Overseeing the Indonesia Government’s Strategy in Energy Transition in 2022

press release

Jakarta, 18 January 2022 – Entering 2022, the Ministry of Energy and Mineral Resources shared Indonesia’s energy transition strategy in the “Press Conference on 2021 Performance Achievements and the 2022 Work Plan for Energy and Mineral Resources and the EBTKE Subsector”. The Institute for Essential Services Reform (IESR) views that even though the direction of the energy transition is becoming more evident, it is crucial to speed up the energy transition to reduce GHG emissions and align with Paris Agreement pathways to limit the earth temperature well below 1.5 degree Celsius. Moreover, some overlapping strategies need to develop in a more focused roadmap, such as Dimethyl Ether (DME) utilization, gas grids, and induction cooktops to meet household energy needs.

In the 2021-2030 Energy Transition Roadmap, the government focuses on new and renewable energy power plants’ construction which reach 20.9 GW, while the solar rooftop is targeted at 3.6 GW. The solar rooftop construction will be massive in 2031-2050 with a total amount of 279.2 GW.

Based on the IESR study entitled “Deep Decarbonization of Indonesia’s Energy System”, the construction of renewable energy power plants should be accelerated in the 2021-2030 period to achieve the renewable energy mix target, and reach peak emissions in the electricity sector before 2030. In addition, there is a need for at least a 14-fold increase in the total renewable energy capacity in 2020, with around 117 GW coming from solar rooftops and 23 GW from other renewable energy plants.

The government’s report on the achievement of new and renewable energy power generation capacity until 2021 reaches 11,152 MW. Fabby Tumiwa, Executive Director of IESR, feels that the target for adding renewable energy generating capacity has always been below the government’s target since 2019 and is not on track with the renewable energy mix target of 24 GW by 2025.

“The reasons for the low obtainment of renewable energy plants are structural. For instance, the Minister of Energy and Mineral Resources No. 50/2017 makes renewable energy projects unbankable, PLN does not carry out the regular and on schedule basis of the procurement of renewable energy plants, the lack of competitive domestic financing support, and the delay in project realization due to the pandemic,” said Fabby Tumiwa, Executive Director IESR.

Highlighting the investment target for the new and renewable energy sector in 2022, the government has set an investment entry of USD 3.9 billion, up 2.6 times from the previous investment achievement of USD 1.51 billion in 2021. Deon Arinaldo, Program Manager of Energy Transformation, IESR, thought that although the target has almost tripled, it is a small amount to fund efforts to decarbonize Indonesia’s energy system.

“Based on the study of the Indonesia Energy Transition Outlook 2022, investment in renewable energy for the electricity sector alone requires  11.1 billion USD per year for the next decade. Several renewable energy policies and regulations that should have been released last year, need to be finalized immediately to increase investor confidence and the renewable energy investment climate. Renewable energy investments outside of PLN’s RUPTL (National Electricity Supply Business Plan), such as solar rooftop, also need to be fully supported to attract investment from the beginning of this year, “added Deon.

Furthermore, the government’s strategy to maintain fossil energy subsidies will slow down the pace of energy transition in Indonesia. As well as increasing the burden on the state, it is also an easy trap for Indonesia to get into the fossil energy crisis.

“Reflecting on the coal energy crisis earlier this year, it can be seen that the use of fossil energy such as coal and subsidized support (in the form of DMO) also does not guarantee the country’s energy security, but instead creates distortions in the price of electricity generation. The price of electricity generation from coal-fired power plants looks cheaper than it should be and does not create a level playing field for renewable energy,” said Deon.

The government’s strategy to accelerate the national energy transition is constrained by the fact that the Minister of Finance has not yet approved the Draft Presidential Decree for the Purchase of Renewable Energy. Deon believes that there needs to be strategic coordination between ministries to support the acceleration of achieving the carbon-neutral target so that regulatory support that is considered critical should be issued immediately and run effectively.

“Apart from issuing regulations, effective implementation is important, but this is the opposite. For example, Ministerial Regulation 26/2021 regarding rooftop solar power plants, which should be able to support the achievement of the 900 MW rooftop solar power plant target in 2022 according to the MEMR target, however, was delayed earlier this year,” said Deon.

Besides the regulatory perspective, IESR sees the synergy of inter-ministerial carbon neutral targets as important. Reviewing the targets and realization of electric vehicles in 2022, the Indonesia Energy Transition Outlook 2022 found two different targets in the two ministries. The Ministry of Industry plans to produce 750,000 units of LCEV (low carbon emission vehicle), consisting of electric cars and 2.45 million units of electric motorcycles by 2030. Meanwhile, the Ministry of Energy and Mineral Resources (ESDM) targets 2 million cars, electric vehicles and 13 million electric motorcycles by 2030. Different targets and roadmaps in the development of electric vehicles will make it difficult to see a coherent and consistent effort by the government to increase the penetration of electric vehicles in the country.

