Cheryl Tan

Published: November 29, 2022

Topic: COP27 | Stories

This story was published with the support of Climate Tracker’s COP27 Climate Justice Journalism Fellowship.

Little is known about whether the funds would be given as concessionary loans – which formed the bulk of the JETP finance that was given to South Africa last year–or if there would be a larger proportion of grants given to Indonesia.

At the G20 Summit, the G7 announced a US$20 billion fund to support Indonesia’s phase-out from coal and other fossil fuels. While the plans to cut its power sector emissions are ambitious, these goals would still not be sufficient in helping the world limit warming to 1.5 ℃ temperature rise, according to energy analysts.

The grants and concessionary loans under these funds–known as the Just Energy Transition Partnership–can only be accessed by Indonesia upon cutting its power sector emissions to 290 million tonnes by 2030.

Indonesia has also set a goal of reaching net zero emissions in its power sector by 2050 – a decade before its current target in its National Climate Plan. Indonesia will also double its pace of renewable energy deployment so that it accounts for at least 34% of all power generation by 2030.

Achmed Edianto, environmental think-tank Amber’s Asia Electricity Analyst said that while having a net zero power sector by 2050 is a great step forward, it is still ten years too late for a pathway that would align the world to temperature rise of 1.5℃ citing a coal report by the International Energy Agency (IEA).

“To align with this, Indonesia should fully phase out unabated fossil fuel by 2040 and target a net zero electricity sector by that date,” he added.

The latest coal report, released on Tuesday by the IEA, found that while there has been an encouraging momentum to expand clean energy, a major unresolved problem is to deal with the massive amounts of coal assets worldwide.

There are around 9,000 coal-fired power plants around the world representing 2,185 gigawatts of capacity, said the report. It noted that coal transitions are complicated as the assets are relatively young in the Asia Pacific region.

Mr Fabby Tumiwa, the executive director of the Institute for Essential Services Reform, told ST  that for Indonesia to cut emissions by 290 million tonnes, at least 35.8 megawatts of coal power plants would have to be shut down by 2030.

If these power plants are not retired early, then at least 19 megawatts of new coal power plants, which are currently in the pipeline,  would have to be cancelled.

An analysis by E3G has found that Southeast Asia has experienced a dramatic shift away from new coal power plants, with an 81% contraction of their project pipelines since the Paris Agreement in 2015.

Mr Leo Roberts, a research manager on fossil fuel transitions at E3G said that Indonesia has scrapped a number of projects in the past year, including four which were cancelled after China announced it would no longer finance coal power projects overseas.

But to further Indonesia’s coal phaseout, the $20 billion in public and private finance has to be new and additional, and not recycled from existing finance that has earlier been committed to Indonesia, he added.

An initial US$10 billion in public funding from countries such as the United States, the United Kingdom, and Japan will be provided to Indonesia over a three-to-five year period.

An additional US $10 billion in private capital will also be mobilised by the Glasgow Financial Alliance for Net Zero (GFANZ) – the world’s largest coalition of financial institutions.

Little is known about whether the funds would be given as concessionary loans – which formed the bulk of the JETP finance that was given to South Africa last year–or if there would be a larger proportion of grants given to Indonesia.

“Ideally, about 5 to 10%  of this should come in the form of grants, to help Indonesia come up with its policy reform in the push for renewables as well as to restructure its economy. There will also be a huge socioeconomic cost in transitioning these workers away from the coal industry to the clean energy sector,” said Mr Tumiwa.

Mr Putra Adhiguna, an energy analyst at the Institute for Energy Economics and Financial Analysis pointed out that more detailed terms of the loan agreements would be needed.

“At a sufficiently low rate, it will help Indonesia to wean off its coal addiction,” he said.

However, as a major coal-producing country, Indonesia currently caps its coal price below USD$70 per tonne, though government mandates.

This means that Indonesia’s state electricity company Perusahaan Listrik Negara will be able to obtain coal at a lower price, compared to Indonesia’s market benchmark prices which are hovering around USD $300 per tonne.

This would thus reduce their incentives to look for other alternatives like renewable energy.

Therefore, the $20 billion financing should help to create more room for the role of renewables, although it is not clear yet whether the domestic coal price control policy will be revisited amid the push to phase out coal through the JETP.

“However, associated parties are certainly aware that the policy to artificially manage coal prices has a strong knock-on effect on Indonesia’s energy transition ambition,” he added.