Launch of Report on Identifying Financing Needs for an Equitable Transformation of Indonesia’s Electricity Sector

Background

As one of the largest coal consuming and producing countries, Indonesia is ranked 6th as a global greenhouse gas emitter with a share of 3.11% of total global emissions (Climatewatch, 2024). In 2020 alone, the energy sector became the largest contributor to emissions, following the forestry and land sectors that have almost always dominated in the last decade. This is influenced by the high consumption of fossil energy, which is still dominated by 80% fossil energy over the past decade (IEA, 2023). Recognizing this, Indonesia has set a target to reach net zero by 2060 or earlier, and increased the energy sector target in the National Determined Contribution (NDC) to 31.89% or at least 915 MtonCO2 reduction. The government has also decided to no longer build new power plants and plans to retire several power plants listed in Presidential Regulation 112/2022. This step is a signal for Indonesia to prepare for the impact of fossil energy dependence as soon as possible.

The growing narrative of energy transition raises concerns due to the transition risks posed. It is no longer just technical and economic constraints that are being discussed, but also considering the social, environmental and economic aspects of those affected by the transition. From this, the discussion of the energy transition narrative becomes inseparable from the principle of justice. This is in line with the Paris Agreement which encourages a just transition, especially in the labor sector in accordance with the priority development agenda (EBRD, 2024). Global and national discourses related to energy transition in recent years have been very intense, especially related to the dismissal of fossil power plants closely related to the practice of just transition for people and communities around PLTU and in coal mining areas. In addition, the energy transition also requires an equitable approach in areas that will also be affected to support the transition, for example coal mining areas, mines and critical mineral industrial areas, and renewable power plant development areas. This was further strengthened at COP 28 in 2023 where at the ministerial meeting it was stated that the transition would not occur unless it was carried out in an equitable manner. This momentum has made the equitable transition agenda the focus of discussion both at the national and international levels.

 

Objective

This activity was carried out with the following objectives

  • To collect information related to policies in building an equitable transition framework that is in accordance with aspects of national and regional economic development to be included in the medium-term development plan;
  • Identifying challenges and opportunities faced by various stakeholders, especially CSOs, think tanks and academia in bringing the issue of equitable transition;
  • Building partnerships with CSOs, think tanks, development partners, and academics to harmonize the messages delivered.

Presentation

Identifying finance needs for a just transformation of Indonesia’s power sector : An analysis using the Just Energy Transition Finance Needs tool // JET-FIN – Reena Skribbe and Farah Vianda

IndonesiaJETP_FinanceNeeds_NewClimate_IESR_FGD_30042024

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Kontan | RI Renewable Energy Investment still Low in Early 2024, Here’s the Cause

The realization of new renewable energy (NRE) investment at the beginning of this year is projected to remain quiet. The implementation of the General Election (Pemilu) and the absence of an auction of renewable energy plants by PLN are reasons for realizing NRE investment until the first quarter of 2024, which still needs to look promising.

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Renewable Energy Must Reign Supreme in Southeast Asia

Jakarta, March 27, 2024-Southeast Asia is a world’s fifth-largest economy region in 2022. However, this economic growth comes with a concerning projection: greenhouse gas (GHG) emissions in the region are expected to soar by 60 percent by 2050. Curbing these emissions is pivotal for global efforts to combat climate change. Unfortunately, current endeavors to promote renewable energy in Southeast Asia fall short of aligning with the Paris Agreement, which aims to limit global warming to below 1.5 degrees Celsius.

Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), stated at the Revision 2024 International Conference in Tokyo (14/3) that ASEAN countries have set a target to achieve a renewable energy mix of 23 percent by 2025. However, he emphasized that this target doesn’t align with the Paris Agreement’s objectives.

“To align with the Paris Agreement, the renewable energy mix needs to account for 55 percent, with variable renewable energy (VRE) contributing 42 percent. Except for Vietnam, Cambodia, and the Philippines, others have yet to reach 5 percent VRE penetration. The good news is that in 2023, ASEAN countries will have over 28 GW of operating utility solar and wind capacity, a 20 percent increase in operating capacity since last year. Currently, they make up 9 percent of ASEAN countries’ total electricity capacity. But in order for ASEAN countries to meet the goal, they need to install more renewable energy,” Fabby remarked.

Fabby further highlighted the relatively abundant renewable energy resources in Southeast Asia, which are estimated to be 40-50 times greater than the region’s current energy needs. He suggested that utilizing floating solar power plants could be a strategic move towards decarbonizing the energy system. He elaborated on the technical potential, with reservoirs boasting 134 to 278 GW and natural water surfaces such as rivers, lakes, and seas holding 343 to 768 GW. However, he stressed the importance of conducting detailed calculations of the technical, market, and economic potential, as well as site-specific assessments to develop floating solar power plants.