“An integrated and well-designed national electric vehicle roadmap must be created. Alignment between the electric vehicle (EV) roadmap of the Ministry of Industry and the Ministry of Energy and Mineral Resources, for example, will increase the confidence of EV players. It also will maximize economic benefits for Indonesia in the form of an industrial value chain formed from the transition process from internal combustion engine (ICE) vehicles to EVs,” closed Deon.

In 2022, Indonesia Needs to Strive in Pursuing Energy Transition Ecosystem Readiness

press release

Jakarta, 21 December 2021 –  The unfavorable climate for renewable energy investment in Indonesia and inconsistent political commitments can hinder the achievement of the 23% renewable energy mix target by 2025. Until Q3 2021, the renewable energy mix is ​​still at 11.2%. The Institute for Essential Services Reform (IESR) views that the Indonesian government needs to thoughtfully prepare an energy transition ecosystem to accelerate the decarbonization of the energy system in Indonesia to achieve net-zero by 2050.

In 2021, renewable energy development in Indonesia is still running slowly and not on track to the target of 23% of the renewable energy mix in 2025. IESR, in its annual report Indonesia Energy Transition Outlook 2022, found that until September 2021, the total installed capacity of renewable energy only reached 10,827 MW or increased by about 400 MW. Meanwhile, to achieve the KEN and RUEN targets in 2025, renewable energy generating capacity is estimated to reach a minimum of 24,000 MW or around 2-3 GW of additional renewable energy capacity every year. However, to comply with the Paris Agreement, it takes at least 11-13 GW of renewable energy generation to decarbonize the energy system in Indonesia, which includes the power generation, transportation, and industrial sectors by 2050. Besides, solar energy adoption is also relatively insignificant, only increasing by 18 MW, dominated by rooftop solar power plants. It is so slow compared to the need for 10-11 GW of rooftop PV mini-grid each year to encourage zero emissions by 2045 in the electricity sector. IESR views PV mini-grid as an opportunity to maximize the contribution of the community and business entities to invest in the decarbonization process.

Endeavors to decarbonize the transportation system by adopting electric vehicles and biofuels are still far from the target set. Sales of electric vehicles are still below 1% of total vehicle sales. Only about 2,000 electric cars and 5,000 electric motorcycles are registered, while the total number of electric cars and motorcycles needs to reach 1.7 million and 100 million by 2030. Biofuels are still limited to biodiesel development which is still uneconomical and constrained by sustainability issues. The implementation of B40, previously B30, which is planned for 2022 is also considered as a constraint due to the current price of palm oil.

“The government should focus on strengthening its political commitment to decarbonization by revising the National Energy Policy (KEN) and the General National Energy Plan (RUEN) to align with the goals of Net-Zero Emissions (NZE). The government needs to improve the quality of regulations to increase investment attractiveness, reduce licensing barriers, and accelerate the development and utilization of renewable energy outside PLN by maximizing the contribution of the community and business entities to invest in renewable energy generation and energy efficiency. Thus, 23% of the renewable energy mix in 2025 can be achieved,” said IESR Executive Director, Fabby Tumiwa.

The decarbonization of the energy system in Indonesia requires the readiness of a supportive ecosystem. The Indonesia Energy Transition Outlook 2022 report assesses that its enabling ecosystem is still low. Using the Energy Transition Readiness Framework, IESR evaluates four indicators, i.e. policy and regulatory support, technology and economy, climate and investment realization, and social.

Ineffective energy policy and regulatory support in boosting the development of renewable energy in Indonesia are reflecting the government’s insufficient political commitment to renewable energy. Although in 2021, the government is committed to increasing the share of the renewable energy mix to 51% in the Electricity Supply Business Plan (RUPTL) and reviewing early retirement at 9.2 GW of coal-fired power plants, these efforts are not ambitious enough to achieve carbon neutrality by mid-century, unaligned with Paris Agreement. Furthermore, this commitment needs to be translated into a clear implementation plan in 2022.

“Indeed, in 2021, there have been several policy documents issued such as LTS and RUPTL, but we evaluate these targets are still far from sufficient to limit the increase in the earth’s temperature to below 1.5 degree Celsius. It is important to improve several regulations such as renewable energy tariffs, scheduled and transparent auction and procurement mechanism from PLN, so that these targets can be achieved,” said Julius Christian, Clean Fuel Researcher & Specialist and Lead Author IETO 2022 report.

Energy policies in Indonesia also have not provided a sense of security for developers to invest in renewable energy. MEMR Regulation No 10/2017 leaves the risk to the developer if there is a change in government policy. ESDM Regulation No. 50/2017 drives renewable energy projects as difficult unbankable projects. More than that, the delay in issuing the Presidential Regulation on new and renewable energy tariffs has caused uncertainty and hampered investment in renewable energy projects in Indonesia.

Unfavorable policies had an insignificant impact on renewable energy investment, only reaching USD 1.17 billion compared to 2020 of USD 1.12 billion. This amount is very small compared to the investment needs for decarbonization of energy systems according to the IESR study, as much as USD 20-25 billion per year by 2030.

