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.

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

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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

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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

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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.