Eight Recommendations of IETD 2023

press release

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.

Ensuring the Effectiveness of Renewable Energy Project Procurement

Jakarta, September 20, 2023 – Standardizing Power Purchase Agreements (PPAs) has become one of the ways to expedite negotiations for renewable energy projects and avoid potential legal violations. This was one of the topics discussed at the 2023 Indonesia Energy Transition Dialogue (IETD).

Kirana Sastrawijaya, Senior Partner of UMBRA, highlighted considerations for standardization, including referencing bankable PPAs that have proven successful.

“In addition to referring to successful PPAs, other factors to consider for PPA standardization include providing flexibility clauses to avoid perceived ‘legal violations,’ accommodating advancements in new technologies, conducting financial studies to justify risk allocation, and comparing with other countries,” Kirana explained.

Raditya Wiranegara, Senior Analyst of Institute for Essential Services Reform (IESR) mentioned that,  the challenge in PPA standardization is how to adapt it to market dynamics, possibly through periodic updates of PPA standards, for instance.

“This way, investors are prepared and maintain certainty. Moreover, as mentioned by Ms. Kirana, this standardization also needs to consider the power generation technology. In other words, PPA standards for fossil fuel-based power generation should differ from those for renewable energy-based power generation,” said Raditya Wiranegara, Senior Analyst of IESR. 

From the industry perspective, Anthony Utomo, Executive Committee Member of Kadin Net Zero Hub, emphasized the importance of renewable energy project availability in PPA discussions.

“Regarding PPAs involving developers, firstly, existing renewable energy projects must be in place. Secondly, standardizing PPAs would greatly help to speed up negotiations and ensure transparency. Thirdly, concerning carbon rights, especially for ongoing PPAs, it needs to be determined whether they will belong to PLN (the state-owned electricity company) or the developer,” he expressed.

Arjun Dutt, Senior Programme Lead at CEEW Centre for Energy Finance, shared India’s experience procuring renewable energy projects through auctions. He emphasized that creating favorable policy packages for procuring renewable energy projects involves ensuring demand certainty, mitigating land and evacuation risks, network integration, and off-taker risk mitigation.

“To ensure demand certainty, measures like Renewable Purchase Obligation (RPO) standards for renewable energy portfolio determination can be implemented. Additionally, expanding consumer access to promote renewable energy adoption and developing new sources of renewable energy demand, such as electric vehicles and green hydrogen, can be instrumental,” Arjun elaborated.

Zulfikar Manggau, Senior Specialist in Project Management and Power Generation at PT PLN (Persero), acknowledged their desire for more efficient and competitive renewable energy project procurement and PPAs.

“PLN is striving to increase sales through a continuously growing industry, thus expanding demand and adding new renewable energy generators in the future,” Zulfikar stated. He mentioned that PLN is currently finalizing the Ministerial Regulation on Power Purchase Agreements (PJBL).

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

IESR and Ford Foundation Call for Centering Justice on Energy Transition Partnership

press release

Jakarta, September 19, 2023 – The Institute for Essential Services Reform (IESR) and Ford Foundation in Indonesia are calling on the government of Indonesia to emphasize the significance of centering justice in energy transition in Indonesia, especially through the Just Energy Transition Partnership or JETP. 

The JETP is an innovative financing mechanism intended to accelerate country-led energy transition from fossil fuels to renewable energy sources. A JETP essentially links the financial package of concessional finance and grants from donor countries with energy transition initiatives in the global South.

In a report digitally launched today by IESR and Ford Foundation, it is mentioned that the pledged JETP funding is not sufficient to cover the cost of the whole transition process. Instead, it serves as an initial source of funding to catalyze and mobilize other funding sources. 

The report highlights the results and recommendations from the JETP Convening, Exchange and Learning event for South Africa, Indonesia, and Vietnam that was held on 25-28 June 2023 in Jakarta. The event was collaboratively hosted by IESR, Ford Foundation, and African Climate Foundation (ACF).

“Since the initial JETP funding is time-limited, it is crucial to set reasonable and achievable milestones and projects within the agreed period and develop a strategy to leverage other funding sources to cover the costs of meeting the 2030’s target,” said Fabby Tumiwa, Executive Director for IESR. 

Fabby also added that financing instruments such as concessional loans, commercial loans, equity, guarantee funds, grants, and any other instrument must be assessed carefully to hinder the ‘debt trap’ in the future. 