From a technical and economic point of view, globally, both renewable energy technology and costs have become increasingly competitive in recent years. The results of the last solar PV auction was electricity cost of USD 0.04/kWh, lower than the average coal power plant, which costs USD 0.05-0.07/kWh. The requirements for subsidies and government regulatory support for coal-fired power plants are allegedly making the cost of coal-fired power plants low. If using the actual market price, with a coal price of USD 150/ton (September 2021), the cost of generating electricity from a coal-fired power plant (CFPP) could reach USD 0.09-0.11/kWh.

Although renewable energy projects have become more economical, renewable energy investment is still considered less attractive.

“The main thing that needs to be highlighted is the unfamiliarity of local banks and investors to the risk of renewable energy projects which are lower than fossil energy projects, considering the price of technology in a declining global trend. The length of the permit process and the complexity of the procurement mechanism are also seen as two things that often make the financing costs of renewable energy projects higher than planned. These drive developers difficulties to determine the exact and definite number of investment needs to be submitted to funding institutions, “said Handriyanti D. Puspitarini, Renewable Energy Senior Researcher, IESR who is also involved in writing IETO 2022.

Meanwhile, from a social perspective, based on the results of a survey conducted by IESR on 1000 respondents, there is an increase in awareness and support for the energy transition to clean energy. A total of 56% of respondents (strongly) agree that Indonesia should stop using coal for power generation. The three highest renewable energy sources that receive the highest public support are solar (68%), water (60%), and wind (39%).

IESR in the IETO 2022 report encourages the Indonesian government to capture positive sentiments from the Indonesian people towards renewable energy through collaboration with the private sector, industry, and provincial governments in Indonesia. Several provinces in Indonesia, such as DKI Jakarta, Bali, Central Java, can serve as references and lessons for other provinces in developing a larger portion of renewable energy.

The focus in 2022 can be on policies and regulations that increase the transparency of the renewable energy auction process, identify clear risk allocation through standardization of Project-Based Learning (PJBL), and improve the bankability of renewable energy projects with derisking instruments. A more efficient and punctual licensing process and lower interest rates for project loans are also important factors for reducing initial funding costs and improving the investment climate. 

Indonesia Energy Transition Outlook 2022 report can be downloaded at: s.id/IESR_IETO2022

Clean Energy Acceleration to achieve NZE in the Energy Sector 2050

press release

Jakarta, 20 December 2021 – The Institute for Essential Services Reform (IESR) launched the Indonesia Energy Transition Outlook (IETO) 2022 report. IETO 2022 is an annual report that reviews the development of the energy transition in Indonesia and outlooks the challenges and opportunities of the energy sector in reducing greenhouse gas emissions for the following year. In the 5th year of the launch of the IETO report, IESR highlighted the government’s commitment to decarbonizing the energy sector, policy, and regulatory innovation to attract renewable energy investment and emphasize the role of the private sector and local governments in accelerating the energy transition in Indonesia.

IESR views that deep decarbonization of the energy sector is critical to be in line with the Paris Agreement target of limiting the increase in the earth’s temperature to 1.5 degrees Celsius. Generating as much as 34% of total emissions in 2019 makes the energy sector the second-largest emitter after Forest and Land Use (FOLU) in Indonesia. If there is no planned decarbonization effort, it is projected that the energy sector will become the largest emitter in Indonesia by 2030 and make it even difficult to achieve the Paris Agreement targets.

“In 2022, the government and all stakeholders must strive to increase the use of renewable energy and promote energy efficiency in buildings and industry. In 2025, the government must achieve the target of 23% of the renewable energy mix. Likewise, it must pursue the energy sector emissions to reach their peak before 2030. These two milestones are an indication of whether we can achieve decarbonization in the middle of this century,” said IESR Executive Director, Fabby Tumiwa.

The Indonesian government has set its commitment to making an energy transition by retaining a larger portion of renewable energy generation capacity, 51 percent or as much as 20,923 MW in 2030 in PLN’s RUPTL 2021-2030. However, to align with the 1.5℃ decarbonization target, based on the IESR study, at least 140 GW of renewable energy is needed, which is dominated by PLTS by 2030.

IESR believes that achieving this big target requires a serious evaluation of the quality of the current policies and regulations. In the last five years, since PP No. 79/2014 on KEN was passed, the growth rate of renewable energy tends to be slow. Data from IETO 2022 shows that in the last five years, renewable energy has only increased on average by 400 MW.

Meanwhile, the Indonesian government also puts coal in transition scenarios such as the CCS/CCUS program for coal-fired power plants, coal gasification, and even coal co-firing. IESR stated that using CCS/CCUS technology in steam power plants will result in higher electricity prices and an increased risk of potentially stranded assets due to non-competitive costs. Furthermore, the application of co-firing and clean coal technology such as coal-fired power plants (CFPP) Ultra-supercritical results in insignificant emission reductions, thus making the effectiveness of these technologies questionable.

