Indonesia has unveiled a comprehensive plan to reduce carbon emissions in its on-grid power sector to 250 million metric tons by 2030 and increase the share of renewable energy generation to 44%. This ambitious strategy is part of the Just Energy Transition Partnership (JETP), a financing initiative supported by equity investments, grants, and concessionary loans from Group of Seven (G7) nations, multilateral banks, and private lenders. The primary goal of the JETP is to assist developing countries in transitioning to cleaner energy sources for their power sector.
Indonesia's investment and policy plan within the JETP was made public, outlining the pathway for the Southeast Asian nation to secure $20 billion in funding under this program. Initially, Indonesia had committed to capping emissions from the power sector at 290 million tonnes by 2030 and increasing the renewable energy share to 34%. However, the plan did not provide a clear roadmap for off-grid power systems at that time.
Notably, the plan excludes “captive power plants,” which are off-grid systems managed by industries for their own use. Currently, Indonesia has operational captive coal power stations with 13.74 gigawatts of capacity, with an additional 20.48 gigawatts in the planning stages. This surge is primarily attributed to the growth of the metal processing sector.
The exclusion of industrial coal-fired power plants from the plan is due to the need for authorities to find suitable ways to protect the nickel smelting sector, as explained by an official involved in the program. However, the plan emphasizes a commitment to identifying and implementing solutions for off-grid captive power systems in the future.
Without the implementation of this plan, Indonesia's greenhouse gas emissions are projected to exceed 350 million tons in 2030.
In terms of funding, the plan aims to secure $20 billion in G7 support, with $10 billion pledged from public sources and an additional $10 billion anticipated from private lenders. The plan identifies over 400 priority projects that would require at least $67.4 billion in investments. Of the $20 billion pledged, the plan designates $153.8 million as grants, with the remainder potentially consisting of concessional loans at below-market rates.
The Just Energy Transition Partnership office in Indonesia will match projects with appropriate financing terms and structures based on priorities. Private financing may include commercial loans at market rates, equity investments, or other arrangements.
The plan also outlines a strategy for the early retirement of 1.7 gigawatts of coal power capacity by 2040.
Indonesia joins three other countries in negotiating a Just Energy Transition Partnership. The G7 has made similar offers to Vietnam and South Africa, with different financial packages to support their transition to cleaner energy sources.
Experts emphasize the significance of the success of Indonesia's JETP, not only because it is the largest but also because it serves as a test of the G7's commitment to collaborating with developing nations on their transition to clean energy.
