Jakarta, April 30, 2024 – Energy transformation requires adequate financing to ensure a smooth and equitable process. The Institute for Essential Services Reform (IESR), a leading think tank on energy transition and environment based in Jakarta, disseminated a report titled “Identification of Financing Needs for an Equitable Transformation of Indonesia’s Electricity Sector”. The report, created in collaboration with the New Climate Institute (NCI), explores financing instruments for energy transition that can be used to fund the retirement of coal-fired power plants, promote renewable energy development, and ensure justice for affected workers.
According to the analysis conducted by IESR and NCI, Indonesia’s Just Energy Transition Partnership (JETP) requires financing through grants and soft loans to facilitate its energy transition agenda. Grants can be used to incentivize activities that aim to end coal power plant operations, compensate affected workers, and train them for the transition into other sectors. However, the amount of grants allocated in JETP is relatively limited, accounting for only 1.4 percent of the total financing.
Meanwhile, USD 6.9 billion in concessional financing for the Joint Energy Transition Plan (JETP) can be utilized to cover any potential losses that may arise from the closure of coal power plants, promote the development of renewable energy infrastructure, and offer incentives to renewable energy developers to support the transition of coal sector workers to the renewable energy sector.
Wira A. Swadana, Program Manager of Green Economy, IESR, emphasized the importance of developing community resilience during the energy transition. He suggested that prioritizing justice is key to ensuring the community’s resilience to energy and social and economic changes. Wira also reminded us that Indonesia signed the Silesian Declaration of Solidarity and Just Transition in 2018. Therefore, the country is committed to preparing and ensuring an effective and inclusive energy transition process for
“One important aspect that needs to be considered in the energy transition is how to build community resilience at the local level. For example, in the coal mining sector, a more inclusive economic transformation is needed to address inequality and improve the quality of health, infrastructure development and human resources (HR) in the surrounding communities,” said Wira.
Farah Vianda, Coordinator of Sustainable Finance, IESR, said that early planning and mobilization of funding and institutional capacity are necessary to prepare for new jobs and empower workers affected by the coal sector’s decline. Farah has disclosed that a support package for affected workers, in compensation and training, will require funding of USD 2.4 billion or approximately IDR 38.4 trillion (using the exchange rate of 1 USD at IDR 16 thousand).
“The government must establish a specialized team to prioritize the equitable transition issue. Additionally, it is necessary to enhance government capacity in planning, policy-making, governance systems, and environmental protection,” said Farah.
On the other hand, it is imperative to consider the potential health benefits of discontinuing coal power plants. Based on a scenario that aligns with the JETP target, the end of coal power plant operations will be able to secure USD 150 billion or around IDR 2,400 trillion by 2050. Meanwhile, with a scenario in line with the Paris Agreement or limiting the earth’s temperature to 1.5 degrees Celsius, the health costs that can be avoided from ending coal-fired power plants (CFPP) operations are around USD 230 billion or Rp3,680 trillion by the mid-century.
Reena Skribbe, Climate Policy Analyst at New Climate Institute, said that the success of Indonesia’s energy transition will depend on political and institutional integration into the overall planning process. According to her, the most important thing is the mainstreaming of justice at all levels of government.
Additionally, the end of CFPP operation will reduce pollution levels by 12 percent based on the scenario by the JETP target and 18 percent based on the scenario in line with the Paris Agreement from Indonesia’s current annual GDP. Even today, there are still 48 GW of power plants in operation and another 20 GW in the pipeline.
“Based on this data, reducing coal combustion per megawatt-hour (MWh) will provide economic benefits of around USD 30 or IDR 488 thousand. Compared to the JETP funding of USD 22 billion, the avoided cost of reducing air pollution is many times greater,” Reena said.