“The cost of generating electricity from using CCS in CFPP will compete with renewable energy technology plus storage. So far in the world, CFPPs with CCS  still have problems in operating and achieving emission reductions. Even one of the CFPP projects with CCS, such as Petra Nova in Texas, was closed after only operating for approximately 4 years. So, the readiness of today’s technology, as well as the projected price of technology in the coming decades should be the main consideration. The priority must have been given to the technology with the most competitive costs, which are renewable energy,” explained Deon Arinaldo, Manager of Energy Transformation Program, IESR.

One of the authors of the IETO 2022, Handriyanti Diah Puspitarini said that although it had not yet reached the set target, the installed capacity of renewable energy, especially from solar PV, rose to 17.9 MWp, and electric vehicles such as electric motorcycles experienced a slight increase of 5,486 units and electric cars as much as 2,012 units. It needs more to be developed in 2022.

“The Indonesian government needs to encourage the development of locally produced technology to capture bigger opportunities such as decreasing the CAPEX of renewable energy projects. Therefore, it is easier for developers to get technology with high quality and low prices without imports. Thus, there will be a lot of investment not only in renewable energy projects themselves but into the industrial sector in Indonesia in general,” said Handriyanti Diah Puspitarini, Senior Researcher in Renewable Energy, IESR.

IESR realizes that decarbonization of the energy sector requires a large number of funds, around USD 20-25 billion per year, according to the IESR study on Deep Decarbonization of Indonesia’s energy system (IESR, 2021). IETO 2022 reviews some funding opportunities available from private or public entities for climate change mitigation and adaptation, which can be used to finance the energy transition. These funding opportunities include government incentives (fiscal and non-fiscal), international financing assistance, and more unconventional financing mechanisms such as green bonds/Sukuk, regional bonds, Islamic finance, and blended finance.

“Renewable energy financing should not be seen as a burden despite being an opportunity and strategy to shift investment from fossils to renewable energy. There are many sources of funding that can be a source of renewable energy investment. The government can use its APBN to attract investment from these funding sources, for instance by mapping renewable energy resources, conducting technological research, and pilot projects for new renewable energy projects that have not been developed such as marine energy, as well as providing de-risking instruments to attract investment,” closed Fabby.

The complete development of the energy transition will be discussed at IETO 2022.

Indonesia’s Triumph in the Next 30 Years Against the Climate Crisis, Decided Now

Jakarta, 4 December 2021-“Everyone has used solar panels, and there are electric motors too. The air feels so fresh!” said Kiara in Kiara’s Dream which describes the environment of Indonesia in 2050. This dream should be the general dream of the Indonesian people, notably the policymakers whose decision will determine the journey of the Indonesian.

The success of Indonesia in 2050 as Kiara’s description depends  on the Indonesian government’s strategy in preparing and providing a better planet for future generations. The step to reach it must start from now by making an energy transition, switching from fossil energy to renewable energy.

President Jokowi in his briefing to the Commissioners and Directors of Pertamina and PLN, even emphasized that the energy transition could not be delayed any longer. Jokowi firmly asked his staff to immediately prepare a concrete, compact, detailed grand design of energy transition. Jokowi said that welcoming the energy transition era, all sectors need to change by developing renewable energy instead of fossil fuels. This is part of the global movement to tackle the climate crisis.

The climate crisis has been a common enemy for years. The struggle against it has been set in the Paris Agreement in 2015 agreed by 197 countries. Each country tries to keep its emissions as low as possible to keep the earth’s temperature well below 1.5 degrees Celsius after pre-industrial times.

Until COP 26 in Glasgow ended on November 13, 2021, as many as 137 countries already had a carbon neutral target of 2050-2070. Indonesia is targeting carbon neutrality by 2060 or sooner with international support. However, these efforts were considered insufficient to limit the earth’s temperature. The results from the Climate Action Tracker state that even with the country’s commitment to achieving carbon neutrality in the 2050-2070 timeframe, the earth will still be heated at 2.5-2.7 degrees Celsius in 2100.

Regrettably, as one of the largest emission contributors in the world, particularly in the forestry & land sector and the energy sector, Indonesia has not yet set ambitious steps in combating climate change. Although taking a positive commitment to the early retirement of 9.2 GW of coal-fired power plants, according to the Institute for Essential Services Reform (IESR), at least a total of 10.5 GW of coal-fired power plants must be retired before 2030 to be in line with the Paris Agreement.

To urge the Indonesian government to be bolder in its efforts to mitigate the climate crisis demands the role of Indonesian people, including young people. IESR through the Clean, Affordable, and Secure Energy for Southeast Asia (CASE) project in collaboration with AIESEC UI at the Global Impact Conference, which was attended by youth across countries underlined the important and impactful things that youth can do, including by sharing information about the energy sector as the second-largest greenhouse gas emission contributor after forestry and land.

“Awareness of the damaging impact of fossil energy to the earth will encourage people to have responsible behavior towards energy consumption, for instance by saving energy,” said Agus Tampubolon (blue tshirt), CASE Project Manager, IESR.

