Indonesia Energy Transition Outlook 2024: Tracking Progress of Energy Transition in Indonesia: The Trend and Transformation in Achieving Indonesia Net Zero Ambition

Background

In 2023, through the presidential decree lifting the COVID-19 pandemic situation, it became a stimulus for economic recovery and national development to accelerate. Until the second quarter of 2023, economic growth in Indonesia was recorded at 5.17% (yoy) and showed economic strengthening in several regions in Indonesia. Meanwhile, Indonesia is projected to experience a population increase of 0.9% by 2023. This will certainly boost the level of domestic energy demand. On the other hand, external factors of energy security are caused by conflicts in Russia and Ukraine and the stability of the Middle East region, which will be able to affect the world energy commodity market. Indonesia is also a country that feels the impact.

Indonesia, as a country that has ratified the Paris Agreement through Law No. 16/2016, has emphasized its position to achieve net zero emissions by 2060 or earlier. This commitment is emphasized by increasing the national contribution target, or Enhance-NDC, by 31.89% with its own efforts and 43.20% with international assistance. In line with this, through the Just Energy Transition Partnership (JETP) commitment between the Government of Indonesia and donor countries that are members of the International Partner Group, Indonesia targets to achieve 44% of the renewable energy mix by 2030 and retire 1.7 GW of power plants from the operation of power plants in the network. However, the JETP target is considered less ambitious for efforts to achieve the target of controlling temperature rise by 1.5 oC. This is because it does not include the intervention of captive PLTU, which has a large role in contributing emissions in Indonesia.

Apart from the electricity sector, Indonesia’s energy transition also needs to be encouraged and accelerated in various other energy sectors, such as transportation and industry. On the demand side of national energy needs, the industrial sector is recorded to have a demand of 44.21% in 2022, of which 56.5% is met by coal. This condition is influenced by government policy through the Domestic Market Obligation (DMO) regulation. This policy can support the development of domestic industries that use national natural resources, but on the other hand, the use of coal in the industrial sector also increases greenhouse gas emissions. So it is necessary to control emissions and innovate in energy transformation in the industrial sector. Some large industries that need attention are the cement, iron and steel, and ammonia industries. In the transportation sector, through Ministerial Decree No. 8 of 2023, 38 mitigation action steps have been established that focus on the electrification of land vehicles, including motorcycles, cars, and public vehicles, as well as the use of low-carbon fuels in sea and air transportation.

These developments show that Indonesia’s energy transition is entering the take-off phase. The question is, is the current energy transition process in line with Indonesia’s climate crisis mitigation and sustainable development ambitions? If not, what options can Indonesia focus on to accelerate the energy transition in the near future?

The progress and development of energy transition in Indonesia are specifically reviewed in one of IESR’s flagship reports launched at the end of each year: the Indonesia Energy Transition Outlook (IETO). Published since 2017, the IETO, previously titled Indonesia Clean Energy Outlook (ICEO), aims to regularly monitor the development and progress of Indonesia’s energy transition and identify challenges and opportunities for the following year. The report covers policy analysis and review, technology status updates, and the energy transition ecosystem.

Over the years, IESR has worked to improve the coverage and rigor of its analysis in this report. The sixth edition of the IETO also gathers various perspectives from stakeholders in the energy sector and addresses them with in-depth studies to deliver strategic analysis on the energy transition and transformation to a low-carbon energy system in the country.

Through the IETO, the IESR intends to inform policymakers and all stakeholders in the energy sector on the effectiveness of policies and improvements needed to help accelerate the development and transition of clean energy in the country. By doing so, it is hoped that Indonesia can ensure energy security, a competitive economy, and transition to a sustainable energy system in the near future.

IETO 2024 will be launched in a special meeting to get views and perceptions from policymakers and actors on the upcoming trends in the energy transition. Discussions in this meeting will highlight the energy transition processes taking place in various energy sectors in Indonesia and be followed by an analysis of the energy transition readiness framework in Indonesia’s electricity sector, as well as lessons learned in 2023 to address challenges in driving the energy transition in 2024.

Objective

The Indonesia Energy Transition Outlook (IETO) 2024 launch meeting and discussion was organized with the following objectives:

  1. Inform and introduce the IESR flagship report, Indonesia Energy Transition Outlook (IETO).
  2. Review and evaluate the development of the energy transition (fossil energy, renewable energy, and energy efficiency) in Indonesia during 2023 in the context of the impact of government policies and regulations issued to relevant stakeholders, as well as the review in 2024.
  3. Review the evaluation and transition readiness framework for Indonesia’s electricity sector with policymakers and stakeholders.
  4. Provide a policy dialogue space for stakeholders, including policymakers and businesses, as well as civil society organizations, in the process of formulating and implementing more sustainable energy transition policies.

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 Energy Transition Outlook (IETO) 2022

IETO 2022 will be launched in a webinar that is also intended to obtain views/perceptions from policymakers and actors on the trends that will occur in the coming year in the energy transition. Discussions at this meeting will focus on the energy transition readiness framework in Indonesia’s electricity sector as well as various lessons learned in 2021 to overcome the challenges of encouraging the energy transition in 2022.

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