Improving Competitiveness and Economic Benefits from Industrial Decarbonization

Analis Energi IESR, Muhammad Dhifan Nabighdazweda
Analis Energi IESR, Muhammad Dhifan Nabighdazweda

Jakarta, June 20, 2024 – The industrial sectors contribute significantly to Indonesia’s carbon emissions. Based on data in the Indonesia Energy Transition Outlook (IETO) 2024, 2022 industrial sector emissions rose 30 percent compared to 2021, reaching more than 400 million tons of carbon dioxide equivalent. Implementation of the five pillars of industrial decarbonization is necessary to reduce emissions, limit global temperature rise beyond 1.5 degrees Celsius, and reap other benefits such as increasing competitiveness, reducing operational costs, and opening up green job opportunities.   

Head of the Center for Green Industry, Ministry of Industry, Apit Pria Nugraha, at the workshop “Capacity Building of Industry, Academia and Government Towards Green and Sustainable Industry,” revealed that the industrial sector plays a crucial role in the economy, but also produces significant greenhouse gas (GHG) emissions. For this reason, he emphasized, industrial sector emission reduction policies need to be implemented consistently, inclusively, and firmly. 

“One of the efforts to reduce industrial sector emissions is by applying the value of carbon economy. We are currently making various preparations for decarbonization, such as formulating a road map for carbon trading for industry, Minister of Industry Regulation (Permenperin) on Carbon Trading, carbon trading ceiling, carbon trading governance and carbon trading integrated information system,” Apit said at the event organized by the Institute for Essential Services Reform (IESR) in collaboration with the Ministry of Industry (20/6/2024). 

Program Manager of Energy Transformation, IESR, Deon Arinaldo, mentioned that the dominant industrial sector emissions come from the use of energy that uses coal. Based on the IETO 2024 study, in 2022, energy consumption at least contributed to more than 60 percent of industrial greenhouse gas (GHG) emissions, while the rest came from industrial process emissions and waste.

“Industrial decarbonization can be an opportunity for Indonesia to move towards sustainability and a strategy to achieve the Golden Indonesia 2045 and become an effort to mitigate rising temperatures. The commitment to decarbonize the industry will open up new target market opportunities and increase product competitiveness, especially looking at the future which will move towards more sustainable products,” Deon said. 

Energy Analyst, IESR, Muhammad Dhifan Nabighdazweda, suggests three steps to reduce emissions and encourage industrial decarbonization through low-carbon technology. First, clear and specific emission reduction targets for all industrial sectors should be set. Second, develop certification regulations for green products and new technologies such as hydrogen and CCUS. Third, cooperation between industry, government, and academia should be strengthened for low-carbon technology research and human resource development.

The IESR study revealed five pillars of industrial decarbonization, namely resource efficiency, energy efficiency, industrial electrification, using low-carbon fuels, raw materials, and energy sources, and utilizing carbon capture and storage technology (CCS/CCUS), significantly reducing emissions from processes that are difficult to decarbonize technically.

“The industrial sector is very diverse, requiring a variety of solutions. The implementation of the decarbonization pillar needs to consider both economic and technical aspects. The government can encourage the use of renewable energy for industry, such as through the installation of rooftop solar power plants, provide incentives for industries that implement low-carbon technologies, and support research and development of low-carbon technologies that are still in the commercialization stage,” Dhifan explained.

IESR’s analysis shows that the industrial sector can grow and develop by implementing the five pillars of decarbonization. The industry can save up to 30 percent of production costs by implementing energy and resource efficiency. In addition, costs for production materials that cannot be reused can be reduced by 66 percent. Other benefits of industrial decarbonization include potential carbon tax cost savings, environmental impact control cost savings, improved environmental quality and biodiversity, green job opportunities, and lower health subsidy requirements.