Furthermore, every Indonesian citizen has a significant part in resolving the quality of life for their children and grandchildren by choosing leaders who have a vision and mission to realize low emission development and massive use of renewable energy, both at regional and national levels.

Agus added that to accelerate the energy transition process systematically, local governments play its key in setting a high target for achieving renewable energy in the Regional Energy General Plan (RUED). Local governments must have a detailed mapping of the technical potential of renewable energy in their area, build networks, and prepare relevant regulations to attract more investment in renewable energy in their area. Thus, Kiara’s Dream, our dream, and the dreams of future generations can come true.

 

Synergy for Sustainable Development and Solar Technical Potential in Gorontalo

Gorontalo, 26 November 2021- The potential for renewable energy is evenly distributed in all provinces in Indonesia, including in Gorontalo Province. This potential can be utilized by provinces throughout Indonesia as playing their role in reducing greenhouse gas (GHG) emissions and creating sustainable economic, social, and environmental benefits in their respective regions.

Gorontalo Province, based on the IESR analysis in the “Beyond 443 GW” has a large technical potential of solar power reaching 11.97 GWp (equal to 17.47 TWh of generated power). The potential for pumped hydro energy storage (PHES) is up to 14.4 GWh. IESR Senior Researcher Handriyanti Diah Puspitarini calculated that assuming a family consists of 4 people, it makes 292,921 households in Gorontalo. If one house requires 1.72 MWh of power, then the total electricity demand in Gorontalo is 503.8 GWh.

“So actually the potential for solar in Gorontalo Province can cover all household electricity needs in Gorontalo,” explained Hardiyanti.

Indeed, to achieve these benefits, Gorontalo provincial government needs to build an ecosystem that allows the development of renewable energy, especially solar energy plants (PLTS) to all regencies As one of the hosts for the 4th Sustainable Regency Festival, Gorontalo Regency, Gorontalo Province has a synergistic effort with the large potential of renewable energy. Gorontalo Regency has been actively promoting sustainable development through the allocation of green budgets and the use of renewable energy that contributes to the reduction of greenhouse gas emissions.

Cokro R Katilie, Head of BAPPEDA ( Development Planning Agency at Sub-National Level) Gorontalo Regency emphasized in his opening speech at the series of Festival Kabupaten Lestari that climate change mitigation efforts need to be carried out more optimally.

“In Gorontalo Regency, there was a flood in early November, (this) became a lesson, although collaboration and environmental efforts (have been carried out), the intensity of the weather (which causes flooding) is higher. Of course, mitigation efforts must be increased,” said Cokro.

Inviting the Institute for Essential Service Reform (IESR) online on the session on Mainstreaming  Technology Innovation in reducing emissions and preserving the environment, dozens of participants from various regions and institutions listened to Marlistya Citraningrum, Manager of Access to Sustainable Energy Program, IESR  talking about rooftop PV mini-grid technology.

Marlistya explained that rooftop PV is a reflection of energy democratization because its potential is spread throughout Indonesia, anyone can use it regardless of strata or profession, installation can be anywhere because it has various types, it can be on the roof, above ground, or floating.

“Furthermore, the installation does not take long and can be done by skilled workers. Equally important, the price of the technology is getting lower,” she explained excitedly.

Marlistya explained that the results of the IESR market survey in Jabodetabek found that 7 out of 10 people said that rooftop solar PV is attractive to them. However, only 8% of the respondents said that rooftop solar PV is relevant to their needs. Their interest in adopting PV mini-grid roofs also varies. Most of it is due to electricity savings and following sustainable lifestyles.

“In Indonesia itself, the development of solar PV has been reassuring, it has shown significant growth. However, there are still problems with getting solar panels,” she said.

Currently, rooftop solar PV service providers are still limited in big cities. She said the future homework is to connect people in whatever place in Indonesia with rooftop PV service providers. IESR is trying to bridge the information gap by building the solarhub.id portal.

“This can be an opportunity by utilizing village funds for renewable energy. BUMDES (Village-Owned Enterprises) can manage the renewable energy business as a provider of solar panels. Certainly, it will be more interesting if the tourist attraction in this place uses renewable and sustainable energy, “she said again.

Fossil Energy Subsidies Hinder Energy Transition

press release

Jakarta, 12 November- Despite the commitment to step up climate action and achieve the Paris Agreement target of keeping the earth’s temperature below 1.5 degrees Celsius, the G20 countries, including Indonesia, are still providing significant fossil energy subsidies. The Institute for Essential Services Reform (IESR) views fossil energy subsidies as counterproductive to energy transitions and achieve decarbonization in the middle of this century.

At the early stage of the pandemic, the G20 countries disbursed at least USD 318.84 billion to support fossil energy. Meanwhile, according to Climate Transparency 2021 data, Indonesia has spent USD 8.6 billion on fossil fuel subsidies in 2019, 21.96% of which was for oil and 38.48% for electricity.

Indonesia had succeeded in reforming fuel and electricity subsidies in 2014-2017 but still allocated a fairly large fossil energy subsidy. Energy subsidies increased by 27% in the period 2017-2019.

