At the G20 Summit being held in Bali this week, Indonesia President Joko Widodo and the leaders of the International Partners Group (IPG), co-led by the United States and Japan, announced the launch of the Just Energy Transition Partnership (JETP).
According to the joint statement released by IPG on 15 November 2022, the JETP aims to develop a comprehensive investment plan (the JETP Investment and Policy Plan) to achieve Indonesia's decarbonisation goals, the most significant ones being:
- bringing forward Indonesia's net zero target by ten years to 2050, with CO2 emissions from the power sector peaking in 2030 (seven years earlier than previous estimates);
- accelerating the deployment of renewable energy so that renewable energy comprises at least 34 percent of all power generation by 2030;
- accelerating, with IPG support, the early retirement of coal-fired power plants, which was prioritized and identified by the Indonesian government in the JETP Investment and Policy Plan as a necessary element to achieve the above targets;
- restricting the development of captive coal-fired power plants in accordance with the Perpres 112/ 2022, and collaborating to find and implement potential zero-emission and renewable solutions for power generation facilities outside Jawa-Bali, including captive power facilities, provided that:
- the solutions are affordable (priced similar or better than the non-renewable alternatives),
- reliable (can provide base load),
- and timely (can be deployed within similar or better timelines than the non-renewable alternatives) to balance the imperative of industrial development and economic growth of Indonesia with the commitment on net zero;
- freezing the existing pipeline of planned on-grid coal-fired power plants included in the current Rencana Usaha Penyediaan Tenaga Listrik (RUPTL) for 2021 – 2030, and reaffirming a full moratorium on any new on-grid coal power generation capacity in accordance with Presidential Decree on Renewable Energy (Perpres 112/ 2022); and
- mobilizing US$20 billion over the next three to five years for achieving Indonesia's decarbonisation goals, of which US$10 billion will be provided by the IPG members and the balance will be from the private sector.
This funding will be provided using a mix of grants, concessional loans, market-rate loans, guarantees, and private investments.
It has been reported that multilateral development banks and the Climate Investment Funds (a leading multilateral investor in developing countries) will account for about a third of the US$10 billion in public funding for Indonesia's JETP, with the Climate Investment Funds having already allocated US$500 million to aid Indonesia's energy transition. As for the US$10 billion to be provided by the private sector, US Treasury and State Department officials have announced that this will be funded by seven global banks.
The Indonesian JETP is Indonesia's most significant energy transition development to date, and the country's strongest commitment so far to wean itself from coal dependency which currently accounts for almost 60 percent of its energy mix.
The release of the Indonesian JETP also coincided with Indonesia and the Asian Development Bank (ADB) announcing the US$250 to US$300 million refinancing of the 660-megawatt Cirebon 1 power plant in West Java, on the condition that the facility be taken out of service 10 to 15 years before the end of its 40- to 50-year useful life. This agreement is the first under the ADB's Energy Transition Mechanism (ETM), an initiative to combine private investment funds, public finance and philanthropic donations to acquire or refinance coal power plants in Southeast Asia so that they can be retired earlier.
We expect to see more coal-fired power projects move towards early retirement over the next few years, given that this is the key condition underpinning the provision of public and private sector funding under the Indonesian JETP.