Efforts to Encourage the Effectiveness of Rooftop Solar Quota Fulfillment

press release

Jakarta, June 7, 2024– The Ministry of Energy and Mineral Resources (MEMR) has issued the PLN Rooftop Solar PV System Development Quota for 2024-2028 through Decree of the Director General of Electricity Number 279. K/TL.03/DJL.2/2024. The distribution of rooftop Solar PV quotas is based on the electricity system. The total rooftop solar PV quota in eleven power systems for 2024-2028 is 5,746 MW with a quota of 901 MW in 2024, 1,004 MW in 2025, 1,065 MW in 2026, 1,183 MW in 2027, and 1,593 MW in 2028. 

The Institute for Essential Services Reform (IESR) appreciates the Ministry of Energy and Mineral Resources for setting the rooftop solar PV quota for PLN, which consumers and rooftop solar businesses have awaited. However, IESR emphasizes that the quota distribution has not been carried out according to the clustering/subsystems outlined in article 9, paragraph 3 of Permen ESDM No. 2/2024. It’s important to note that as per the Permen, the clustering responsibility lies with the Electricity Power Holder Business License (IUPTLU) holder.

Fabby Tumiwa, Executive Director of IESR, stated that allocating rooftop solar PV quotas at the power system subsystem cluster level would offer clarity for consumers and ensure investment certainty for rooftop solar PV businesses. Without a net-metering mechanism, rooftop solar PV installations will primarily serve commercial and industrial (C&I) customers.

“The subdivision per subsystem offers clearer information for consumers regarding their options to apply for rooftop PV installation. Therefore, the Director General of Electricity needs to ensure that PT PLN submits the subdivision per cluster before July when the application period begins,” Fabby said. 

IESR encourages the Ministry of Energy and Mineral Resources to actively socialize the MEMR Regulation on rooftop solar PV and distribute rooftop solar power plant quotas and their mechanisms to consumers. The government should also proactively remind other IUPTLU holders to submit capacity quotas before July immediately. The newly issued rooftop PLTS quota for PLN is still not in line with the National Strategic Program target of 3.6 GW of rooftop PLTS set in 2021 by the Coordinating Minister for Economic Affairs Regulation No. 7/2021. 

The government also needs to consider customer interest in rooftop PV adoption to increase the rooftop PV quota in 2025 and achieve the renewable energy mix target of 23 percent.

“Industrial customers’ interest in using rooftop solar PV is high and is aimed at reducing energy costs and ensuring sustainable manufacturing processes, so eliminating net-metering does not have much impact on their interest. What also needs to be explained is the procedure in case of oversubscription (demand exceeding the set quota) in a particular system cluster. Interest from residential customers may drop due to the changing economics. Still, with more widespread information and the desire to save electricity costs, usage demand may also grow,” said Marlistya Citraningrum, Program Manager for Sustainable Energy Access, IESR.

Marlistya mentioned establishing rooftop solar PV quotas may represent an opportunity for financial institutions to provide appealing financing schemes. Previously, the market niche may have been less conspicuous due to the absence of quotas. However, financial institutions now possess additional information to conduct a comprehensive assessment, enabling them to introduce green financing products.

Encouraging Palembang to Become a Green City

Palembang, June 3, 2024– Palembang, the capital city of South Sumatra Province, needs to transform into a green city to anticipate the impact of the ongoing climate crisis. With a growing population and rapid urbanization, the environmental challenges in Palembang are increasingly complex.

One step in encouraging green cities in Indonesia is utilizing renewable energy. However, based on data from the Energy and Mineral Resources (ESDM) Office of the South Sumatra Provincial Government, in 2022, fossil energy still dominated the regional energy mix. Coal contributed 31.59 per cent, natural gas 22.68 per cent, and petroleum 21.88 per cent. Meanwhile, renewable energy reached 23.85 per cent of the total energy mix.

Holda, Chairman of Commission IV of the Regional People’s Representative Council (DPRD), explained that South Sumatra has promising renewable energy potential, especially biomass energy because most of its territory is plantation. Energy sources from waterfalls, solar and wind are also abundant. South Sumatra also has geothermal hotspots that can be utilized as a source of electrical energy.

