Promoting Central and Local Government Institutional Capacity for Just Transition

press release

Jakarta, October 26, 2023 – The Institute for Essential Services Reform (IESR), in collaboration with the Stockholm Environment Institute (SEI), conducted a collaborative study on the analysis of central and local government institutional capacity for sustainable coal transition in Indonesia. 

The preliminary findings of this study show that of the eight ideal capacities that governments must possess to facilitate the energy transition, national and local governments have different strengths in their ability. The national government understands the energy transition well, while local governments have sufficient capacity to implement it. However, national and local governments still require capacity building in seven other abilities to support the energy transition successfully.

Wira Swadana, Program Manager of Green Economy, IESR, mentioned that a just energy transition requires careful planning and implementation. For this reason, qualified and complementary capacities and close collaboration between the national and local governments are crucial. 

“The national government can play its role in establishing regulations that support the implementation of an equitable energy transition, attracting investment and financing the energy transition through various international cooperation. Meanwhile, local governments can act as coordinators and stimulators in the energy transition process because they are better positioned to understand the field conditions and directly interact with citizens,” said Wira Swadana at the National Workshop on Equitable Transition: Building Capacity for Sustainable Coal Transition in Indonesia.

IESR assessed eight government capacities: awareness, technical knowledge, stakeholder engagement, communication, multilevel networking, finance, instrumental mastery in organizational structuring and strengthening, and implementing the energy transition. Based on IESR’s initial analysis, the national government needs capacity building in technical knowledge, communication, and networking. Meanwhile, local governments must also improve technical knowledge about the energy transition, finance, and authority, including instrumental capacity.

Martha Jesica, Social and Economic Analyst at IESR, explained three major gaps in the capacity building of the government at the national and regional levels. First, the rapid transfer of labor that limits the exchange of information. Second, there needs to be more awareness about the impact of coal and its implications on economic development. Third, multilevel communication between governments is hindered by complex bureaucratic processes.

“To address the capacity gap in technical knowledge among national and local government, shifting from a coal-centered economy to a more sustainable and equitable green economy is imperative because future economic growth and development are moving towards sustainability and equitable development. Furthermore, it is important to involve actors outside the government in planning, such as civil society groups at both the national and local levels, to facilitate knowledge exchange about this energy transition,” Martha said. 

Stefan Bößner, Researcher at Stockholm Environment Institute, said that the government can enhance its capacity to create policies and regulations supporting low-carbon initiatives and technologies. He also mentioned that economic diversification is a key solution to making an equitable energy transition. 

“These economic diversification options are available in Indonesia. For example, coal-producing regions can develop environmental tourism and use mining sites for solar energy installations or as energy storage,” Stefan said.

Indonesia Can Push the Energy Transition Agenda during Laos’ Chairmanship of ASEAN in 2024

Jakarta, October 20, 2023 – Indonesia, as the chair of the Association of Southeast Asian Nations (ASEAN) in 2023, has achieved significant progress in climate and energy transition issues, including the launch of ASEAN Taxonomy for Sustainable Finance (ATSF) Version 2 and the ASEAN Carbon Neutrality Strategy. The Institute for Essential Services Reform (IESR) appreciates this progress. However, IESR believes that after its leadership in ASEAN, Indonesia must consistently prioritize the development of renewable energy over untested technologies like carbon capture storage (CCS) to ensure the implementation of low-carbon ideas. IESR also suggests that Indonesia should push for the energy transition agenda to be a priority during Laos’ chairmanship in 2024. 

Besides, Indonesia must reduce emissions by demonstrating a stronger commitment and implementing effective strategies. Indonesia’s Nationally Determined Contribution (NDC) target ranking, as evaluated by the Climate Action Tracker (CAT) in 2022, is still ‘Very Inadequate’. Some causes of Indonesia’s low ranking include the energy sector’s inconsistent strategies. According to the 2021-2023 RUPTL, the percentage of coal mix increases from 62% in 2025 to 64% in 2030. Furthermore, Indonesia’s government is working on a regulatory framework for carbon capture and storage technology (Carbon Capture Storage CCS/Carbon Capture Utilization Storage CCUS) to establish Indonesia as a CCS hub in Southeast Asia.