“The provision of fossil energy subsidies not only hinders plans and efforts to cut greenhouse gas emissions and decarbonization but also results in inefficiency in energy use. It also creates loss due to untargeted subsidies, and makes renewable energy difficult to compete with,” said Fabby Tumiwa, IESR Executive Director.

Ending fossil fuel subsidies will create a level playing field for renewable energy. Moreover, in his opinion, fossil energy subsidy funds will be much more beneficial if they are diverted to the most vulnerable communities, building education and health facilities, developing renewable energy, and accommodating the impact of the energy transition for workers in the affected fossil energy industry. 

“Energy subsidy reform on the consumption side should not be carried out haphazardly so that the poor do not have access to quality energy at affordable prices. On the other hand, financial reforms need to be followed by collecting and applying the poor family databases and targeted subsidy distribution schemes,” explained Fabby. 

Fabby believes that the pricing policy for Domestic Market Obligation (DMO) coal and gas for PLN is a form of subsidy and has made the price of electricity from coal-fired power plants and gas-fired power plants not reflect the actual costs. This policy also makes PLN prioritize the use of coal-fired power plants over renewable energy, which is cheaper.

“The government should review the DMO price benchmark policy for power generation and make a plan to end this policy. This is in line with the government’s decision to not grant permits for the construction of new coal-fired power plants outside the 35 GW program and plans for early retirement of coal-fired power plans before 2030,” said Fabby.

Climate Transparency 2021 analysis shows that to achieve the Paris Agreement targets, all regions of the world must phase out coal-fired power plants between 2030 and 2040. By 2040, the share of renewable energy in power generation must be increased to at least 75%, and the share of unabated coal-fired power plants is reduced to zero. While in the National Energy Policy, Indonesia promised to reduce coal by 30% by 2025 and 25% by 2050. Meanwhile, to be in line with the Paris Agreement, electricity generation from coal must peak in 2020 and stop coal completely by 2037.

Based on IESR calculations in the Deep Decarbonization of Indonesia’s Energy System study, the cost to transform Indonesia’s energy system to achieve zero emissions in 2050 will reach USD 25 billion per year until 2030. It will escalate sharply thereafter to USD 60 trillion per year.

“Fossil energy subsidies increase the negative impact of GHG emissions as well as add the burden on the state due to economic losses and state financial expenditures to overcome disasters caused by climate change. These subsidies can be diverted to help accelerate the energy transition using renewable energy so that we can achieve the renewable energy mix target of 23% by 2025,” said Lisa Wijayani, Program Manager of the Green Economy, IESR.

At the G20 Declaration last October in Rome, the G20 countries agreed to extend their commitment to reducing inefficient fossil fuel subsidies. IESR views that Indonesia can use the opportunity of Indonesia’s leadership at the G20 in 2022 to encourage real action to exit the burden of financing fossil energy.

“The commitment of the G7 countries to provide climate finance of USD 100 billion by 2025 is still not enough. Therefore, G20 countries must contribute, one of which is by carrying out financial reforms towards renewable energy that supports a green economy. Indonesia as the leader of the G20 countries in 2022, can encourage G20 member countries to carry out financial reforms,” ​​said Lisa.

She said every financial policy that leads to support for fossil energy must receive attention and be strictly inventoried by the Global Stocktake (GST) as part of monitoring the climate action of the Paris Agreement. 

According to a report by the Independent Global Stocktake (iGST), a civil society consortium to support GST, the GST can offer a platform for countries to collaborate in reforming fossil fuel consumption subsidies.

“Information that is inventoried into the GST must also include social elements in it so that the objectives of climate finance in achieving economic growth and social inclusion can be achieved. This GST process must include organizations representing economic, environmental, energy, and social elements, especially gender issues and other vulnerable communities, to ensure that the just transition takes place,” said Lisa.

 

Signed the Global Declaration to Phase Out Coal, Indonesia Needs to Prepare a Coal Transition Roadmap

Jakarta, 05 November 2021- At the 26th World Leaders Summit on Climate Change or COP-26, Indonesia signed the Global Coal to Clean Power Transition declaration. On the same day, the Minister of Energy and Mineral Resources, Arifin Tasrif, also stated that the government was reviewing the opportunity to early retire coal-fired power plants with a total capacity of 9.3 GW before 2030 (4/11/2021) which could be done with funding support reaching $48 billion.

Although Indonesia has decided to exclude the third point of the Global Coal to Clean Power Transition, which demands to cease the issuance of new permits and the construction of unabated coal-fired power plants, the Institute for Essential Services Reform (IESR) appreciates the steps taken by the Indonesian government, especially the leadership shown by the Minister of Energy and Mineral Resources at COP-26, to encourage a just energy transition through the development of renewable energy as widely as possible and to phase out coal-fired power plants as part of Indonesia’s action to prevent a global crisis.

