A group of rich nations and banks plan to invest $20 billion in speeding up Indonesia’s transition from coal to clean energy.
Japan and the US coordinated financial contributions from seven other national governments and the EU, as well as private sector partners.
The money will be spent retiring some of Indonesia’s huge, young fleet of coal-fired power stations and installing renewable energy to meet the country’s electricity demand instead.
Indonesian minister Luhut Pandjaitan announced the “just energy transition partnership” (JETP) on the sidelines of a G20 leaders summit in Bali on Tuesday.
It is a “groundbreaking model of international cooperation,” Pandjaitan told media, which would fulfill a promise to his granddaughter to “make policy that would benefit future generations”.
Fabby Tumiwa is director of the Institute for Essential Services Reform (IESR) and advised the Indonesian government on the deal. It “could help Indonesia to meet its net zero emissions goal by 2060 or sooner,” he said. “As one of the largest emitters, this means a lot to global climate efforts to limit warming to 1.5C.”
Indonesia will aim to peak emissions from its power sector by 2030 rather than the previous target of 2037. It has raised its 2030 target for the renewable share of electricity generation from 17% to 34%.
The government will “freeze the existing pipeline” of coal-fired power plants. Those already under construction are expected to be completed, but others in early stages of development will not go ahead.
Mafalda Duarte heads the Climate Investment Funds, which supported the deal. She told Climate Home: “If we were to allow these [already operating] plants to continue their economic life, then certainly we are out of this Paris Agreement goals of 1.5[C] and even more so if they continued to develop them.”
Financial terms unclear
Roughly half the $20bn package is to come from governments: the US, Japan, UK, Canada, Denmark, the EU, Germany, France, Norway and Italy. Banks are mobilising the rest.
The joint statement between Indonesia and its partners did not reveal who was contributing what, or on what terms. It said the package includes grants, loans at both concessional and commercial rates, guarantees and technical assistance.
The partners will continue talks on the financial terms and investment plan in the next three months.
The share of grants, as opposed to loans, is a point of contention – as with a similar deal in South Africa. In June, Tumiwa told Climate Home: “The government expects to have grants. It doesn’t really want to have a loan – for sure.”
Esther Tamara, from the Foreign Policy Community of Indonesia, told Climate Home: “Any financing is good news at this point. I am just wondering what kind of financing the JETP will be.”
She said that South Africa’s JETP “was much lauded at first but then not so much afterwards”. In both, there was “no transparency, little room for civil societies to contribute,” she added.
As of July 2022, Indonesia had 19GW of new coal capacity under construction and 7GW in planning stages, according to data compiled by Global Energy Monitor.
The partnership agreement states that support is “contingent on no new coal power capacity for instances where timely, zero-emissions, affordable, and reliable alternatives are available”.
The $20bn is due to be invested in the next three to five years. IESR estimates the total cost of Indonesia’s energy transition at $1.2 trillion – 60 times what’s on offer here. Duarte told Climate Home “this is a first move – a first package of support and more will be needed”.