Wira Swadana, Program Manager of Green Economy IESR,  mentioned that many issues related to climate and energy diplomacy in ASEAN still do not touch the community, even though climate actions directly impact the community. The outcome of Indonesia’s chairmanship of ASEAN 2023 shows some improvement in climate and energy ambition and implementation. However, Indonesia’s focus on developing untested infrastructure, such as CCUS and the Electric Vehicles (EV) ecosystem, remains, neglecting the principles of sustainable mobility.

“Indonesia and other ASEAN countries should focus on more decisive actions and cooperation such as building a renewable energy development ecosystem, focusing on equitable and responsible practices for the development of transition/critical minerals,” he said in the public discussion “Reflection on Indonesia’s Leadership in ASEAN 2023: Towards a Regional Front-runner in Climate and Energy Transition Issues”.

Arief Rosadi, Project Coordinator of Climate Diplomacy IESR, explained that besides Indonesia, four other ASEAN Member States (AMS), such as the Philippines, Singapore, Thailand, and Vietnam, have inadequate climate ambition based on CAT. Therefore, ASEAN countries need to increase their climate ambition by significantly reducing emissions in the energy sector, and this should be reflected in the upcoming regional energy planning document (ASEAN Plan of Action for Energy Cooperation, APAEC).

“Four gaps require attention in ASEAN’s approach to energy and climate issues. These gaps are institutional, ambition, implementation, and participation gaps. First, the institutional gap in ASEAN’s approach can be seen in the fragmented regulation of energy and climate issues. Energy issues are under the ASEAN economic pillar, while climate issues are under the ASEAN socio-cultural pillar, which creates a lack of coherence. ASEAN must comprehensively map out institutional roles and responsibilities to address this issue. This will ensure that policy implementation at national and regional levels is effective and efficient,” Arief said.

Arief continued that the second gap concerns the lack of alignment with the Paris Agreement regarding climate ambitions. Third, political and technical factors still constrain the energy transition implementation gap by giving space to untested technologies such as CCS. Fourth, there is a limited participation of civil society in these efforts. Addressing these four gaps will be crucial for ASEAN to achieve its goals.

“Indonesia plays a crucial role in ASEAN due to its position as the largest economy and significant political influence. It can use its influence to promote the energy transition agenda as a key discussion during Laos’ chairmanship of ASEAN in 2024,” Arief said.

IESR encourages Indonesia to strengthen its climate diplomacy strategy by conducting a comprehensive synchronization of various multilateral forums to produce tangible results and cooperation regarding technical, clean energy investment or funding mobilization for Indonesia and ASEAN.

On the other hand, Indonesia and other ASEAN countries need to consider the development of a Carbon Economy (NEK/Carbon Pricing) to achieve their climate goals. To ensure effective NEK implementation, Indonesia needs to identify the target NEK segmentations from the existing NEK instruments, determine the lowest cost NEK instrument, establish a carbon tax, and create a roadmap for Nationally Determined Contributions (NDC) and Net Zero Emissions (NZE) that is in line with NEK.

“Domestic carbon pricing instruments can be quite helpful to achieve the NDC and NZE targets. However, these pricing instruments should be applied to mitigation actions that are relatively no cost or low cost not to overburden domestic finances. Even though a carbon tax will help reduce greenhouse gas (GHG) emissions, it is not easy to calculate the exact reduction in GHG emissions. Therefore,  the revenue generated from carbon tax should be allocated towards climate mitigation and adaptation actions so that the benefits of a carbon tax can directly impact climate action,” said Moekti Handajani Soejachmoen, Executive Director of Indonesia Research Institute for Decarbonization.