“The openness of the Indonesian government to make an energy transition, through one of which is reducing the power plant in stages, should be appreciated. Post-Glasgow, the government, and the National Energy Council must accelerate the preparation of a comprehensive roadmap and strategy for the energy transition in Indonesia. Dependence on fossil energy will end if we do not rapidly increase the capacity of renewable energy. The policy focus is no longer coal as the first option, but renewable energy must be the main choice. So the energy transition needs to be carefully designed, with the priority of developing and utilizing renewable energy as much as possible and optimizing energy efficiency,” said Fabby Tumiwa, Executive Director of IESR.

Fabby emphasized that the decision to gradually stop fossil fuels, especially coal-fired power plants, is inevitable, not only from the perspective of the climate but also from the economic side of technology.

“Remarkably, with innovation and the price of renewable energy and storage technology is more competitive than fossil energy, the use of renewable energy to ensure the reliability of energy supply to achieve net-zero emission is becoming more feasible,” said Fabby.

The results of the IESR analysis from the study of Decarbonization of Energy Systems in Indonesia projected that renewable energy complemented with storage batteries will increase significantly by 2045. The share of batteries will reach 52% of the total storage system, followed by hydrogen at 37% and other storage systems around 11%. The share of electricity demand covered by energy storage increases significantly from around 2% in 2030 to 29% in 2045. The main users of battery storage will come from utility-scale systems, and to a lesser extent from commercial and industrial areas, and housing systems.

Concerning the early 9.3 GW of coal-fired power plants with details of 5.5 GW of early retirement without replacement to renewable energy power plants and 3.2 GW of early retirement with the replacement of renewable energy plants, Deon Arinaldo, Manager of the IESR Transformation Program, views this as a progressive step for decarbonization of energy system in Indonesian. However, according to IESR’s calculations, to implement the Paris Agreement targets and keep the global average temperature rise below 1.5C, there is around 10.5 GW of steam power plants that need to be retired before 2030.

“There is still a difference of 1.2 GW that needs to be retired and can be targeted for coal-fired power plants outside PLN’s business area,” said Deon.

Referring to the study of Indonesia’s Energy Decarbonization System, at least it requires investment in renewable energy and other clean energy of USD 20-25 billion per year until 2030 and increasing thereafter for the gradual financing of coal and the development of renewable energy for emission-free by 2050. However, phasing out coal-fired power plants will avoid the risk of financial loss from the stranded assets which reached USD 26 billion after 2040.

With large funding requirements for the gradual cessation of coal-fired power plants, Indonesia is working with ADB to launch the Energy Transition Mechanism (ETM) program, which is expected to raise around $3.5 billion to launch 2-3 coal-fired power plants per country.

“The existence of ETM, which will provide a financing platform, is expected to be able to provide a source of funds to retire the steam power plant and encourage the larger investment flows in renewable energy. This is crucial so that Indonesia can optimally plan the transformation of its energy system,” concluded Deon.***

COP 26, Indonesia Has No Ambitious Climate Action Breakthrough

Jakarta, 03 November – President Joko Widodo at the 26th World Leaders Summit on Climate Change or COP-26 did not announce a firm statement about increasing Indonesia’s climate ambitions. The Institute for Essential Services Reform (IESR) views that the Indonesian government should be using this moment to lead and encourage the G20 countries to set compatible climate action with the Paris Agreement. However, in his speech at COP 26, President Jokowi seemed to hand over the responsibility to developed countries to determine the achievement of carbon neutral conditions in Indonesia. It showed the less ambitious state of the Indonesian government in dealing with the climate crisis.

“Indonesia should clearly state its climate ambitions, increase its Nationally Determined Contribution (NDC) targets and convey the funding needs from developed countries to achieve peak emissions by 2030 and decarbonization by 2060 or earlier. Unfortunately, the President did not state targets and plans for more ambitious mitigation actions in his speech,” said Fabby Tumiwa, Executive Director of IESR. He is also currently in Glasgow attending the COP 26 event.

The Climate Transparency Report, Country Profile of Indonesia 2021 finds that staying in the current NDC unconditional reduction target of 29%  will contribute to increased emissions (excluding the emissions from land use) to 535% above 1990 levels, or around 1,817 MtCO2e in 2030. Meanwhile, to stay below the 1.5˚C temperature limit, Indonesia’s 2030 emissions should be around 461 MtCO2e (or 61% above 1990 levels). This indicates an ambition gap of 1,168 MtCO2e.

“As a country that has quite large natural and mineral resources, such as nickel, Indonesia can raise its climate ambitions beyond the target of 29% by 2030. Moreover, if Indonesia with a large population has implemented energy conservation and efficiency since earlier, without the funds from a developed country, Indonesia can reduce carbon greater than the target in the NDC,” explained Lisa Wijayani, Manager of the Green Economy Program, IESR.

Furthermore, IESR observes that Indonesia’s plan, which was stated by Jokowi on the same occasion, to transition to clean energy is still constrained by regulations that have not yet been issued. Jokowi proposed to build the largest solar PV in Southeast Asia, but until today the Regulation of Minister of Energy and Mineral Resources No. 26/2021 Regarding Rooftop Solar Power Plants is still waiting for approval at the Ministry of Finance. Besides, the Presidential Regulation regarding new and renewable energy, which has been awaited since early 2021, has not yet been released.

