Indonesia’s Clean Energy Transition Facing Hurdles to Execution

Indonesia’s Just Energy Transition Partnership (JETP), unveiled in November last year, saw governments and financial institutions laud the benefits the agreement would bring in advancing climate strategy and financing in the Southeast Asian nation.

However, according to a report by Fitch Solutions, a separate division of the Fitch Ratings Group, challenges lie ahead to balance the burdens of this large and diversified group of global investors with equitable financial and environmental outcomes for the developing nation.

Fitch Solutions says the JETP pledge has been useful in directing investor focus to emerging markets, where climate financing is most needed, however, there may be difficulties in enacting a fair deal for Indonesia that progresses the country’s green efforts while not harming its economy and increasing its debt burden.

Indonesia aims to mobilise US$20 billion of capital over the next three to five years from both the public and private sectors to alleviate its reliance on coal and see a peak in power emissions by 2030.

Lack of Consensus

The country also hopes to increase the share of power generated from renewables to 34%. Public funding will be contributed by International Partners Group members, which include the US, Canada, UK, EU, Germany, France, Italy, Norway, Denmark and Japan.

However, competing interpretations of climate “transition” among countries leading the JETP may challenge negotiations, particularly in relation to coal phase-outs.

The lack of consensus among major developed market economies on phasing out coal may hinder cooperation and the effectiveness of Indonesia’s JETP and with it being touted as a potential roadmap for other emerging markets, the issues could influence the direction of travel of other recently signed JETPs, such as in Vietnam and India.

Indonesia still relies on coal to meet its energy needs and while the country has pledged to scale down its dependency on coal, more than 100 coal-fired power plants are still scheduled for development. Additionally, the JETP deal does not cover the cessation of construction of ‘captive’ plants; these are coal-fired power plants used to power factories and industrial parks and are not connected to the main energy grid.

A comprehensive investment and policy plan that lays out how Indonesia intends to green its power supply and reduce greenhouse gas emissions is due for release in August.