Efforts to Strengthen Indonesia-China Energy Transition Commitment in BRI Cooperation

Jakarta, October 18, 2023 – President of the Republic of Indonesia (RI) Joko Widodo (Jokowi) in his speech at the opening ceremony of the 3rd Summit of the Belt Road Forum (BRF) at the Great Hall of the People, Beijing, emphasized that the synergy of the belt and road initiative (BRI) needs to be strengthened in conjunction with the industry’s decade of development. In his speech, the President mentioned that the BRI should be based on equal and mutually beneficial partnerships, transparent funding systems, utilization of local labor, and domestic products. President Jokowi also plans to coordinate the development of a new capital city, energy transition, and downstream industries as part of the BRI cooperation.

Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), also attended the event, said that the Chinese and Indonesian governments must emphasize their renewable energy development commitments to accelerate the energy transition through the Belt and Road Cooperation framework. These commitments should be outlined in medium- and long-term strategies and programs to attract additional technological support and funding for the energy transition.

“Indonesia’s energy transition requires funding of USD 100 billion by 2030 and USD 1 trillion by 2060. This involves building 35 to 40 GW of renewable energy capacity, shutting down 9 GW of existing power plants, and constructing thousands of kilometers of transmission lines, interconnections, and energy storage facilities by 2030. Therefore, the cooperation between Indonesia and China towards energy transition should primarily focus on achieving these targets. Another crucial area of focus should be greening the mineral extraction process within Indonesia’s downstream program, which involves several Chinese businesses. A comprehensive program covering these aspects would be highly appreciated,” Fabby said.

During the third BRI, IESR was invited by the Ministry of Ecology and Environment of the People’s Republic of China to support the launch of the Green Investment and Finance Partnership (GIFB) together with the Hong Kong Government, China National Development Bank, Sino Hydro Corporation, China International Capital Corp and Children’s Investment Fund Foundation. GIFP is a collaborative initiative to establish a project planning facility that helps improve the readiness of China’s overseas green development projects.

“Indonesia can utilize this GIFP to prepare a pipeline of renewable energy projects, structure funding, and lower project risks to accelerate the energy transition in Indonesia,” Fabby explained.

 

Furthermore, Fabby stated that BRI cooperation can be a strategy for developing large-scale renewable energy pilot projects. It also provides an opportunity to mobilize other renewable energy manufacturing industries.

The governments of Indonesia and China can discuss measures to address the coal-fired power plants in Indonesia that Chinese companies are developing. These plants have a total capacity of 7.6 GW, with 3.8 GW already operational, 2.9 GW under construction, and 0.9 GW for which Power Purchase Agreements (PPAs) have been signed. Along with promoting the use of renewable energy, the two governments can collaborate to intervene in these coal-fired power plants.

“According to the IESR study, at least 9.2 gigawatts of power plants will need to be retired during this decade to support the emission reduction goals set by the Paris Agreement. To replace them with renewable energy, Indonesia and China’s future partnership must find ways to facilitate asset owners of 7.6 GW of PLTU from China with PLN and Indonesian businesses. They need to discuss ways to retire PLTU assets and replace them directly with renewable energy,” said Deon Arinaldo, Energy Transformation Program Manager, IESR.

Indonesia – China need to Formulate an Energy Transition Financing Partnership at the Belt and Road Initiative Summit

press release

Jakarta, October 17, 2023 – Marking the 10th anniversary of the Belt and Road Initiative (BRI) launch, China is hosting the third BRI International Cooperation Summit or Belt and Road Forum in Beijing on October 17-18, 2023. China’s theme is “High-quality BRI Cooperation: for Common Development and Prosperity” at this year’s summit. The Institute for Essential Services Reform (IESR), has been invited to the BRI Summit agenda and expects a breakthrough in the partnership between Indonesia and China regarding energy transition financing, including renewable energy, early termination of coal-fired power plant operations, green industry, and close collaboration in renewable energy technology to accelerate the energy transition.

The Executive Director of IESR, Fabby Tumiwa in his remarks at the High-Level Seminar Building a New Vision for the Green Silk Road in Beijing organized by the BRI International Green Development Coalition (BRIGC) and Foreign Environmental Cooperation Center (FECO), Ministry of Ecology and Environment of China, revealed that Indonesia needs considerable funding support, around USD 1 trillion, from developed countries and other countries, one of which is China, to achieve net-zero emissions by 2060.