“Governments must continue to advocate the greater demand of grants and concessional finance  in order to achieve the agreed target without adding burden to the recipient countries,“ says Fabby.

This was confirmed by Edo Mahendra, Head of JETP Indonesia Secretariat when he served  as speaker in a panel discussion on ‘Safeguarding the “Just” in Just Energy Transition Partnerships (JETP) and Other Emerging Climate Finance Models’ on September 18, 2023, during the Climate Week event in New York, United States.  

“The highest component of the funding will still derive from commercial loans and investments that carry non-concessionary interest rates. Consequently, it is essential to build partnerships and collaborations between governments, philanthropic organizations, and the private sector, “ said Edo.  

Philanthropies have a critical role in supporting the just principle both through the government and  directly to the impacted communities. Their capital can act faster than the government and bridge the gap between the government and the community. Philanthropy could also support human resource development by giving technical assistance, capacity building, training, and knowledge exchange.

The just principle should also be applied to mitigate the impacts of energy transition on the communities. It is essential to support alternative socio-economic initiatives in these areas to adequately wrestle with the idea of justice for who? This includes providing skill improvements to transition from fossil fuels to renewable energy sources, educating and assisting local governments to adapt their economic development strategy and plan for the long-term, as well as creating funding dedicated to address the impacts of transitioning away from coal.

The transition from fossil fuels to low-carbon resources may affect  not only the economy at the local level but also at the regional or even national level. People who live in regions dependent on fossil fuel will have to adapt to the new environment, as well as adjust their skills and knowledge that might be difficult to do in a short period of time.

Alexander Irwan, Regional Director of the Ford Foundation in Indonesia, said that the JETP implementation should meet the basic principles of the ‘justice’ element.

“Social justice elements should be included in the discussion and transition plans. The concept of fairness has to be at the center, ensuring the just transition is inclusive for all groups or communities, particularly to workers, children, women and local communities who are very reliant on fossil fuel supply chains,” said Alex.

Integration of Larger Renewable Energy Capacities Requires Energy System Reform

press release

Jakarta, September 19, 2023 – The Indonesia Clean Energy Forum (ICEF) and the Institute for Essential Services Reform (IESR) are urging Indonesia to reform its electricity system to accommodate the integration of larger capacities of renewable energy, particularly solar and wind, also known as variable renewable energy (VRE). This would involve flexible operation of the electricity system, strengthening VRE forecasting capabilities, and revitalizing the network infrastructure.

There are at least three key considerations. Firstly, incentives for players involved in operating a flexible electricity system. Secondly, transparency in the procurement processes for renewable energy generation and network infrastructure. Thirdly, regulatory reforms to accommodate flexible electricity system operation and encourage greater adoption of renewable energy.

The opportunity to reform Indonesia’s electricity system with a larger share of renewable energy capacity requires substantial investment support. Hasyim Daeng Barang, Director of Mineral and Coal Downstream at the Ministry of Investment and BKPM RI, stated that investor interest in renewable energy development in Indonesia is growing. The ministry is committed to facilitating investor needs, especially regarding the initiation of new renewable energy projects, by coordinating and connecting investors with relevant stakeholders.

“The Ministry of Investment/BKPM is also working to provide comprehensive information to investors through the preparation of Investment Projects Ready to Offer, including pre-feasibility study documents for strategic projects in various regions,” explained Hasyim during the second day of the Indonesia Energy Transition Dialogue 2023 on Tuesday (9/19/23).

Furthermore, BKPM emphasizes that alongside promoting investment in potential/priority sectors, sustainability remains the responsibility of the entire economy.

In his presentation, Michael Waldron, Senior Advisor Program Manager at the International Energy Agency (IEA), introduced six stages of VRE integration into the electricity system. According to Michael, Indonesia, with its current VRE mix still below 1%, is in the first stage of VRE integration. This means that VRE operation has a very minor impact on the electricity system. However, future planning should significantly consider a higher VRE mix as the cost of VRE generation has been declining over the past decade.

Regarding the electricity system’s prices and investment costs in Indonesia, Michael believes they are still above international market rates. This makes renewable energy development economically less attractive in Indonesia. He encourages Indonesia to reduce costs through contract and operational reforms within the electricity system to attract more investments. Inter-island electricity network integration connects renewable energy sources with demand centers. He added that contract and operational reforms should also target conventional power plants, such as coal-fired, which can play a role in flexible electricity system operation.

He believes that progress in interconnection within ASEAN and flexible energy system operation in Indonesia will accelerate emissions reduction and cost savings.

