Slow progress on Indonesia JETP raises concerns about coal transition

Almost 18 months in, Indonesia’s plan to accelerate its transition to clean energy is faltering as little has been done to retire coal plants, amid calls for more financing and a scaling up of wind, solar, and geothermal. Indonesia’s Joint Energy Transition Partnership, or JETP, was announced in November 2022, at the G20 summit of leading economies in Bali. It promised $20 billion in financial support, with pledges led by the United States and Japan, along with other high-income economies and the private sector to transition the world’s fourth most populous country away from coal. JETPs are multilateral cooperation mechanisms that aim to provide coal-dependent economies public and private financing for the early retirement of coal-fired power plants and for the scaling up of cleaner alternatives. Besides Indonesia, JETPs have been announced for South Africa, Vietnam, and Senegal. “JETPs prioritize assisting developing countries in transitioning away from coal, given that coal fired electricity generation is the main contributor to carbon emissions in the power sector,” said Melinda Martinus, a researcher at the ISEAS-Yusof Ishak Institute in Singapore. The goals of Indonesia’s JETP are to shift the country’s projected emissions peak forward to 2030 while reducing the power sector’s emission cap; bringing forward the power sector’s net zero emissions target by 10 years; and accelerating renewable energy deployment to at least 34% of all power generation by 2030. Many hoped this would herald a shift in energy and climate policy for a country that had the fastest growing per-capita coal emissions of any G20 country since 2015. But things have gotten off to a slow start. The initial Comprehensive Investment and Policy Plan, which sets out the country’s financing needs and guidelines for dispersing JETP funds, was delayed three months and only released late last year. There are also concerns that the government’s focus on biomass, biodiesel, and co-firing coal with biomass could limit the effect of the JETP by merely shifting emissions from coal-fired power plants to other polluting power sources. “When you see funding just for energy transition coming to any large developing country, you would hope it would be used for the right things,” said Tommy Pratama, the executive director of Traction Energy Asia, a Jakarta-based nonprofit. Yet Indonesia’s Parliament is currently debating a new and renewable energy law that seeks to continue the use of coal, directly contradicting the goals of the JETP. The reason, Tommy worries, is business interests. “In Indonesia, the government needs the revenue from palm oil biodiesel, timber plantations for wood chips and coal to offset the huge subsidies that it provides those industries, and that’s an obstacle,” Tommy said. Why the focus on coal Like South Africa, where the first JETP was announced in 2021, Indonesia is a major coal producer and one of the largest exporters globally, according to the International Energy Agency. The country has a large fleet of coal-fired power plants, of which more than 60% is 10 years or younger, as Indonesia has been seeking to boost domestic consumption. It is now likely the world’s sixth-highest fossil carbon dioxide emitter, with a global share of over 3% of CO2 emissions. Because coal accounts for more than half of Indonesia’s fuel-based emissions, retiring coal plants is seen as essential to reducing the country’s greenhouse gas footprint. A third JETP was announced in Vietnam weeks after Indonesia’s. A fellow Southeast Asian country, Vietnam has, like Indonesia, rapidly expanded its coal-fired electricity generation fleet in recent years. Coal plants in both countries were primarily supported by Japanese, Chinese, and Korean financial institutions, and the plants' relatively young age is one reason JETP financing for early coal-plant retirements was deemed necessary. “The average age for coal-fired power plants in Asia is 13 years, and to achieve net zero targets, they must be retired by the age of 25,” ISEAS’ Martinus said. Slow to adopt renewables Indonesia is lagging behind on clean energy alternatives to coal — one of the JETP’s goals. In 2019, only 0.2% of the country’s electricity consumption came from solar and wind, despite abundant available solar and wind resources across the archipelago. Geothermal energy — for which Indonesia has more estimated potential resources than any other country in the world — also remains vastly underdeveloped. Building a clean energy industry could benefit economic development in Indonesia and Southeast Asia as a whole, Martinus noted. “There will be an increasing demand for components needed for energy transition, such as solar cells, silicon and also battery storage,” Martinus said. “Countries who are capable of producing these components stand to benefit.” Funding gaps and conflicts of interest The $20 billion figure for Indonesia’s JETP is not nearly enough to meet the coal retirement and clean energy expansion goals, nor the country’s accelerated climate targets, according to Martinus. “Indonesia requires $67 billion to finance projects for energy transitions. Even with JETP funding, Indonesia still faces a 70% financing gap,” Martinus said. This lack of funding could mean less coal plants are retired, according to Paul Butarbutar, the executive director at the Indonesia Center for Renewable Energy and who’s part of the Indonesia JETP secretariat. “JETP intends to accelerate this phase out, but if no one would be willing to pay then there will be no phase out,” Butarbutar said. Another concern is that most of the money for both Indonesia and Vietnam will come in the form of concessionary loans, rather than grants, which “could strain the fiscal capacity of recipient countries,” Martinus added. Some of the gaps are expected to be filled by the private sector, which is responsible for mobilizing at least half of the Indonesia JETP financing. One group meant to be leading that effort, the Glasgow Financial Alliance for Net Zero, declined to comment about the private finance gap and delays the JETP is facing. Another issue raised is that the main backing countries might have priorities that conflict with the JETP. For Traction Energy Asia’s Tommy, a big concern is biomass, which several of Indonesia’s major JETP funders are behind. The Indonesian government has been promoting the idea to replace some coal with wood pellets — biomass — and co-fire it with coal in power plants. Wood pellets are sourced from wood plantations, but also tropical rainforests. Yet the science shows that woody biomass is limited as a climate solution, due to emissions from land-use change and deforestation. “Japan is a big funding partner, they’re pushing biomass,” Tommy said. “European countries too, and especially the United Kingdom, they’re also not calling out the dangers of funding unsustainable energy choices such as biomass because they are doing it too.” Another limitation is that the JETP only applies to grid-connected coal power plants, according to Tommy, and not so-called captive coal plants, which are built to power factories and industrial parks. Factor this all in and Indonesia emissions are continuing to rise despite the 18 months passed since the JETP announcement — with coal consumption up 33% in 2022 compared to 2021, according to the Global Carbon Project, and expected to have risen further in 2023. The JETP path ahead The slow progress and limited impact could mar the future of JETP programs globally. In fact, since the dual announcement of Indonesia and Vietnam’s JETP in late 2022, only one other program has been announced: Senegal’s, under a European Union-led €2.5 billion (about $2.67 billion) deal. However, there has been discussion about financing more programs for other low- and middle-income countries, with India and the Philippines often mentioned as potential recipients. Meanwhile, the next step in Indonesia is deciding the initial recipients of JETP funding. Tommy noted, though, that civil society participation in sharing these decisions is severely lacking, leading to concerns about who will be chosen. “At the moment, there are hundreds of projects being considered for investment, but it's unclear what the criteria for selecting which qualify for funding, given the Indonesian government's prioritization of biomass and co-firing coal,” Tommy said.