“Financing is crucial to this transition. Accessible and affordable financing options can accelerate the global low-carbon transition, increase the adoption of green technologies, retire emission-intensive assets, and optimize energy asset portfolios,” Fabby said.

IESR believes that China can assist Indonesia in fulfilling its financial requirements to expedite the transition towards cleaner and sustainable energy. 

Direktur Eksekutif IESR, Fabby Tumiwa
Direktur Eksekutif IESR, Fabby Tumiwa

“Through this BRI, China and Indonesia can partner to finance their energy transition. This partnership needs to involve financial institutions, technology providers, and the government to unlock more domestic financing, spur innovation, and drive shared economic prosperity,” Fabby explained.

Fabby believes developing renewable energy is crucial to reducing global emissions and preventing a severe climate crisis. Not only that, massive utilization of renewable energy will also increase Indonesia’s energy security. 

Regarding technology, China is currently at the forefront of developing renewable energy, particularly solar power. In the roadmap for decarbonizing Indonesia’s energy system to achieve the Paris Agreement’s target of zero emissions by 2050, IESR found that Indonesia needs to utilize solar energy through solar PV up to 80% of the energy system in Indonesia by 2050.

“According to IESR’s Deep Decarbonization study, by 2030, renewable energy capacity needs to reach 138 GW, with solar power being the dominant source. On the other hand, China currently controls about 90% of global solar panel manufacturing capacity and half of global wind turbine manufacturing capacity. Therefore, the massive renewable energy market potential in Indonesia can be fulfilled by Chinese companies. At the same time, there is a need to build renewable energy manufacturing capacity and transfer technology to Indonesia. Bilateral cooperation between the two countries can facilitate and accelerate this process,” said Deon Arinaldo, Energy Transformation Program Manager, IESR.

Deon added that China invests in Indonesia’s energy, industrial, and infrastructure sectors. This is an opportunity for both countries to strengthen their cooperation by shifting investment plans currently centered on supporting fossil energy to the development of the renewable energy industry.

Calculating the Costs of Early Termination of Coal Power Plant and Other Decarbonization Measures

Jakarta, 11 October 2023 – Early termination of coal-fired power plant (CFPP) operation from the natural CFPP retirement year is a more cost-effective approach than extending the life of coal CFPP with the addition of carbon capture and storage (CCS) technology. It was stated by Fadhil Ahmad Qamar, Program Staff for the Clean, Affordable, and Secure Energy (CASE) project for Southeast Asia (SEA), Institute for Essential Services Reform (IESR), at Indonesia Sustainable Energy Week (ISEW) 2023.

Fadhil mentioned that adding CCS technology to power plants tends to be expensive due to the high procurement costs and initial capital expenditure (Capex) and operating expenditure (Opex). Moreover, shutting down coal power plants can result in similar reductions in emissions as implementing CCS but at a lower cost.

“Appropriate carbon pricing must be applied alongside innovative financing to attach economic value to the advantages of reducing emissions through the early termination of coal power plant operations and utilization of CCS technology. This will prevent any burden on the state budget,” said Fadhil.

On the same occasion, Raditya Wiranegara, Senior Analyst, IESR, also emphasized again the social and economic impacts of the early termination of coal power plant operations are crucial, primarily when the local communities rely heavily on these operations for their economic activities. Therefore, policymakers must adopt an approach to formulating policies for the cessation of coal power plant operations based on reliable data on the plants’ generating assets and their external costs. These external costs include social costs associated with local pollution produced by coal power plants.

“It is crucial to include the plan for early termination of coal-fired power plants in the RPJPN. This will enable us to prepare a social safety network and estimate the required budget to minimize the impact of ending coal-fired power plant operations on the communities around the plant and producing areas. Additionally, we should consider taking anticipatory measures such as preparing to shift workers from coal-fired power plants to renewable energy-based power plants. All of these steps can be included in the RPJPN,” explained Raditya.