“Indonesia’s energy system can prepare for a larger share of renewable energy through new contracts, providing incentives for investments in the electricity network, developing system flexibility strategies, and adapting network planning and operation to maximize the share of variable renewable energy and establish a vision for a smart grid,” Waldron expressed.

Munawwar Furqan, General Manager of PLN Unit Induk Pusat Pengatur Beban Jawa, Madura, and Bali (PLN UIP2B Jamali), mentioned that renewable energy generation with variable energy variations is currently located in Sulawesi, consisting of 5 renewable energy generators with a total capacity of 170 MW, including Likupang SPP (15 MW), Sumulata SPP (2 MW), Sidrap WPP (77 MW), and Tolo (Jeneponto) (66 MW). However, Munawwar pointed out that they have identified several challenges in operating an energy system accommodating variable renewable energy, including the intermittent nature of renewable energy affecting the system, changing reliability, and frequency.

“Several strategies are being implemented to control the intermittency of variable renewable energy, such as revising the grid code for network users, forecasting and load curtailment for system stability, and installing battery energy storage systems. Forecasting capacity is essential for operating generators with variable renewable energy to manage variability and anticipate it,” he explained.

Deon Arinaldo, Energy Transformation Program Manager at IESR, suggested that relevant parties should inventory weather forecast data to make more accurate forecasting and more efficient renewable energy generation investment planning.

 

“Collaboration with other parties like BMKG for weather forecasts is important and potential. Actual weather conditions in each location must be considered. The availability of weather forecast data on solar radiation for the public is crucial as it will benefit many parties. Accurate data forms the basis for system flexibility, allowing us to assess battery needs, variable renewable energy variations, and more,” Deon stated.

Highlighting energy storage to support renewable energy integration, Indonesia, through the Indonesia Battery Corporation (IBC), is increasingly concerned about Battery Energy Storage System (BESS) plans or technology for storing electrical energy using specialized batteries. BESS will store excess energy from renewable energy systems to supply loads when renewable energy sources cannot generate power.

“Several factors contribute to the success of BESS projects, including technology, competitiveness, price, innovation, and market growth. Battery prices continue to decline and are expected to fall below $200/kWh, so we are optimistic that BESS development is the right moment for Indonesia’s future,” said Bayu Yudhi Hermawan, VP Business Development at Indonesia Battery Corporation (IBC).

IBC is building an integrated industry from upstream to downstream to produce battery cells for electric vehicles, including cars and motorcycles. Indonesia has significant potential as the world’s largest nickel producer, the primary raw material for electric vehicle batteries.

“Therefore, IBC is currently working on nickel-based projects, primarily for the downstream ecosystem of electric vehicles and batteries. Concerning capability investments, we believe we can compete with other countries. Our resources are number one globally regarding reserves and nickel production,” Bayu stated.

Indonesia’s Commitment to Energy Transition is Impacting Financing Opportunities

press release

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

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

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

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

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

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

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

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

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

 

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

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

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

press release

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

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

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

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

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

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

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

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

IETD 2023: Empowering the Acceleration of the Electricity Sector Transformation in Indonesia

Jakarta, September 13, 2023 – The Indonesia Clean Energy Forum (ICEF) and the Institute for Essential Services Reform (IESR), in collaboration with the Ministry of Energy and Mineral Resources (ESDM), are once again organizing the Indonesia Energy Transition Dialogue (IETD) 2023 from September 18th to 20th, 2023, with the theme “Empowering the Acceleration of the Transformation of the Electricity Sector in Indonesia.” Both ICEF and IESR agree that the energy transition in Indonesia is inevitable, considering Indonesia’s commitment to contribute globally to emissions reduction through the ratification of the Paris Agreement under Law No. 16/2016.

Fabby Tumiwa, Executive Director of ICEF and IESR, stated during the Media Briefing on “Preparing for Indonesia’s Energy Transition and Anticipating Its Implications, and the Launch of the Indonesia Energy Transition Dialogue (IETD) 2023″, that the theme of IETD 2023 focuses on the electricity sector, which is a strategic sector for transitioning towards renewable energy. He mentioned that the energy transition in the electricity sector is currently supported by technology availability, international funding potential such as the Just Energy Transition Partnership (JETP), and supportive policy frameworks such as Presidential Regulation No. 112/2022.

He emphasized that the energy transition is a complex process with significant implications, requiring multi-stakeholder dialogue to anticipate and mitigate its impact in Indonesia, one of which is through the organization of IETD 2023.

