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.