Additionally, he highlighted the need for Southeast Asian countries to adopt more ambitious policies, provide robust budget support and incentives, and enact policies that attract investment. The average annual investment in renewable energy capacity should be increased by five times to USD 73 billion per year.

Fabby emphasized that Southeast Asian countries must elevate their ambitions to meet the Paris Agreement targets. As an immediate step, ASEAN should aim for a 23 percent renewable energy mix by 2025 and 40 percent by 2030.

“Various studies have shown that decarbonizing the energy system with renewable energy in Southeast Asia is feasible; however, current policies and actions are insufficient to achieve significant decarbonization by 2050. While renewable energy resources are abundant and ample, substantial investment is needed. Each country must reform policies and manage risks associated with renewable energy projects to attract and mobilize investors further,” Fabby added.

He also cautioned against perpetuating a narrative that prioritizes fossil energy as a baseload generator under the guise of maintaining energy security, while sidelining renewable energy. Such a narrative, he argued, is counterproductive and contradicts the spirit of the Paris Agreement.

Reflection on Regional Government Authority for Energy Transition at the 2023 Regional Energy Forum

Jakarta, 7 November 2023 – The role of regional governments in accelerating the energy transition is expected to become increasingly significant. The Ministry of Home Affairs as the parent body that facilitates regional governments is trying to facilitate this need by issuing Presidential Regulation (Perpres) No. 11 of 2023 concerning additional concurrent government affairs in the energy and mineral resources sector in the renewable energy sub-sector.

It is hoped that the existence of a legal umbrella for regional governments will provide additional authority for regional governments and will have a linear impact on accelerating the energy transition.

Sri Retnowati, Young Expert Policy Analyst at the Directorate of Synchronization of Regional Government Affairs I, Ministry of Home Affairs, emphasized that with the issuance of Presidential Decree 11 of 2023, it is hoped that regional governments will have more freedom in taking program initiatives.

“Limited authority is closely tied to budget limitations, so through policy instruments, we give more authority to regions,” said Retno.

Retno added that there are still complaints that Presidential Regulation No. 11/2023 is still not effective, especially regarding fiscal capacity that cannot yet be used. Retno revealed that this made several regions choose not to immediately implement Presidential Decree 11/2023.

Ariansyah, Representative of the South Sumatra ESDM Service, explained the division of authority for industrial licensing. If all industrial permits are gathered in the central government, it will be difficult for local governments to monitor and take firm action against industrial players who do not support the government’s agenda, such as using less efficient energy or not implementing energy conservation practices.

Highlighting the formulation of the Draft Government Regulation on National Energy Policy (RPP KEN) which is currently being worked on by the National Energy Council, Ariansyah views the need for provisions regarding energy conservation to support the achievement of regional energy mix.

“In the draft of the new RPP KEN we see that the energy conservation point has been removed. If this applies, South Sumatra’s renewable energy mix will decrease, because South Sumatra’s renewable energy mix, which currently reaches 23%, is mostly contributed by industries that we ask to carry out conservation. energy,” said Ariansyah.

Yunus Saefulhak, Head of the Energy Policy and Conference Facilitation Bureau, National Energy Council (DEN) on the same occasion said that the big goal of the revised energy policy in Indonesia is to increase energy security while providing energy at affordable prices.

“Apart from that, (the revised KEN-ed) also aims to meet rational energy needs to achieve high human and economic development index targets as a developed country and realize decarbonization and energy transition to reach peak emissions before 2045 and NZE in 2060, said Yunus.

Webinar The State of Southeast Asia Energy Transition

To support the low carbon transformation process, it is imperative to strengthen cooperation among key stakeholders in the SEA countries. Achieving this goal will face different challenges across the region as some countries are more advanced in terms of infrastructure in renewable energy and financial instrument compared to other countries. Therefore, discussion among key stakeholders in the region is pertinent to address the gaps and learn from each other to scale up the clean energy transition and meet the net zero economy targets.

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Russia’s Invasion May Affect Energy Transition in ASEAN

Jakarta, 5 April 2022 – Russia’s invasion of Ukraine for the past month has been steering up the global reaction, especially on energy security issues. Russia is known for its oil and gas global exporter, with the invasion going on, global leaders are taking stands in giving sanctions not to buy gas from Russia. Is this good or bad? We may need a longer time to see the impact, but one thing’s for sure, Russia’s sanction has become one of the triggers for European Union Countries to accelerate their energy transition and  seal emergency securities as well as reduce their reliance on fossil fuels.

