Indonesia, the world’s largest coal producer, faces a critical juncture in its energy future. While the nation has set an ambitious target of achieving net-zero emissions by 2060,
the absence of a comprehensive action plan and necessary financial support poses significant challenges to realizing this goal. The Indonesian think tank, IESR (Institute for Essential Services Reform), has called for a well-defined energy transition strategy and a financing program to facilitate a smoother shift away from coal power and toward renewable energy sources.
The Current Energy Landscape
Indonesia’s energy sector is currently dominated by coal-fired power, constituting over 65% of the nation’s installed generation capacity of 82GW. In contrast, renewable energy capacity stands at 12.5GW, accounting for just 14.5% of the total generation mix. To achieve its ambitious renewable energy targets of 34% by 2030 and 100% by 2060, Indonesia faces substantial challenges, both in terms of policy and financing.
The Need for a Comprehensive Plan
One of the most pressing issues is the absence of a clear and comprehensive energy transition plan. The private sector, essential in driving this transition, requires well-defined government strategies and financial support mechanisms to make substantial investments in renewable energy. IESR emphasizes the importance of crystallizing Indonesia’s energy transition plan, outlining targets, and providing transparency regarding policy initiatives.
Financial Support and Incentives
IESR further highlights the need for financial incentives to attract investments in greenfield renewable energy projects. Tax holidays, preferential interest rates on loans, and regulatory benefits, such as grants, can encourage both private and public sectors to adopt cleaner energy sources. The think tank suggests that Indonesia can look to international programs like the $20 billion Just Energy Transition Partnership and the Asian Development Bank’s Energy Transition Mechanism as models and adapt them to suit local needs.
An Indigenous Energy Transition Financing Program
To effectively address the country’s unique challenges, IESR recommends the creation of an indigenous energy transition financing program. This initiative should involve input from local stakeholders and be tailored to Indonesia’s specific circumstances. Such a program can provide the financial support necessary to facilitate a smoother transition away from coal power.
A Holistic Approach
Recognizing that energy transition is intricately linked to social and economic development, IESR calls for a holistic plan that aligns targets across various ministries and sectors. This approach ensures a coordinated effort towards achieving Indonesia’s energy transition goals.
Policy Review and Streamlining
The think tank underscores the importance of reviewing existing policies and regulations related to energy transition. Streamlining these rules can simplify the broader energy transition agenda and create a more favorable business climate for renewable energy development. Additionally, these policies should aim for more ambitious renewable energy targets and address the various risks associated with the sector.
Access to Data
Lastly, IESR emphasizes the importance of transparent renewable energy data. Accessible and accurate data benefit all stakeholders involved in the energy transition process, aiding in informed decision-making and fostering collaboration.
Indonesia stands at a critical juncture in its pursuit of an energy transition. To achieve its ambitious renewable energy targets and reduce carbon emissions, the nation must develop a comprehensive action plan and implement a financing program that supports a shift away from coal power. By embracing these recommendations from the IESR think tank, Indonesia can take significant steps toward a sustainable and cleaner energy future.