Energy Transition is a Game Changer to Achieve Indonesia Emas 2045 Ambition

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Jakarta, October 10, 2023 – Indonesia is pursuing the Indonesia Emas 2045 ambition that targets economic growth, characterized by an increase in per capita income on par with developed countries and a decrease in emissions intensity. For economic growth to continue to increase, with the fulfillment of reliable energy and low emissions, energy towards renewable energy is one of the essential ways to realize the vision of Indonesia Emas 2045.

Ervan Maksum, Deputy for Facilities and Infrastructure, Ministry of National Development Planning/Bappenas, mentioned that energy transition is one of the game changers to achieve the Indonesia Emas 2045. According to Ervan, sustainable energy provision must be encouraged to fulfill essential services, support economic activities, and improve national growth.

“Energy transition not only requires the implementation of modern technology, but also regulatory and institutional support. Through the energy transition, we hope to fulfill Indonesia’s commitment to the world where Indonesia’s greenhouse gas emission reduction can reach 32%-43% by 2030 and the net zero emission (NZE) target by 2060 or sooner,” Ervan said at Indonesia Sustainable Energy Week (ISEW) 2023.

Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR) emphasized the importance of developing a renewable energy ecosystem and incorporating it into strategies in the National Long-Term Development Plan (RPJPN) and the National Medium-Term Development Plan (RPJMN). According to him, the energy transition should strive to achieve more ambitious emission reduction targets through accelerating renewable energy, by attracting more funding from within and outside the country and utilizing available energy transition financing, such as the Just Energy Transition Partnership (JETP).

“The priority of energy transition and emission reduction in the RPJPN and RPJMN must be a priority for presidential candidates, political parties, and legislative candidates who will contest in 2024. The end of coal-fired power plant operations in line with the Paris Agreement targets, and the equitable energy transition need to be promoted as a political agenda and work program in the remaining time of the current government and the new government later,” Fabby explained.

Yudo Dwinanda Priaadi, Director General of New, Renewable Energy and Energy Conservation, Ministry of Energy and Mineral Resources (MEMR) explained that his party had compiled a Road Map for Early Termination of Coal-Fired Power Plant Operations as mandated by Presidential Regulation 112/2022. One of them targets the early termination of coal-fired power plant operations until 2030 with a total coal-fired power plant capacity of 6.1 GW to achieve the JETP target of reaching a peak emission of 290 million tons of carbon dioxide equivalent.

“To maintain the reliability of the energy system, there are alternative scenarios such as the use of renewable energy using batteries, Java-Sumatra renewable energy interconnection, coal-fired power plant co-firing with a maximum of 10 percent,” Yudo said in his presentation on the same occasion.

The five investment focus areas of the Just Energy Transition Partnership (JETP) include early termination of coal-fired power plant operations. This was conveyed by Paul Butarbutar, Chief Deputy of the JETP Secretariat. He said that in addition to the early termination of coal-fired power plant operations, other investment focuses under the JETP scheme are transmission and distribution development, renewable energy that is controllable and constant (dispatchable), variable renewable energy and supply chains, and fair energy transition programs.  

“As we advance, to provide greater space for renewable energy, coal-fired power plants can continue to operate with a reduced portion of energy generated. We are also encouraging investment in the renewable energy industry, with two factories producing solar panels planned to be operational in the third and fourth quarters of next year. From these various investment focus areas, USD 95 billion is needed until 2030 with the biggest focus on variable renewable energy (VRE),” he explained.

INDONESIA-CHINA Energy Transition Cooperation, First Of Its Kind High-Level Dialogue

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INDONESIA-CHINA Energy Transition Cooperation, First of its kind high-level dialogue to advance renewable energy cooperation between Indonesia and China

 

26 September 2023 – The Coordinating Ministry for Maritime Affairs and Investment (CMMAI) of the Republic of Indonesia conducted a first of its kind high-level dialogue between Indonesia and China officials to deepen cooperation between the countries on energy transition. The dialogue was co-hosted by the Ministry,  Indonesian think-tank Institute for Essential Services Reform (IESR), China’s multi-stakeholder BRI International Green Development Coalition (BRIGC) and international environmental law NGO ClientEarth. The dialogue forms the basis for a report that IESR, BRIGC and ClientEarth will issue on China’s role in accelerating Indonesia’s energy transition. 