“Geothermal hotspots exist in Lahat Regency, Pagar Alam City, and parts of Empat Lawang Regency, such as in Pasemah Air Keruh District. The utilization of these renewable energy potentials needs support from the government, one of which is by facilitating business licensing to help increase investment in the renewable energy industry sector,” said Holda in the RMOL South Sumatra Live Podcast entitled Palembang Towards Green City on Tuesday (28/5/2024).

The Program Manager of Sustainable Energy Access at the Institute for Essential Services Reform (IESR), Marlistya Citraningrum, explained that the Ministry of Public Works and Public Housing, in collaboration with district/city governments, is currently developing a green city development program (P2KH). The program states that the concept of a green city is not just about the amount of green open space. But also the massive availability of public transportation, good water management, and so on. 

“City design is not just about buildings or infrastructure, but also social, cultural, and people’s behavior. Towards a green city, using renewable energy is one of the indicators that can be encouraged. South Sumatra has several renewable energy potentials, mainly dominated by biomass due to the large number of agriculture and plantations in this area,” Marlistya added. 

Furthermore, Marlistya said the challenge to realizing the green city concept in a big city like Palembang is the availability of land. Therefore, the solution is to maximize the use of rooftop solar power plants. For example, they are utilizing the rooftops of government buildings to be fitted with PLTS. Improving city planning is also crucial to achieving a green city. In addition, Marlistya also gave an example of a 15-minute city regulation implemented by one of the cities in Switzerland to realize the concept of a green city.

“The 15-minute city regulation means that each trip to school, work, and other places must be reached within 15 minutes. This regulation will certainly cut the duration of trips and the production of vehicle emissions. This can be an inspiration, considering Palembang is still a developing city. If you want to implement a green city, the city planning needs to be improved, and people from around Palembang must pay attention to the travel model. If the travel model is like Jabodetabek’s, this needs to be adjusted again,” said Marlistya.

Comprehensive Power Plant Transition Strategy to Inform JETP’s CIPP

press release
Deon Arinaldo, Manajer Program Transformasi Energi, IESR
Deon Arinaldo, Manajer Program Transformasi Energi, IESR

JAKARTA, INDONESIA | June 4, 2024 – The Institute for Essential Services Reform (IESR), Indonesia’s energy transition and environmental think tank, and the University of Maryland’s Center for Global Sustainability (CGS) launched two new studies focused on strategies for achieving a thriving clean energy transition in Indonesia. The first report assesses existing and proposed power plants to prioritize those that can be retired early in line with a pathway to limit global warming to 1.5°C. The study combined a global integrated assessment model (GCAM), a power system model (PLEXOS), and bottom-up analysis methods.

The second report contains a database of industrial estates in Indonesia so that it can expand the Just Energy Transition Partnership (JETP) Comprehensive Investment and Policy Plan (CIPP) initiative.

The Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, explained that electricity generation in Indonesia is still dominated by coal, around 60 to 70 per cent. The existence of the Domestic Market Obligation (DMO) policy to keep electricity costs affordable creates dependence and makes it difficult for the State Electricity Company (PLN) to switch from fossil energy to renewable energy. However, this policy change is needed to provide impetus for PLN to switch from coal to renewable energy. Government policy must bridge the short-term negative implications to stakeholders such as PLN and electricity consumers. 

“This study analyzes PLN on-grid and off-grid power plants that use strategies to reduce coal-fired power plants (CFPP) capacity, flexible CFPP operations, early retirement, biomass burning, renewable energy substitution, construction cancellation, grid connection, and carbon storage. This study provides a bottom-up coal phase-down strategy that proposes a prioritized strategy for each PLTU unit based on CFPP characteristics and the suitability of CFPP’s role for electricity demand in their respective systems. This strategy recommendation can complement the existing JETP pathway,” Fabby said at the report launch (4/6/2024). 

Director of CGS, Nate Hulman, said the launch event was a platform to discuss how Indonesia can implement a clean energy transition and contribute to the global 1.5 degrees Celsius target. 