Fabby Tumiwa, the Executive Director of the Institute for Essential Services Reform (IESR), said that EU action to ensure their energy security is accelerating the transition.

“EU countries try to reduce their reliance on fossil fuel by developing technology such as green hydrogen to ensure their energy security. This is such good news for the EU region yet it has a spillover effect as countries like Germany commit to supporting energy transition in emerging countries like Indonesia. The current situation may affect the speed and funding for the energy transition in emerging economy countries,” he explained.

Sufficient funding is crucial for decarbonizing the whole energy system. Enough funding means the government will be able to build modern low-carbon energy infrastructure. As most of the emerging countries lie in the Southeast Asia region, this area has become the hotspot for decarbonization. As one of the most populated regions, Southeast Asia’s energy demand is constantly growing. Ensuring the region has sufficient funding to transform its energy system into a cleaner one will be one of the determining factors of global decarbonization.

Consisting of ten countries, ASEAN has different characteristics in developing its energy transition mechanism based on the national priorities of each country. The various situations create different opportunities, one thing in common is that renewable energy sources, especially solar, are available abundantly in the region. Fabby added that soon solar energy will be a commodity just like oil and gas at the moment. 

“Therefore, it is important for ASEAN to have its manufacturing facility (for solar panels). To make sure the operation of the manufacturing facilities technology transfer from the main producer is a must,” Fabby said.

Sara Jane Ahmed, Founder, Financial Futures Center Advisor, Vulnerable 20 Group of Finance Ministers, added that partnership will be the key for ASEAN countries in accelerating the energy transition.

“In this time, China can actually play a bigger role by providing funds and transferring its technology to ASEAN countries,” she said.

Just Energy Transition Highly Required Attractive Policy, Regulation and Finance Access

Jakarta, 29 March 2022 – Just energy transition becomes one of the priority issues of Indonesia’s G20 Presidency 2022. Zooming in on a just energy transition issue, Yudo Dwinanda Priaadi, chair of the Energy Transition Working Group, explains that there are three issues related to energy transition to be accelerated i.e access, technology, and financing. 

The energy transition is about changing the whole system of energy from fossil fuel-based to renewables-based. It involves multi-sector reform to get there. Ensuring energy access is provided at an affordable cost and way is important as it is mentioned in Sustainable Development Goals (SDGs) 7 i.e affordable and clean energy. Therefore providing infrastructure of clean energy as the first step of the energy transition becomes crucial.

Technology transfer needs to be taken care of, as in Indonesia’s context, all the technology of clean energy right now was developed by other countries. To avoid Indonesia becoming only the market for other countries ‘selling’ their technology, we need the knowledge of technology and even have to be able to produce the technology by ourselves.

Fabby Tumiwa, the Executive Director of IESR, believes that the most important issue of energy transition currently is financing.

“If we have sufficient financing, we can access the technology and build the infrastructure of clean energy. At the same time we will also create a low carbon economy system in the country,” he said.

Luiz de Mello, Director of Economics Department OECD, added that there is an opportunity to make progress in a low carbon economy as the world tries to get out of the pandemic situation. According to him, there are at least three things the government should do, including mobilizing investment for low carbon infrastructure, making regulations and standards, as well as managing labor investment including training and retraining for those previously working in the fossil industry.

“On an international level we also need policy coordination as we are addressing a global issue, we need a global solution,” Luiz added.

The government also must provide a predictable regulation and framework to attract investors to invest in renewable projects. Frank Jotzo, Head of Energy, Institute for Climate Energy and Disaster Solutions, Australia National University, emphasized the importance of providing a de-risking instrument to accelerate the energy transition. 

“We realize that the investment needed (for energy transition) is enormous, yet there are a couple of things to do to figure out the way to finance the transition. For the note, it is a productive investment where most of the money goes for the upfront cost, and later we can enjoy the clean energy without too many costs needed,” Frank explained.

As the G20 President, Indonesia becomes the spotlight of its energy transition process. Masyita Crystallin, Special Advisor to the Minister of Finance on Macroeconomic and Fiscal Policy Ministry of Finance Indonesia, shares that the Indonesian Government strives for a just energy transition.

“Of course we aim for a just energy transition, meaning that stranded assets must be taken care of and the laborers who used to work in the fossil or mining industry are protected,” she explains.

Masyita also emphasized that the global policy mechanism should be ready as well to support the transition that happened per country.