The dialogue brought together representatives from both governments’ institutions and key industry leaders to present and exchange views from both nations to find common ground for establishing cooperation, especially in the energy sector. High-level representatives from agencies and entities such as from the Coordinating Ministry of Maritime Affairs and Investment, Ministry of Investment, PLN, Ministry of Energy and Energy Resources, and Ministry of Industry from Indonesia and National Development and Reform Commission, Ministry of Commerce affiliated institute, China Development Bank, BRI International Green Development Coalition, China Renewable Energy Engineering Institute and China Renewable Energy Industries Association from China attended the event. 

This year marks the 10th anniversary of the announcement of the Belt and Road Initiative (BRI). It is also the 10th anniversary of the comprehensive strategic partnership between China and Indonesia. Over the past decade, China has increasingly prioritised cooperation on green development and has implemented a number of green, low-carbon, and sustainable clean energy projects. With the technology and cost advantages, this mutually beneficial partnership can bring leap-forward opportunities for Chinese investors, and tap into low-carbon transition in Indonesia.

Between 2006 to 2022, Chinese investments in Indonesia accounted for approximately USD 35 billion. A quarter of these total investments is channelled into the energy sector. However, 86% of this is for the fossil fuel energy industry. In line with  President Xi Jinping’s pledge at the 76th Session of the United Nations General Assembly, China announced that it will “step up support for other developing countries in developing green and low-carbon energy, and will not build new coal-fired power projects abroad.” One of the five proposals made by President Xi at the 30th Anniversary of China-ASEAN Dialogue Relations is to “jointly promote regional energy transition, discuss establishment of a China-ASEAN clean energy cooperation center, and enhance technology sharing in renewable energies” and to “intensify cooperation on green finance and investment to support regional low-carbon and sustainable development”. 

This dialogue was conducted to understand both Indonesia and China’s development, especially in the field of sustainable energy and its manufacturing industries. The government of Indonesia has made a commitment to achieve net-zero emissions by 2060. To reach this target, an estimated investment of USD 1.1 trillion translating to 768 GW of renewable energy capacity needs to be installed. Solar will be the leading technology in Indonesia’s net-zero transition due to its large potential, low cost, and modularity. Indonesia also holds large global reserves of minerals needed for solar cells and batteries. It is therefore expected that demand for solar modules and other components in Indonesia will rapidly increase in the next five years.

Fabby Tumiwa, Executive Director of IESR, said, “Sustainability has become a core part of high-quality BRI cooperation and there are huge investment opportunities between the two countries to accelerate the green and low carbon transition of Indonesia’s energy system. It is technically and economically practicable to achieve zero carbon emissions by 2050 by decarbonising Indonesia’s energy system. This will require widespread electrification of key transport sectors, vast deployment of renewable energy, phase down of fossil fuel infrastructure, use of vast quantities of storage and electrolysers to balance supply and demand, as well as energy carriers for transportation and industry, and reliable grid connectivity between Indonesian islands.”

To deepen China-Indonesia green and low carbon cooperation, the draft report “Critical role of China on accelerating Indonesia’s energy transition” was presented during the dialogue. Elizabeth Wu, Legal Consultant from ClientEarth’s Energy Systems, Asia team, moderated a roundtable on the findings of the report. The roundtable considered: 

  1. Strengthening high-level renewable energy partnerships between China and Indonesia through the development of joint long-term strategies and concluding bilateral agreements. 
  2. Exploration of innovative mechanisms and financing structures to increase green project pipelines and BRI demonstration zones and pilot projects; and 
  3. Deepening exchanges and exploring further integration with ASEAN regional strategy.

Dimitri de Boer, ClientEarth’s Regional Director of Programmes for Asia expressed his thanks for the warm support from the officials and participants and said: “The Belt and Road Initiative can play a vital role in the global energy transition, by working with partner countries like Indonesia to really scale up renewable energy deployment.”