“Our new research offers an ambitious and transformative strategy critical to providing a new holistic framework for a transition strategy aligned with the 1.5°C target with national objectives in mind,” said Nate Hulman. 

The 1.5°C-Aligned Coal Power Transition Pathways in Indonesia report found that between 2025 and 2050, biomass co-firing with sustainable sources at 80 off-grid coal-fired units (13 GW) could contribute to nearly half of the cumulative emissions reductions. Meanwhile, early operational retirement of coal-fired power plants could be implemented at 105 units (25 GW), contributing to nearly half of the cumulative emission reductions of on-grid power plants.

“Emission reductions in PLN’s electricity system need to be further boosted to offset the growth of off-grid/captive coal emissions shortly so that mitigation in PLN’s electricity system contributes to 68 per cent of cumulative emission reductions until 2050,” said Deon Arinaldo, Program Manager of Energy Transformation, IESR. 

Achieving this accelerated coal energy transition will significantly transform Indonesia’s electricity system. Integrating increasing renewable energy sources will require new storage technologies, expansion of grid infrastructure, and stable and flexible operations. The analysis revealed that electricity generation costs (plant operating costs and fuel) could fall by 21 per cent by 2030 and 75 per cent by 2050 and reduce emissions from the power sector by 50 per cent by 2040. On the other hand, additional investment is needed to implement the transition strategy.

“Significant investments in new storage technologies, grid expansion, and stable and flexible operations are critical to building a resilient power system in Indonesia centred on renewable energy,” said Maria A. Borrero, CGS Research Associate and lead author of the report. 

On the other hand, Jiehong Lou, Assistant Research Director at the Center for Global Sustainability, said the second report, titled Industrial Parks in Indonesia: Challenges and Opportunities for Sustainable Industrial Development, contains a database of 79 industrial parks with a total electricity capacity of 23.07 GW.

“This database addresses a critical knowledge gap regarding industrial parks, significantly increasing the availability of data critical to understanding demand and making informed decisions regarding captive coal development and other aspects related to industrial park research,” Jiehong Lou said.

KIBE Holds Indonesia Clean Energy 2050 Parade and Delivers Recommendations to MEMR

Jakarta, June 3, 2024 – The transition from fossil-based energy sources to renewable energy represents a concerted endeavor to mitigate greenhouse gas (GHG) emissions, thereby curbing the Earth’s temperature rise to within 1.5 degrees Celsius. As per the 2023 Intergovernmental Panel on Climate Change (IPCC) report, the global average surface temperature during 2011-2020 has escalated by 1.1 degrees Celsius relative to the pre-industrial era (1850-1900). This marked climatic shift has heightened the incidence of extreme heat, intense precipitation, and drought across numerous regions worldwide.

To promote the acceleration of energy transition in Indonesia as a measure to mitigate the climate crisis, the Coalition for Emission-Free Indonesia (KIBE) 2050, consisting of the Institute for Essential Services Reform (IESR) together with Generasi Energi Bersih (GEN-B), Department of Environment BEM Faculty of Law University of Indonesia (UI), Enter Nusantara, and Climate Ranger Jakarta, organized the Emission-Free Indonesia 2050 March on Sunday (2/6/2024). The march started from Kendal Tunnel, Central Jakarta, and concluded at the Ministry of Energy and Mineral Resources (MEMR). 300 participants attended the parade.

KIBE 2050 especially appreciates the MEMR for receiving KIBE 2050 representatives to deliver recommendations to accelerate the energy transition and achieve Net Zero Emission (NZE) faster in 2050.

Maya Lynn, National Chairperson of Generasi Energi Bersih (GEN-B) Indonesia, hopes that the submitted recommendations can be implemented properly and become the first step towards greater change.

Wahyu Ilham Pranoto, Deputy Head of the Environment Department of the University of Indonesia Faculty of Law Student Executive Board (DLH BEM FH UI), emphasized that the KIBE 2050 recommendations are a form of responsibility and rights as the next generation to ensure the sustainability of the Earth’s future so that the next generation can feel it.