Commercial and Industrial Sector Ready to Encourage the Use of Rooftop PV

Jakarta, March 15, 2022 – The development of rooftop solar PV in Indonesia in the last three years has been very rapid. Citing records from the Ministry of Energy and Mineral Resources, there is a significant increase in installed capacity from less than 1.6 MW in 2018 to 48.79 MW in 2021. This is certainly encouraging. Solar power has become a clean energy that costs one of the cheapest today. The massive use of solar energy is the Indonesian government’s strategy to achieve the target of a 23% renewable energy mix by 2025. In addition to large-scale PV projects, the government has launched rooftop PLTS as a National Strategic Project (Proyek Strategis Nasional – PSN) of 3.6 GW.

In addition to utilizing the technical potential of solar energy in the areas where it operates, there is a need in the commercial and industrial sectors to use clean energy in their production and business operations. Nurul Ichwan, Deputy of Investment Planning – BKPM in the webinar “Business Going Green” organized by the Ministry of Energy and Mineral Resources and the Institute for Essential Services Reform, said that as many as 349 multinational companies have issued commitments to use 100% renewable energy in their business activities (RE100).

“In addition, other regulations such as the carbon border adjustment mechanism which will be implemented in the European Union will certainly encourage companies to switch to renewable energy so that they can be competitive with market demands, the easiest is rooftop solar power,” explained Ichwan.

Ichwan also added that as an offtaker, PLN plays an important role in this energy transition process.

“The big consideration lies with PLN, if they cannot receive the maximum supply of renewable energy, this transition process will not run quickly,” he explained.

The industrial sector’s need to reduce carbon emissions was justified by Karyanto Wibowo, Director of Sustainable Development DANONE, who explained that his company continues to strive to reduce greenhouse gas emissions from its business activities, starting from energy efficiency, carbon offsetting, and installing rooftop solar panels on factory facilities.

“We plan to use 100% renewable energy (RE100) in 2030, currently we have installed rooftop solar panels with a total capacity of 6.2 MWp in 5 locations. With this installation, only 15 percent of clean energy is produced, we still have to catch up to another 85 percent until 2030,” he explained.

Karyanto continued that regulatory innovation for the power wheeling scheme would greatly assist the industrial sector in utilizing renewable energy.

From the developer side, George Hadi Santoso, Vice President of Marketing Xurya Daya, highlighted several problems with installing rooftop solar panels related to permits from PLN.

“We encountered many obstacles in West Java and Central Java. PLN is not responsive, and has not implemented regulations issued by the Ministry of Energy and Mineral Resources. We were once asked to become premium consumers first,” explained George.

The availability of export-import kWh meter is also still a problem with the slow flow of roof PV installations.

Aries, PLN’s APP Division, who was also present online clarified that the regulations currently being implemented by PLN still refer to the Minister of Energy and Mineral Resources Regulation 49/2018 which was revealed in the PLN Directors Regulations number 18 and 49. The derivative rules for the Minister of Energy and Mineral Resources Regulation number 26 /2021 which is an update of Ministerial Regulation 49/2018 regarding rooftop solar is still in the process of being drafted by PLN.

“Services at PLN units are strongly influenced by queuing conditions. It is necessary to reorganize the service mechanism in each unit so that all consumers can be served properly,” explained Aries.

Fabby Tumiwa, Executive Director of IESR and General Chair of the Indonesian Solar Energy Association, reminded that the Minister of Energy and Mineral Resources Regulation No. 26/2021 has officially taken effect as of January 22, 2022, so it should have been implemented by that date.

“I hope this condition can be resolved soon so that there is clarity for licensing arrangements from 15 days to 5 days,” said Fabby.

The service industry that attended the ‘Business Going Green’ forum shared their experiences for taking part in this decarbonization effort. Antonius Augusta, Executive Director of Deloitte Indonesia, stated that in his institution, emission reduction actions are derived to individual actions.

“Globally, we are committed to using 100% renewable energy by 2030 in office buildings and using electric vehicles as operational vehicles. In Indonesia itself, sustainability action is carried out by looking again at work methods to reduce business trips. Some employees have also used rooftop solar panels as a personal initiative to help reduce emissions,” explained Augusta.

The selection of vendors and suppliers who also have a strong commitment to sustainability is one of Pricewaterhouse Coopers (PwC) Indonesia’s strategies. Marina Mallian, Human Capital Business Partner of PwC Indonesia, explained that the company is more focused on sustainable actions that are integrated in the daily activities of employees, such as prioritizing local meeting destinations as well as doing carbon offsetting.

“Installing renewable energy such as solar PV is a bit difficult, because the building (office) is not ours. Even for changing vehicles to EVs (electric vehicles), we have concerns about the availability of battery charging infrastructure.”