Anticipate the Impact of Decreasing Coal Consumption to Prepare for Economic Transformation

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Jakarta, September 27, 2023 – Indonesia has established various energy transition policies that will affect domestic coal consumption. Apart from that, Indonesia still relies on 75-80 percent of its coal production for exports to several coal export destination countries such as China, India, and Vietnam, which have also set targets for reducing coal consumption to align with their net-zero emission (NZE) marks. The Institute for Essential Services Reform (IESR) views that Indonesia needs to anticipate the potential decline in Indonesian coal exports by ensuring that the energy transition somewhat takes place, achieving sustainable economic transformation, and collecting data on the impact of reduced coal consumption on various aspects of life such as financial, social and environmental.

The Executive Director of IESR, Fabby Tumiwa, in the seminar “Sunset CFPP and the Coal Industry: Reviewing Multisectoral Direction and Impact in a Just Energy Transition” organized by IESR, estimated that the demand for coal in the country will peak between 2025 and 2030. After that, the market is expected to decrease significantly. Furthermore, the data suggests that coal exports will follow a similar trend and are expected to decline after 2025.

“If domestic demand and coal exports fall, production will fall. IESR estimates that Indonesia has 5-10 years to make adjustments by carrying out economic transformation in coal-producing regions in Indonesia in line with the decline in coal production, which has an impact on reduced demand for coal-producing countries and regions,” said Fabby.

Fabby emphasized that in ensuring a just energy transition, it is necessary to consider at least three factors: assessing the connection between the local economy and coal, the readiness of existing human resources, and developing mitigation plans considering alternative economic options that can be implemented in the area.

Ilham Surya, Environmental Policy Analyst of IESR, mentioned that the energy transition would impact coal-producing areas in Indonesia, such as Muara Enim Regency, South Sumatra, and Paser Regency, East Kalimantan. Based on the IESR report entitled Just Transition in Indonesia’s Coal Producing Regions, the Paser and Muara Enim Case Study found that the Gross Regional Domestic Product (GRDP) has contributed approximately 50% and 70% to Muara Enim and Paser over the last decade. Moreover, the coal mining taxes and royalties profit-sharing funds, known as DBH, have contributed significantly to the government’s revenue (APBD), up to 20 percent in Muara Enim and an average of 27 percent in Paser.

“Our input-output modeling analysis in Kab. Muara Enim shows that coal only provides added value in compensation of around 20 percent for workers, compared to 78 percent used for the coal company. Despite the mining sector’s high contribution towards GRDP (50-70%), locals do not receive an equitable share, leading to an imbalanced distribution of benefits and no significant multiplier effect,” explained Ilham.

Ilham emphasized that coal-producing areas require economic transformation to reduce dependence on the coal-based economy. The IESR study found several leading sectors that could be developed, such as in Paser Regency, which could create Financial Services, Manufacturing, and Education. Meanwhile, Muara Enim Regency can focus on developing manufacturing capabilities and providing accommodation, food, and beverages.

To monitor the impact of the energy transition on the coal sector, IESR has developed a coal impact tracking platform, or Coal Impact Tracker, which creates three scenarios for the future of coal. The Coal Impact Tracker platform tracks the impact of coal from various sectors such as population, employment, health, and others. The three scenarios are the BAU (Business as Usual) scenario, the Best Practice Policy (BPS) scenario, and the System Dynamic scenario in collaboration with the Bandung Institute of Technology. The platform is still in progress and is expected to be released in February 2024.

“The platform, which will be called radarbatubara.transisienergi.id is a form of IESR’s contribution in educating relevant stakeholders through visualization of information on important economic, social, environmental and health indicators. Regional governments, communities at coal industry locations, and coal industry workers can use this platform to anticipate the impact’s magnitude and prepare in advance,” explained Deon Arinaldo, Program Manager of Energy Transformation, IESR.