KIBE 2050 presents four recommendation topics, namely:

  1. Promote the democratization of energy by ensuring access to high-quality energy, offering incentives and simplifying the installation of rooftop solar power systems, providing straightforward and appealing financing options for renewable energy within the community, and updating regulations for Energy Independent Villages to include incentives and disincentives.
  2. Increase the government’s commitment to providing clean energy for the people by targeting a high energy mix in the National Energy Policy (KEN) and relaxing the rules for the Domestic Component Level (TKDN) of solar PV components and other renewable energy. In addition, KIBE 2050 encourages the utilization of environmentally friendly energy storage systems such as pumped hydro energy storage (PHES).
  3. Reducing emissions in the energy sector through early retirement of coal-fired power plants and avoiding cofiring in power plants, evaluating plans to implement carbon capture storage (CCS)/carbon capture utility storage (CCUS) in coal-fired power plants, implementing carbon taxes, and shifting dirty energy subsidies to clean energy.
  4. Realizing an equitable transition by assisting affected workers, preparing a superior sector to replace the fossil energy sector, and strengthening coordination with all relevant agencies to achieve NZE in 2050.

Agus Cahyono Adi, Head of the Bureau of Communication, Public Information Services and Cooperation (KLIK) at MEMR, appreciated and accepted the recommendations for KIBE 2050. He stated that his team would take necessary actions based on the recommendations.

“The inputs are many and multi-sectoral; for that, we will follow up by forwarding to the relevant sections,” he said.

Irwan Sarifudin, Coordinator of the Clean Energy Hub at IESR and chairman of the GEN-B Board of Trustees expressed hope that the collaboration of various parties in the 2050 Emission-Free Indonesia March would lead to changes that reinforce the government’s commitment to promoting the use of renewable energy.

 

“The government needs to increase the renewable energy mix in Indonesia rather than sticking to fossil energy, which will be increasingly uneconomical along with the trend of energy transition in the world. Renewable energy, especially PLTS, is technologically easy to install, and the cost of generation is also decreasing. Instead of maintaining wrong solutions such as using carbon capture technology in coal-fired power plants that have not been tested for their emission reduction significance and make their operating costs expensive,” Irwan explained.

Energy Transition Strategy in South Sumatra

Palembang, May 30, 2024– South Sumatra, a region heavily reliant on fossil fuels, particularly coal, needs to accelerate the adoption of renewable energy to reach the net zero emission (NZE) goal by 2060 or earlier. The Institute for Essential Services Reform (IESR) considers this initiative crucial for environmental and economic sustainability.

Based on data from the Energy and Mineral Resources (ESDM) Office of the South Sumatra Provincial Government, in 2022, fossil energy still dominates the regional energy mix. Coal contributed 31.59 percent, natural gas 22.68 percent, and petroleum 21.88 percent. Meanwhile, renewable energy reached 23.85 percent of the total energy mix.

His Muhammad Bintang, an IESR analyst, stated that the potential and resources of renewable energy in South Sumatra are underutilized. The majority of the renewable energy mix in South Sumatra is still dominated by one type of renewable energy, which is bioenergy. This could pose a problem if bioenergy sources are not consistently available, underscoring the significance of diversifying the use of renewable energy sources.

Based on an IESR study, the enormous potential of renewable energy technicians in South Sumatra includes solar energy of 389.5 to 441.2 GW. However, its utilization is small, only 7.75 MWp until 2023.

“Opportunities for renewable energy utilization are still wide open. But local governments still have constraints related to authority and fiscal, so it also requires the role of the central government and the private sector to encourage the utilization of renewable energy,” said Bintang at the Energy Transition Journalist Network Workshop in Palembang, South Sumatra on Thursday (30/5). 

Bintang said the central and local governments need to work together to provide space for renewable energy development in South Sumatra. He assessed that the government needs to reconsider the plan to add power plants dominated by PLTU with a total capacity of 2.1 GW in South Sumatra based on the 2021-2030 RUPTL.

