered also needs to be pushed higher than the current amount, which is above Rp. 7 million,” explained Faris.

He also highlighted the installed power capacity of priority prospective buyers. The electric motorbike battery charger itself requires up to 400W of power. This means that to charge the electric vehicle battery, there will be a lot of electronic equipment that cannot be used at the same time.

“This can be anticipated by providing additional power increases when priority buyers buy electric vehicles that receive government assistance,” said Faris.

IESR views the adoption of electric vehicles as a strategy to reach zero emissions if the charging source comes from renewable energy. Based on the IESR analysis in the 2023 Indonesia Electric Vehicle Outlook (IEVO) report, the emissions emitted by electric motorbikes and electric cars are 18% and 25% lower than by petrol motorbikes and cars. However, if the development of renewable energy only refers to the 2021-2030 PLN Business Plan, then the reduction in emissions from electric motorbikes and electric cars is projected to be insignificant, only around 6% and 8% in 2030.

“With several government commitments and support for energy transitions, such as the Just Energy Transition Partnership (JETP), this momentum can also be used to accelerate the transition to the electricity system by developing renewable energy and stopping coal-fired power plants earlier. The result is a lower network emission factor so that the benefits of electric vehicles for decarbonization are maximized,” explained Deon Arinaldo, Manager of the Energy Transformation Program, IESR.

Deon added that the IESR study even showed that with a combination of transportation electrification and accelerated development of renewable energy, Indonesia’s renewable energy mix could even exceed 34% of the RE mix target announced at JETP. ***

Carbon Trading Implementation Needs to be Followed by Tighter Emission Limits

press release

Jakarta, March 1, 2023 – The Ministry of Energy and Mineral Resources (ESDM) began implementing a carbon trading mechanism in the coal-fired power plant (CFPP) sector on Wednesday, February 22, 2023. The Institute for Essential Services Reform (IESR) stated the implementation of carbon trading as a step forward, noting the need for tightening emission caps in the future. In addition, the results of carbon trading can be a source of Non-Tax State Revenue (PNBP), which, if appropriately allocated, can encourage investment in renewable energy and increase energy efficiency.

Carbon trading is finally implemented after being tested in several coal-fired power plants in 2021. The government has also established Technical Approval for Emission Limits (PTBAE) starting from the non-mine mouth (MM)/MM CFPPs with a capacity of 25 MW to 100 MW of 1,297 tons CO2e/MWh, up to Non-MM CFPP with a significant degree of 400 MW is 0.911 tons CO2e/MWh.

“Even though the carbon trading scheme has been implemented appropriately in Indonesia, the ceiling for carbon emissions set by the government is currently still relatively high, and no effort is required for CFPP owners to fulfill it. As an illustration, the intensity of carbon emissions in power plants in neighboring countries is 20% -40% lower than in Indonesia. This opens up opportunities to tighten emission limits for CFPP in the future,” said Executive Director of IESR, Fabby Tumiwa.

IESR believes that determining quota restrictions for CFPP will increase business actors’ awareness of the emissions produced and regulate CFP operations more efficiently.

Furthermore, this carbon trade regulates the replacement or carbon offsets if the generating unit produces emissions exceeding the Technical Agreement for the Upper Emission Limit of Business Actors (PTBAE-PU). This plant must purchase emissions from the PLTU unit that has emissions under PTBAE-PU and or purchase an Emission Reduction Certificate (SPE GRK).

“To increase the integrity of the offset mechanism and the real impact of reducing emissions by using the SPE instrument, the government must ensure normal emission reduction activities that can be traded on the carbon market. It is recommended that SPEs be prioritized from renewable energy generation to align this instrument with energy transition efforts to reach NZE 2060 or earlier. This SPE instrument can be an incentive for businesses and the public to build renewable energy generators,” explained Fabby.

IESR proposes that SPE be carried out to accelerate the installation of rooftop solar PV by consumers. The electricity generated by the rooftop solar PV and exported to the grid can become SPE and be used for carbon offsets. Revenue from SPE sales can increase consumer interest in installing rooftop solar power plants.

The Minister of Energy and Mineral Resources will give a written warning, and the allocation of PTBAE-PU for the subsequent carbon trading is around 75%. This applies to business actors who should refrain from participating in carbon trading by not submitting a plan for monitoring greenhouse gas emissions and revisions to reporting on greenhouse gas emissions.

“The existence of quota restrictions imposed by the government on business actors who violate the rules is a clear form that the government is committed to trading carbon as an instrument to reduce emissions. However, in practice, it requires strict monitoring,” mentioned Farah Vianda, Coordinator of the Sustainable Financing Project, IESR Green Economy.

The government has set the value of PTBAE-PU to 99 units of coal-fired power plants from 42 companies that will become carbon trading participants, with a total installed capacity of 33,569 MW. The price of carbon traded between CFP units in the country is estimated to be from US$ 2 to US$ 18 per ton.

“Ministry of Finance regulations governing carbon prices can be issued immediately to provide certainty for carbon trading activities. It is hoped that the carbon price applied will not be too far from the global average price,” Farah added.