“The Indonesian government is currently reviewing comprehensive planning documents and investment policies from the Just Energy Transition Partnership (JETP), which include several agreed-upon targets, such as a peak electricity emission of 290 million tons of CO2 and a 34% renewable energy mix by 2030, as well as achieving net-zero carbon emissions (NZE) in the electricity sector by 2050. Therefore, we need to ensure that all these plans and targets are achieved through a fair process with the support of all stakeholders,” explained Fabby Tumiwa.

Gigih Udi Atmo, Director of Conservation at the Directorate General of Renewable Energy and Energy Conversion (EBTKE), Ministry of Energy and Mineral Resources (ESDM), highlighted one of the efforts in energy transition, which is the development of renewable energy. According to him, the integration of renewable energy requires an expanded grid network to accommodate renewable energy sources.

“Connectivity through grid expansion that links load centers with renewable energy sources will be crucial in the future. The most feasible step in the near term is the interconnection between Sumatra and Java to enable the evacuation of solar, hydro, and geothermal-based renewable energy from Sumatra to supply the demand in Java. This way, power exchange and energy balance between the two largest grids in Indonesia can be optimized,” stated Gigih.

Gigih added that to achieve the net-zero carbon emissions (NZE) target, international support can accelerate the closure of coal-fired power plants. The type of international support, such as grant financing or soft loans, will determine the process of early cessation of coal-fired power plant operations by utilizing affordable financing to accelerate the investment recovery, allowing coal-fired power plant assets to cease operations earlier without violating existing cooperation agreements.

Deon Arinaldo, Energy Transformation Program Manager at IESR, mentioned that the government’s energy transition plans and strategies need to be supported and critiqued to expedite the process and make it smoother with better strategies and programs. Moreover, decarbonizing the electricity sector will serve as a driver for decarbonization in other sectors.

“In the energy transition process, it is also crucial to provide space for all actors to contribute meaningfully to the development of renewable energy. This means not only large industries but also local governments, small and medium-sized businesses, and communities need to play a role. In this regard, the strategy for ensuring access to renewable energy also deserves attention and should be part of a just transition,” Deon explained.

During the Media Discussion Forum on Indonesia’s Energy Transition, IESR and ICEF also announced the launch of the 6th Indonesia Energy Transition Dialogue (IETD), which will be held from September 18th to 20th. This event serves as a vital platform for discussing, sharing ideas, and generating real solutions to support the energy transition in Indonesia. IETD 2023 will bring together stakeholders, including the government, private sector, academia, and the general public, to discuss the challenges and opportunities in transitioning to cleaner and more sustainable energy.

Policy Reform and Concessional Finance Needed to Achieve JETP Targets

 

Jakarta, September 6, 2023 – The draft Comprehensive Investment and Policy Plan (CIPP) document of the Just Energy Transition Partnership (JETP) is under review by the Indonesian government. This review is seen as an effort to ensure that the achievement of JETP targets is in line with reality. This was conveyed by Rachmat Kaimuddin, Deputy for Infrastructure and Transportation Coordination, Coordinating Ministry for Maritime and Investment Affairs, at the Bloomberg CEO Forum at ASEAN (6/9).

“The JETP Secretariat has submitted the JETP roadmap, which is the result of work from four working groups which are technical, financing, policy, and just transition. Currently, it is still under review to assess the match between the required energy types and technologies and the emissions reduction goals in Indonesia, and to ensure that the JETP roadmap can be implemented in reality,” Rahmat explained.

On the same occasion, Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), mentioned that the limited availability of data posed one of the obstacles in preparing the CIPP document, particularly concerning captive coal-fired power plants (CFPP) or plants operated by specific companies to supply their own electricity.

“In the last two years, Indonesia has implemented coal downstreaming policies that have led to an increase in the number of industries building mineral processing facilities or smelters. This, in turn, has resulted in an increase in the number of captive coal power plants used to supply energy to these smelters. Meanwhile, when the JETP was agreed upon in 2022, the data used still did not include the captive CFPP,” he said.

Furthermore, Fabby mentioned that to create more opportunities for renewable energy developers, the government needs to evaluate the Domestic Market Obligation (DMO) policy on coal, which artificially lowers coal prices. He believes that this policy reform also needs to be discussed at the legislative level. Additionally, he highlighted that electricity tariffs from coal-fired power plants are relatively lower than those for renewable energy. This means that Indonesia’s utility company, PLN, has limited incentives to promote the utilization of renewable energy. In fact, he added, an equal electricity tariff between fossil fuels and renewable energy would provide utility companies with sufficient capital to invest in renewable energy.