“About 62 percent of the planned additional capacity is mine mouth PLTU. If this plan has not entered the construction stage, it is better to replace it with renewable energy, such as PLTS or other renewable energy,” Bintang added.

He explained that several strategies are needed to spur the utilization of renewable energy in coal-producing areas such as South Sumatra. First, prioritize developing and utilizing variable renewable energy (VRE), such as solar power plants and wind farms, because the installation time needed is faster. Second, encourage the industrial sector, especially oil and gas and mineral and coal mining, to increase the use of renewable energy in operations and through corporate social responsibility (CSR) programs and contributions to the region by providing access to clean energy and environmental restoration. Third, it is essential to prepare for a sustainable economic transformation in South Sumatra, supported not only by the oil and gas and coal industries but also by the emergence of new economic activities that will increase electricity demand for renewable energy penetration. 

Marini, Head of the Tourism, Industry, and Trade Sub-directorate, South Sumatra Bappeda, said that economic transformation and equitable energy transition have been included as strategic issues in the draft Regional Long-Term Development Plan (RPJPD) of South Sumatra Province. 

“Some of South Sumatra’s strategies in the energy transition agenda include integration into regional planning. The integration is done through three ways, namely regional consultation forums, which strengthen the capacity of stakeholders. Furthermore, policy formulation and planning for equitable energy transformation. The next strategy is regional economic transformation by developing renewable energy businesses and strengthening competencies,” said Marini. 

South Sumatra Province Energy Transition Forum: Preparing for a Just Energy Transition

press release

Palembang, 30 May 2024 – Using renewable energy is a way to reduce emissions from the energy sector. This step will prevent the rise of the earth’s temperature and minimize the impact of the future climate crisis. However, the use of fossil energy still dominates in Indonesia. For this reason, careful planning and preparation are needed to ensure that switching from fossil energy to renewable energy or energy transition runs smoothly and fairly. Not only that, the Institute for Essential Services Reform (IESR) assesses that the trend of energy transition in various parts of the world will trigger a decrease in demand for Indonesian coal. This will impact the economy of regions whose income comes from coal, including South Sumatra.

IESR encourages the South Sumatra government to prepare for an equitable energy transition through energy transition and economic transformation. This effort is made to prevent a decrease in regional income in line with the reduction in coal demand in various parts of the world.

In collaboration with the Energy and Mineral Resources Agency (ESDM) of South Sumatra Province, IESR initiated the South Sumatra Province Energy Transition Forum (29/5/2024). The event involved representatives from 17 regencies and cities in South Sumatra, as well as universities, industry, and mass media. Through this forum, dialogue and discussion took place to unite the vision and mission facing the energy transition.

Hendriansyah, Head of the Energy and Mineral Resources Agency of South Sumatra Province, said this forum is an essential step in the province’s shift from fossil fuels to renewable energy. The agency is committed to supporting various initiatives that will reduce carbon emissions and increase the use of clean energy.

“We invite the involvement of district and city governments in welcoming the inevitable energy transition. The purpose of this activity is to prepare and anticipate the impact of the energy transition and increase the utilization of renewable energy,” he said.

Based on data from the Energy and Mineral Resources Agency of South Sumatra Province, the installed capacity of renewable energy plants in South Sumatra reached 989.12 megawatts (MW) until 2023. According to Hendriansyah, South Sumatra is able to develop and utilize renewable energy despite being the largest coal producer in Indonesia.

“The energy transition is not just about technological change, but also behavioural and mindset change. Through this forum, we hope to create mutual awareness and commitment for a greener and more sustainable future,” said Hendriansyah.

Marlistya Citraningrum, Program Manager of Sustainable Energy Access at IESR, explained that transforming a sustainable energy system and economy requires policy innovations based on data-based scientific studies.

“IESR’s presence in South Sumatra is to work strategically with various stakeholders, provide technical assistance and capacity building, and build networks with government and non-government organizations. We have also conducted several researches collaboratively with Sriwijaya University academics to assess the challenges and opportunities of economic transformation in South Sumatra and built the South Sumatra Energy Transition Journalist Network (JTE) with the Palembang Alliance of Independent Journalists (AJI) and the Society of Indonesian Environmental Journalists (SIEJ),” said Marlistya.

