Indonesia to unveil multibillion-dollar green energy deal at G20 meeting in Bali

Kuala Lumpur — Indonesia is on track to secure a clean energy partnership with rich countries when it hosts a G20 summit in November, obtaining international funding to cut its reliance on coal power and to implement a green and fair transition, energy analysts said.

The multibillion-dollar agreement is expected to help Indonesia retire coal-fired plants early and ramp up investment in renewables, backed by wealthy nations, development and private banks, and philanthropists.

Fabby Tumiwa, head of the Indonesia-based Institute for Essential Services Reform, an energy and environmental think-tank, said the deal would be unveiled at the Bali gathering of leaders of the world’s top 20 economies from November 15-16.

It has the potential to be “a big win for the presidency” of Indonesia’s Joko Widodo, while serving as an example to other G20 and coal-producing nations that are planning a shift to cleaner energy, such as India and China, he said.

At last year’s COP26 climate summit, the US, Britain, France, Germany and the EU offered an $8.5bn package to help SA achieve a just energy transition away from coal, but progress has been slow due to disagreements over the type of funding and how to deploy it.

Besides Indonesia, other countries — namely Vietnam, India and Senegal — are also in talks on similar partnerships.

Under the Paris Agreement to tackle global warming, Indonesia — the world’s eighth-biggest carbon polluter — has committed to cut its emissions by about 32% by 2030 versus business-as-usual levels, and hopes to reach net-zero by 2060.

But almost 85% of electricity in the Southeast Asian archipelago is generated from fossil fuels, with coal-fired plants supplying about 60% of Indonesia’s power needs.

Costly switch

Replacing coal power with renewable energy will be costly for Indonesia, which is  a developing country with limited funds still recovering from the economic fallout of the Covid-19 pandemic.

While the principles of a clean energy transition deal are set to be announced in November, more details on its scope and an investment plan outlining how the green shift will be financed is likely to follow in 2023, said Tumiwa.

The best renewable energy sources for Indonesia are solar, hydro and geothermal power, he added.

But switching to those will need finance of about $135bn by 2030 and the success of any transition deal will depend on pledges made by wealthy Western nations, he said.

“The (Indonesian) government would like to increase renewable energy to reach 40% of the electricity sector by 2030, and that requires a massive investment,” Tumiwa told the Thomson Reuters Foundation.

Renewables law awaited 

As the world’s largest exporter of thermal coal, Indonesia aims to increase the proportion of renewables in its energy mix to 23% by 2025, but has only reached about 12% so far.

Clorinda Wibowo, an energy expert at the World Resources Institute Indonesia, said Jakarta would likely announce at the G20 summit a list of coal power plants to be retired and schemes to promote greener energy use in all industries.

A renewable energy law is still being finalised, meaning that an energy transition deal with donors may lack details on implementation as these are still under deliberation at ministerial level, Wibowo said.

Alloysius Joko Purwanto, an energy economist at the Economic Research Institute for Asean and East Asia in Jakarta, said the first version of the deal would likely specify the total amount and outline key pillars such as decommissioning coal plants, investing in renewables, and modernising the power grid.

“Public acceptance will be low if the funds are given as a loan or debt,” he added, calling for consultation on the deal’s rollout with the public and civil society groups.

From forests to power

Indonesia’s forestry sector represents 55% of its total planet-heating emissions, compared with power at about 35%, noted Alessandro Gazzini, a partner at management consultancy Kearney in Jakarta.

However, after making headway in tackling deforestation in recent years, the government “has come to the realisation that the next phase of Indonesia’s net-zero path has to be sorting out the power sector”, he said.

Indonesia is home to the world’s third-largest tropical forests, but is also its top producer of palm oil and a major source of timber that many environmentalists blame for forest-clearing for plantations.

Since 2015, it has stepped up efforts to tackle forest fires, banned new permits to convert old-growth forest and carbon-rich peatland to other uses, temporarily suspended new permits for palm plantations, and set up an agency to restore damaged peat and mangroves.

Cleaning up the power sector will also be a big challenge, said Gazzini, due to a pipeline of new coal-power plants and more than 20 powerful coal-mining firms that provide vital revenue to the government.

Retiring coal plants early and boosting renewables to get to net-zero by 2060 will need funding of more than $2-trillion, he estimated, adding that pledges made under a transition deal at the G20 summit are likely to add up to less than $7bn.

Unlike Vietnam, India and China, Indonesia has done little to accelerate investment in renewables, meaning Jakarta may need to make reforms to enable a green energy transition, Gazzini noted.

That could include establishing an independent regulatory power agency and spinning off grid management from the national operator, he said.

“It is going to be hard to pull this off within the constraints of the current system,” he added.

Thomson Reuters Foundation