“The Indonesian government should simultaneously issue appropriate regulations to create a more massive renewable energy ecosystem for development, as well as encourage investment from developed countries. Clear regulations and targets can open up greater opportunities for investors to invest in renewable energy,” added Lisa.

Not only that, but in his attention, Jokowi also plays an important role in carbon markets and prices in solving climate problems. This October, the government has issued the Law on Harmonization of Tax Regulations. A carbon tax of IDR 30 per kilogram of carbon dioxide equivalent will be applied to the number of emissions that exceed the stipulated emission limits (cap and tax).

“The determination of the carbon tax price at IDR 30 per kg (USD 2 per ton) is still very far from the recommendations of the World Bank and IMF which set the carbon tax price for developing countries to be in the range of USD 35-100t/CO2e. Even the IPCC report explains that the carbon tax rate in 2020 is in the range of US$ 40-80/tCO2. With a small carbon tax rate, the government’s goal to reduce carbon emissions significantly through this carbon tax will not be achieved,” said Lisa.

Anticipating rising emissions, Indonesia climate action is considered highly insufficient

Jakarta, 28 Oktober 2021– Indonesia has updated its Nationally Determined Contribution (NDC) document. However, Indonesia’s target to achieve carbon neutrality by 2060 is assessed as “highly insufficient”. This shows that Indonesia’s climate policies and actions are still leading to increased emissions. To be compatible with the Paris Agreement, Indonesia needs to set more ambitious targets and policies, notably in sectors that contribute to increasing greenhouse gas (GHG) emissions and boost the flow of international climate-related finance.

Throughout 2019, the energy sector was still the largest contributor to GHG emissions (45.7% except for the FOLU or forest and land-use sector). The power generation sub-sector is responsible for 35% of GHG emissions, followed by transportation and industry with 27% each. The Climate Transparency Report 2021 states that although Indonesia has proposed increasing renewable energy in terms of electricity, transportation, and industry, there is no strategy to phase out coal gradually and unavailable policies that encourage competition for renewable energy with coal. Climate Transparency Report 2021- the world’s most comprehensive annual record and comparison of G20 countries’ climate action, even projecting that Indonesia’s post-pandemic GHG emissions will soar beyond the emission level in 2019 as the revival of economic activity.

“Based on the IESR study, at the very least, to be compatible with the Paris Agreement, the reduction of carbon emissions in the energy sector should be above 500 million tons,” said Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR) at the launch of the Climate Transparency Report, Country Profile of Indonesia 2021.

Fabby explained that there are three strategies that the Indonesian government can take to reduce GHG emissions from the emission sector.

“First, increasing the renewable energy mix. It must reach 50% in 2030. Second, fostering energy efficiency, remarkably from the transportation sector. Our energy consumption per capita for electricity is relatively low, while the demand for transportation fuels is very high, and it is a contributor to highest emissions,” he said.

Furthermore, Fabby said that early retirement of at least 10 GW of coal-fired power plants (CFPP) or not extending the contract would be effective in reducing emissions.

Until 2020, Indonesia’s electricity sector will continue to be dominated by fossil fuels (82%), with coal accounting for the highest share (62%) in electricity generation 2020. As a result, the emission intensity of the electricity sector for five years from 2015-2020 has not changed significantly, only decreasing by 1%. Meanwhile, the average of G20 member countries has declined 10 times faster.

The Indonesian government has not yet fully implemented its commitment to reduce emissions from coal. To meet the carbon-neutral goal by 2060, the government has announced that they would not build a new coal-fired power plant after 2023. However, at the same time, around 2 GW of coal capacity has started operating. Moreover, in the NDC, Indonesia promised to reduce coal by 30% by 2025 and 25% by 2050. Meanwhile, according to the analysis of the Climate Transparency Report 2021, electricity generation from coal must even reach its peak in 2020 and need to stop coal completely by 2037 to align with the temperature rise limiting path at 1.5°C.

To reduce GHG emissions, a large amount of funding is needed. Therefore, public funding must have started to lead to actions that can tackle climate change more seriously.

“Therefore, subsidies in the fossil energy sector must begin to stop and accelerate the energy transition through renewable energy funding,” said Lisa Wijayani, Green Economy Program Manager, IESR.

In her opinion, investment in green energy and its infrastructure needs to be greater than in fossil fuels in 2025. So far, Indonesia has spent 8.6 billion USD on fossil fuel subsidies in 2019, 21.96% of them on petroleum and 38,48% on electricity.

Furthermore, Lisa added that the implementation of a carbon tax can be a good start in encouraging efforts to reduce GHG emissions, which are mainly contributed by the electricity, transportation, and industrial sectors as the largest emitters in Indonesia in the energy sector.

“However, there needs to be a more feasible mechanism so that the implementation of a carbon tax can reduce emissions significantly and promote a climate-resilient economy through even greater efforts, for instance, through carbon trading,” Lisa said