Eight Recommendations of IETD 2023

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Jakarta, September 20, 2023 – Transforming the electricity sector with renewable energy development and accelerating the coal-fired power plants requires significant financing. The availability of energy transition financing will help the government, utility companies, and community groups to increase the number of renewable energy projects, thereby further reducing the price of renewable energy generation. The Institute for Essential Services Reform (IESR) stated that Indonesia must create innovative sustainable financing schemes to meet renewable energy investment needs.

“Ideas for financing schemes and innovations need to continue to be explored considering the unique structure of the electricity market in Indonesia. Indonesia can use the Just Energy Transition Partnership (JETP) or Energy Transition Mechanism (ETM) process to explore this scheme. In the end, a scheme that can be implemented will require input from all stakeholders, PT PLN, power plant utilities, and financial institutions,” explained Deon Arinaldo, Program Manager of Energy Transformation, IESR.

One opportunity to finance the energy transition with limited public funding, according to Iliad Lubis, South Asia Utility Transition Manager, Rocky Mountain Institute, on the third day of the Indonesia Energy Transition Dialogue (IETD) 2023 (20/9), is carbon credits. Illiad said carbon credits could increase funding from coal transition agreements, generate higher-quality carbon credits in the carbon market, and accelerate the energy transition.

“Even though there are currently various requirements for monetizing carbon credits, in the future, the opportunity to utilize carbon financing will become increasingly attractive with the carbon market predicted to grow significantly,” said Illiad.

Meanwhile, from the business community, financing needs such as concessional loans and financial institutions’ credit support will help businesses switch to the renewable energy sector.

“We need a clear energy transition roadmap for the initial stage to know the financing needed. Second, due to the limited availability of public funding, we need financing support from multilateral and philanthropists to secure concessional financing that can be combined with commercial banks. It will provide the appropriate right credit risk for the project, ensuring investors receive adequate returns,” said Ekha Yudha Pratama, Head and Advisory Services, PT. SMI.

To achieve significant emission reduction targets, the Indonesia Clean Energy Forum (ICEF) and IESR in IETD 2023 have presented eight recommendations to accelerate the energy transformation in the Indonesian electricity sector. These recommendations aim to expedite the process and achieve quick results.

First of all, proposing an energy transition linked to social and economic development. IESR and ICEF emphasized the need for clear targets across ministries.

Second, the availability of strong support for renewable energy development in the next five years. The commitment of the G20 leaders, including Indonesia, to triple their renewable energy capacity should be taken seriously. This can be achieved by providing incentives for the renewable energy market and industry.

Third, the increase of transparency and accessibility of renewable energy data through joint collaboration. Comprehensive and accurate data on renewable energy can benefit all stakeholders by reducing uncertainty in project development for Independent Power Producers (IPPs), financial institutions, and supporting system operators. This can lead to more efficient planning in utilizing renewable energy and its resources.

Fourth, establish a research center for renewable energy, focusing on solar and wind, to operate a flexible and reliable system amidst supply variations and demand uncertainty.

Fifth, it is essential to encourage and support local governments, businesses, and communities in identifying renewable energy potential and developing local energy transition plans. The energy transition process should involve all parties, and the first step towards achieving this goal is to identify different groups of actors and hold dialogues with them.

 

Sixth, reviewing and merging policies and regulations to facilitate renewable energy projects to find competitive tariffs. These policies should aim for more ambitious renewable energy targets, transparent and regular scheduling of renewable energy project procurement processes, and mitigation of various risks that may arise from renewable energy development.

Seventh, exploring and testing financing structures, including coal-to-renewable energy projects with private developers and financial institutions, and utilizing them through a just energy transition cooperation scheme (Just Energy Transition Partnership/JETP) and the Energy Transition Mechanism (ETM).

Eighth, prioritizing the energy transition as a central issue in the political manifestos of national and provincial leadership candidates ahead of the election is of utmost importance. The energy transition will impact society in various ways, such as energy affordability and security in the short term and the long-term effects of climate change on people’s livelihoods. Therefore, Indonesia needs strong leadership to ensure a smooth transition towards sustainable energy sources. The Institute for Essential Technology and Development (IETD) strongly encourages the energy transition to be one of the main agendas discussed during the campaign period, as it will significantly impact the country’s future.

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