Indonesia’s rocky path to clean energy: Funding, policy, and commitment challenges

by: Hartatik

Jakarta – Indonesia’s energy transition came under scrutiny when a number of International Energy Agency (IEA) member countries tripled global renewable energy capacity. However, the view of the commitment needs to be stronger, especially in the face of global challenges related to climate change.

According to Energy Economics Observer from Gadjah Mada University, Fahmy Radhi, the low realisation of Indonesia’s renewable energy until the end of 2023, which only reached 13.1 per cent of the 23 per cent target by 2025, is clear evidence of Indonesia’s weak commitment to energy transition. Although several policy plans have been made, such as the Draft Law on New Energy and Renewable Energy and revamping the Electricity Law, their implementation still needs to be improved.

“Funding and technology are key factors in the energy transition. The need for a conducive investment climate and a clear funding commitment from the Just Energy Transition Partnership (JETP) or developed countries and the private sector is crucial,” he said on Monday, February 19.

Furthermore, he said the renewable sector needs a conducive investment climate. The funding commitment from the JETP or developed countries and the private sector, worth USD 21.5 billion (the majority of concession loans), must be clarified.

According to him, the energy transition will be challenging if limited to commitments. He also encouraged that one policy and another policy must support each other. For example, how renewable energy can be encouraged and at the same time, there is clarity on the stages of reducing fossil energy such as coal.

Radhi said an integrated policy is needed. He said that it is undeniable that Indonesia is blessed with abundant coal resources, one of which supports national electricity. Therefore, stopping coal as a power plant source cannot be instantaneous.

However, there must be clear and mature planning in applying technology to reduce the resulting emissions as part of the energy transition. He added that the departure of Air Products from the coal to dimethyl ether (DME) project in South Sumatra, for which the President has done groundbreaking, should be an important note. In addition, the economics must be carefully considered.

“The departure of investors is a signal of unseriousness. There must be a stronger commitment to migrate to cleaner energy,” Radhi said.

Inconsistent JETP prioritisation

Meanwhile, Minister of Energy and Mineral Resources Arifin Tasrif recently admitted that the government’s current priority is not the termination of coal-powered plant (PLTU) operations but the development of transmission infrastructure.

“(Before the termination of the PLTU operation), it seems that we must first fix the transmission, (so that later) our infrastructure can be optimized. We will be able to see the balance,” he said.

Arifin confirmed that JETP investment mobilization is expected to prioritize the development of electricity transmission infrastructure. The reason is that the energy transition can be carried out only if transmission is available. However, he continued, the total JETP commitment worth USD 21.5 billion so far is still held by the International Partners Group (IPG) or JETP donor countries and the private sector.

Transmission development is one of five investment areas in JETP. The other four are early termination of coal-fired power plant operations, acceleration of dispatchable and constant renewable energy, acceleration of variable renewable energy, and improvement of renewable energy supply chains.

The high role of coal in the electricity mix in Indonesia is still one of the obstacles to the development of renewable energy. Until the end of 2023, the portion of renewable energy + biofuel/BN in the electricity mix of PT Perusahaan Listrik Negara (Persero) is only 13.15 per cent.

While coal plants are the highest, reaching 67.66 per cent. Presidential Regulation Number 112 of 2022 concerning the Acceleration of Renewable Energy Development for Electricity Supply actually mandates the preparation of a road map for accelerating the operating period of PLTU. However, until now, the road map, which is planned to be contained in the Decree of the Minister of Energy and Mineral Resources, has not yet been published.

Meanwhile, the National Energy Council (DEN) plans to reduce the renewable energy target in the primary energy mix, as stated in the draft Presidential Regulation (RPP) for the renewal of the National Energy Policy. The target is lowered from 23 percent to 17-19 per cent by 2025. The consideration is the unattainability of the 7-8 per cent economic growth assumption in the current national energy policy.

As an effort to face this challenge, Radhi encourages the government to strengthen commitment, ensure policy alignment, and build a conducive investment climate. Only with concrete and coordinated steps can the energy transition towards cleaner energy sources be achieved, so that Indonesia can play a more proactive role in combating global climate change.

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