- Indonesia on track to receive international funding from rich countries to help green transition, p
- The multibillion-dollar deal will help it phase out coal-fired power plants early and boost its use of renewable energy.
- Last year, rich nations pledged $8.5 billion for South Africa’s just transition, and Vietnam, Senegal and India are negotiating similar partnerships.
Indonesia is on track to secure a clean energy partnership with rich nations when it hosts the G20 summit in November, securing international funding to reduce its reliance on coal and make a clean and fair transition, energy analysts said.
The multibillion-dollar deal is expected to help Indonesia phase out coal-fired power plants early and increase investment in renewable energy, with support from rich countries, development and private banks, and philanthropists.
Fabi Tumiwa, head of Indonesia’s Basic Services Reform Institute, an energy and environmental think tank, said the deal would be presented at a meeting of leaders of the world’s 20 largest economies in Bali on Nov. 15-16.
It could be a “huge victory for the presidency” of Indonesia’s Joko Widodo, while also serving as an example to other G20 and coal-producing nations planning to switch to cleaner energy, such as India and China, he added.
At last year’s COP26 climate summit, the US, UK, France, Germany and the European Union proposed an $8.5 billion (~R155 billion) package to help South Africa achieve a “just energy transition” away from coal, but progress has been slow with – due to disagreements regarding the type of financing and methods of its distribution.
In addition to Indonesia, other countries – Vietnam, India and Senegal – are also negotiating a similar partnership.
READ | Cabinet approves $8.5 billion smooth transition investment plan
Under the Paris Agreement to combat global warming, Indonesia – the world’s eighth-largest carbon polluter – has committed to cutting its emissions by about 32% by 2030 from business-as-usual levels and hopes to reach net zero by 2060.
But almost 85% of electricity in the Southeast Asian archipelago is generated from fossil fuels – coal-fired power plants provide about 60% of Indonesia’s electricity needs.
Replacing coal-fired power with renewables will be costly for Indonesia, a resource-strapped developing country still recovering from the economic fallout from the Covid-19 pandemic.
While the principles of the clean energy transition agreement will be announced next month, more details on its scope and an investment plan outlining how the transition to clean energy will be financed are likely to come from will appear in 2023, Tumiwa said.
The best renewable energy sources for Indonesia are solar, hydro and geothermal energy, he added.
But the transition would require funding of about $135 billion (~2.5 trillion rand) by 2030, and the success of any transition deal would depend on pledges from rich Western countries, he said.
“The (Indonesian) government would like to increase renewable energy to reach 40% of the electricity sector by 2030, and this requires huge investment,” Tumiwa told the Thomson Reuters Foundation.
The Renewable Energy Act is pending
As the world’s largest exporter of thermal coal, Indonesia aims to increase the share of renewable energy in its energy mix to 23% by 2025, but so far it has only reached about 12%.
Clorinda Wibowa, an energy expert at Indonesia’s World Resources Institute, said Jakarta is likely to announce at the G20 summit a list of coal-fired power plants to be phased out and plans to promote greener energy use in all industries.
The renewable energy law is still being finalized, meaning the energy transition agreement with donors may lack implementation details as they are still being discussed at the ministerial level, Wibowo said.
Elaisius Joko Purwanta, an energy economist at the ASEAN and East Asia Economic Research Institute in Jakarta, said the first version of the deal would likely determine the total amount and outline key points such as decommissioning of coal-fired power plants, investment in renewables energy and modernization of the power grid.
“Public acceptance will be low if the funds are issued as a loan or debt,” he added, calling for public and civil society groups to be consulted on the rollout of the deal.
From protests to power
Indonesia’s forestry sector accounts for 55% of total global warming emissions, compared to energy, which accounts for about 35%, noted Alessandro Gazini, a partner at consulting firm Kearney in Jakarta.
However, after making progress in fighting deforestation in recent years, the government “has come to realize that the next step in Indonesia’s path to net zero must be to streamline the energy sector,” he said. Indonesia is home to the world’s third-largest rainforest, but is also a major producer of palm oil and a major source of timber, which many environmentalists blame for deforestation for plantations.
Since 2015, it has stepped up efforts to combat wildfires, banned new permits for converting old-growth forests and carbon-rich peatlands to other uses, temporarily suspended new permits for oil palm plantations, and created an agency to restore damaged peat and mangroves. .
READ | Drowning villages turn to nature to help Indonesia restore mangroves
Cleaning up the power sector will also be a big challenge, Gazini said, because of the pipeline of new coal-fired power plants and more than 20 powerful coal mining companies that provide vital revenue to the government.
He estimated that more than $2 trillion (~R36 trillion) in funding would be needed to phase out coal-fired power plants early and increase the use of renewables to zero by 2060, adding that pledges made as part of the G20 transition agreement , is likely to be less than $7 billion (~R128 billion).
Unlike Vietnam, India and China, Indonesia has done little to accelerate investment in renewable energy, meaning Jakarta may need to make reforms to transition to green energy, Gazini noted.
This could include creating an independent energy regulatory agency and separating grid management from the national operator, he said.
“It will be difficult to do within the constraints of the current system,” he added.