Marlistya also emphasized that the energy transition process must be equitable. According to her, prioritizing moral obligations in the energy transition will ensure that every individual has equal rights in this change.

“There are three principles to realize justice in the energy transition. First, justice at the local level, considering those affected by the energy transition. Second, justice from the perspective of authority is about building the participation of policymakers at different levels to create synergies and contextualized energy transition planning. Third, justice in the long term that takes into account the welfare of the community and anticipates the impact of changes in the economic structure on society,” Marlistya concluded.

Power Wheeling Will Open Renewable Energy Investment Opportunities in Indonesia

press release
Fabby Tumiwa, Direktur Eksekutif IESR
Fabby Tumiwa, Direktur Eksekutif IESR

Jakarta, May 20, 2024– The government is again pushing for the power wheeling scheme to be included in the Draft New and Renewable Energy Bill (RUU EBET). This scheme will fulfill New and Renewable Energy (NRE) supply Articles 29A and 47A in network utilization cooperation (open access). 

The power wheeling scheme is the joint use of the electricity network. In this scheme, power producers can distribute electricity directly to end users using transmission and distribution networks owned by license holders. 

The Institute for Essential Services Reform (IESR) supports the inclusion of power wheeling in the EBET Bill. IESR believes that the implementation of power wheeling will create opportunities for developing more comprehensive renewable energy sources and utilization to support the energy transition towards net-zero emission (NZE) set by the government.

The existence of power wheeling will impact the growing supply and demand for renewable energy, particularly industrial electrification solutions, thus stimulating increased investment. Power wheeling also enhances communities’ and businesses’ access to renewable energy.

Fabby Tumiwa, Executive Director of IESR, mentioned that the reliance on demand and the procurement process from the State Electricity Company (PLN) presents a rapid challenge to developing renewable energy in Indonesia. The fact that PLN is the sole off-taker (energy buyer/provider) leads to suboptimal development of renewable energy resources. Tumiwa suggested that implementing a power wheeling scheme would encourage the participation of other state-owned and private electricity producers in the development of renewable energy, consequently accelerating the increase of Indonesia’s renewable energy mix.

Fabby assessed that concerns considering power wheeling as a form of electricity privatization are inappropriate. The transmission network was not sold to the private sector and is still owned by PLN as a state-owned enterprise. Instead, this scheme can optimize the utilization of PLN’s transmission network assets to increase PLN’s revenue from network rental fees, which can be used to strengthen PLN’s investment in the network. 

IESR highlights several things that need to be considered when implementing power wheeling. First, this power wheeling scheme should be a mechanism that promotes renewable energy. Therefore, renewable power wheeling must be mentioned explicitly in the bill. Second, implementing power wheeling should not compromise the reliability of the electricity supply. Third, power wheeling must be regulated so as not to harm the network owner. Therefore, the tariff for using the shared electricity network (wheeling charge) must reflect the costs required to maintain and improve system reliability and ancillary services and cover investment costs for network reinforcement. Fourth, the government or regulator sets the tariff formula for using the shared electricity network, and fifth, to clarify the implementation, it is necessary to make more detailed derivative rules regarding power wheeling.

“The EBET Bill can require more detailed and technical power wheeling rules to be included in the implementing regulations of the law, in the form of Government Regulations (PP). Technical regulations and details will be regulated through ministerial regulations of ESDM,” Fabby explained.

Furthermore, Fabby revealed that implementing power wheeling can create a renewable energy market and positively impact industrial investment in Indonesia.

“The industry is currently focused on developing a sustainable approach. Many industry associations are advocating for this, including those participating in the RE100 initiative, which aims to transition to renewable energy by 2030. The power wheeling scheme will simplify the process for industries to access electricity from renewable sources, helping to reduce their carbon footprint, meet sustainability goals, and present a positive environmental image to customers. This is a positive step towards improving the investment climate in Indonesia,” added Fabby.