Fabby stated that Indonesia requires substantial investments to expedite the development of renewable energy.

“To attain the JETP target of achieving a 34% renewable energy mix by 2030, Indonesia needs to construct approximately 40 GW of renewable energy capacity. This presents challenges in terms of the supply chain and the procurement process. Therefore, Indonesia truly needs proper financing instruments. Within the JETP framework, concessional financing with low-interest rates is a necessity,” he concluded.

Mitigate the Impact of the Energy Transition in Coal-Producing Regions with Economic Transformation

press release

Jakarta, September 1, 2023 – The Institute for Essential Services Reform (IESR), a leading energy and environmental think tank based in Jakarta, Indonesia, released a report on the potential impact of the energy transition on coal-producing regions in Indonesia. This report, entitled Just Transition in Indonesia’s Coal Producing Regions, Case Study Paser and Muara Enim, finds that economic diversification and transformation must be immediately planned to anticipate the social and economic impacts of the decline in the coal industry along with plans to end coal-fired power plants (CFPP) operations and increased commitments to energy transition and emissions mitigation, from countries that have become coal export destinations so far.

IESR recommends that the central and regional governments realize the potential impact of the energy transition on the economy and development of coal-producing areas and start planning for economic transformation as soon as possible in these coal-producing areas.

A recent study conducted in Paser Regency, East Kalimantan Province, and Muara Enim Regency, South Sumatra Province, has recommended the utilization of coal’s revenue sharing (dana bagi hasil, DBH) CFPP and corporate social responsibility (CSR) programs to plan and support economic transformation. The study also highlighted the importance of expanding public access and participation to ensure a just transition. In 2023, Coals’ revenue sharing fund (DBH) is projected to account for 20% of the total revenue budget of the Muara Enim government. Similarly, between 2013-2020, it accounted for 27% of the total revenue of the Paser government.

“The importance of prioritizing economic activities that benefit local communities and have a greater multiplier effect towards post-coal mining economic transformation. It is equally important to factor in the potential impact of a decrease in coal production on the informal economy sector, which has not yet been included in macroeconomic analysis,” mentioned Executive Director of IESR, Fabby Tumiwa.

According to a recent study, the coal mining industry has contributed 50% to 70% of GRDP in Muara Enim and Paser over the last ten years. However, despite this significant economic contribution, coal industry workers earn little. Only around 20% of the added value is allocated to workers, while as much as 78% becomes company surplus. This means that the enormous economic value generated by the coal mining industry contributes little to the income of its workers.

“The coal mining industry has also caused significant social and environmental impacts on the surrounding communities. These impacts include degradation of air and water quality, changes in people’s livelihoods, economic inequality, and increased consumerism and rent-seeking,” stated Julius Christian, the leading author of this study and also the Research Manager of IESR.

According to him,  different parties in the region are responding to the trend of energy transition in various ways based on their interests, knowledge, and access to information. Coal companies are more aware of the energy transition risks posed to their businesses than governments and ordinary citizens.

“Both companies and local governments are starting to carry out various economic transformation initiatives. However, local people are more skeptical about the potential decline in coal because they have seen increased production recently,” said Martha Jesica, Social and Economic Analyst at IESR.

However, according to her, changes in perspective are occurring in both society and coal industry companies. The local community has called for economic diversification, and coal companies have started branching into other fields. She hopes that various stakeholders and the government can work towards raising awareness and implementing structural changes to drive economic transformation efforts.

The report “Just Transition in Indonesia’s Coal Producing Regions: Case Studies Paser and Muara Enim” by IESR suggests that to achieve sustainable development in coal-producing regions, firstly, there needs to be a comprehensive plan for economic diversification and transformation that involves stakeholders and community participation. Secondly, utilizing DBH funds and CSR programs to finance the financial transformation process, which can attract more investment into sustainable economic sectors. Thirdly expanding access to education and training to prepare a competitive workforce in the sustainable industry and increasing financial literacy for the community. Fourthly, expanding the participation of all elements of society, especially vulnerable groups, in regional planning and development.

“All matters related to the transition in coal-producing areas should be included in the respective central and provincial governments’ Medium Term Development Plan (RPJM). This will provide clear support and direction for local governments,” said Ilham Surya, Environmental Policy Analyst IESR.