Public oversight of the implementation of carbon trading also needs to be developed. Efforts to include a carbon trading mechanism in stock trading, which the Indonesia Stock Exchange is currently reviewing, will make carbon prices more competitive and promote transparency to attract investors and mainstream sustainable financing principles.***

IEVO 2023: Building Indonesia’s Electric Vehicle Ecosystem

Jakarta, 21 February 2023 – Decarbonization of the transportation sector is a crucial strategy in climate change mitigation to prevent the earth’s temperature from rising beyond 1.5 degrees Celsius. In Indonesia, besides the use of biofuels, vehicle electrification can cut 23% of greenhouse gas (GHG) emissions from the transportation sector.

The Institute for Essential Services Reform (IESR) views the development of an electric vehicle ecosystem as an absolute to increase public interest in adopting electric vehicles, accelerate infrastructure distribution and develop the domestic electric vehicle industry.

The IESR in the 2023 Indonesia Electric Vehicle Outlook (IEVO) report notes that dependence on imported fuel has triggered inflation at the end of 2022 due to increasing subsidized fuel prices. Fuel consumption increased by an average of 1.2 million kiloliters per year between 2015 and 2020.

“The increase of fuel imports has eroded foreign exchange, weakened the exchange rate and forced the government to adjust fuel prices, which has an impact on inflation. As fuel price adjustments are politically unpopular and have an impact on people’s purchasing power, the government usually makes this a last alternative to cover the difference between the selling price and the cost of procuring fuel. Subsidies provided by the government deteriorate the fiscal capacity of the state budget. These could have been avoided if fuel imports were cut drastically by increasing the use of electric vehicles and substituting Internal Combustion Engine (ICE) vehicles,” said IESR Executive Director, Fabby Tumiwa.

Compared to ICE vehicles, electric vehicles are better at reducing emissions and having lower operating costs. IESR analysis shows that electric vehicles emit 7% less GHG emissions, and their operating cost per km is 14% lower than ICE vehicles. However, due to the limited availability of electric vehicle models, minimal infrastructure, and high initial investment, people are reluctant to switch to electric vehicles. 

“The government needs to look at the supply aspect of the Battery-Based Electric Motorized Vehicle industry and not just the demand. The tax deduction incentive for electric cars and IDR7 million for electric motorbikes is suitable. However, the eligibility of any car/motorcycle brand as the recipient of the incentives must be considered. The provision of this incentive must be linked to the development of the Local Content Requirements (LCR). Only brands with certain LCR may receive this incentive,” said Ilham R F Surya, Environmental Policy Researcher, IESR, who is also one of the authors of IEVO 2023

Furthermore, Ilham also said that electric two-wheelers (E2W) vehicle conversion could be an alternative to electrification at a lower price. Moreover, E2W is also a means of rejuvenating older motorbikes.

The government’s efforts to meet the GHG emission reduction target in the Nationally Determined Contribution (NDC) through a total of 15 million electric vehicles in 2030 can be seen from the availability of fiscal and non-fiscal policies. However, its fiscal policy is still focused on the demand side. Opportunities for the adoption of massive logistics ride-hailing drivers are expected to trigger the development of the electric vehicle industry in Indonesia.

“Currently, the electric vehicle industry from upstream to midstream has not been fully integrated. Some midstream projects, such as the production of new batteries, will run for at least 2025/2026. The government’s focus should be directed to accelerating the progress of the midstream project and convincing investors to carry out the many investment commitments that have been made,” said Pintoko Aji, co-author of IEVO 2023 and Renewable Energy Researcher, IESR.

For electric vehicle infrastructure, IESR assesses that although the installation has increased by 200% compared to 2021, the locations for Electric Vehicle Charging Station have not been spread evenly. 88% of Electric Vehicle Charging stations are still concentrated in Jakarta and Bali. Furthermore, the utilization of the Battery Swapping Station is still not standardized and only applies to certain brands.

“The government needs to facilitate Electric Vehicle Charging Station investment, one of which is changing the obligation to install three different types of ports in each Electric Vehicle Charging Station unit listed in MEMR Regulation No. 13/2020. The obligation to have three ports causes investment costs to swell to Rp 750 million-1.5 billion per Electric Vehicle Charging Station. Even though not all locations require three types of ports at once. If there is no such obligation, then with the same investment value, the number of Electric Vehicle Charging Stations built can be 3-4 times more,” Ilham added.

Ilham added that standardization of Battery Swapping Stations can be started from an electric motor with a battery capacity of 1.2 kWh or 1.44 kWh which is currently 79% of electric motors on the market, so it is not too difficult for manufacturing. Furthermore, the government also needs to standardize the shape and size of the battery to the electrical configuration in it.

Regarding the electrification of maritime and aviation transportation, Pintoko explained that the use of batteries in ships and aircraft has a challenge in the energy density of batteries, which makes them bigger and heavier, thereby reducing the cargo space of ships and aircraft payloads. This makes the electrification of maritime and aviation practical for a small scale with short distances.

IEVO 2023 recommends that the government strengthen upstream and midstream industry policies and regulations to reduce the price of electric vehicles, make rules to anticipate battery waste, increase interest from financial institutions for financing electric vehicles, and promote the use of electric vehicles.