IESR hopes that the DPR and the government will consider broader national interests and benefits when establishing the power-wheeling clause in the New Energy Renewable Energy (EBET) Bill.

Taxonomy for Indonesian Sustainable Finance Opportunities and Gaps to Support Energy Transition Financing

press release

Jakarta, May 17, 2024—The Financial Services Authority (OJK) has updated the sustainable finance market guidance from the Indonesian Green Taxonomy (THI) to the Indonesian Taxonomy for Sustainable Finance (TKBI) in February 2024. This taxonomy’s objectives include attracting more sustainable finance to various sectors, including the energy sector, and achieving the net zero emission (NZE) target by 2060 or earlier.

The Institute for Essential Services Reform (IESR) believes that while the renewal of the green taxonomy through TKBI is a step forward, there are still gaps that could make it less effective. First, the labeling system provides opportunities for fossil energy activities to receive sustainable financing. In TKBI, the classification of economic activities is no longer labeled with traffic light colors (“red”, “yellow”, “and green”), but rather “does not meet classification” and “transition” for activities that are not yet in line with the Paris Agreement but reduce emissions significantly within a specific timeframe, and “green” is in line with the Paris Agreement and considering NZE 2060 or sooner.

TKBI includes in the ‘transition’ category the activities of existing Coal-Fired Power Plants (CFPP) and the construction of new CFPPs established before Presidential Regulation (Perpres) No. 112 of 2022 or new CFPPs integrated with industry. There needs to be more consistency in categorizing CFPP with other power plants. From the aspect of emission mitigation, different plants, such as gas, hydro, geothermal, and so on, will get the “transition” category if the plant’s life cycle emissions are between 100-500 grams of carbon dioxide equivalent per kWh and the “green” category if the life cycle emissions are below 100 grams of carbon dioxide equivalent per kWh. However, for all CFPPs, the comparison is not life cycle emissions; instead, they must meet the requirements of reducing GHG emissions by at least 35 percent within ten years and stop operating by 2050. 

Deon Arinaldo, Program Manager of Energy Transformation, IESR, considers the emission reduction indicator for CFPP to be insufficient. He notes that CFPPs have operational emissions reaching 900-1200 grams of carbon dioxide equivalent per kWh, and even higher when considering life cycle emissions. Therefore, assigning a transition or ‘green’ label with an indicator of a 35 percent emission reduction after 10 years is inappropriate and contradicts the general principles of climate crisis mitigation, which aim to keep global temperature rise below 2 degrees Celsius and strive to limit it to 1.5 degrees Celsius.

“If we want to be consistent with 1.5 degrees Celsius, emissions from national coal-fired power plants should have peaked before 2030, approach zero by 2040, and no more emissions from power plants by 2045. The indicator used for green categorization should be for financial support that allows coal-fired power plants to reduce emissions before 2030 and stop operating before 2045,” said Deon. 

In addition, mining and mineral extraction activities that support energy transition industries, such as copper, nickel, and tin, are also included in the ‘transition’ category. IESR finds that a clear description has not accompanied this labeling to ensure that all mining and quarrying activities consistently support the energy transition.

Farah Vianda, Coordinator of Sustainable Finance at IESR, mentioned that this loophole allows greenwashing practices to gain sustainable financing.

“Regular updates and tightening of criteria are important. In addition, there needs to be a third party to ensure that the labeling category of an activity is in accordance with TKBI, not just an assessment carried out internally,” said Farah.

Meanwhile, Wira A Swadana, Program Manager of Green Economy, IESR, said that TKBI could be a reference for funding to support the achievement of Indonesia’s Nationally Determined Contribution (NDC) target in the future. 

“TKBI needs to ensure that there are clear rules that must be followed by the use of technologies that are proven to be efficient and effective for emission reduction so that TKBI can also be a technical reference to support the preparation of a comprehensive Second NDC,” said Wira.