JETP aims to make Indonesia less dependent on coal

With Just Energy Transition Partnerships (JETP), a group of industrialized nations wants to subsidize a fair energy transition in selected emerging and developing countries and thus promote climate protection. At the G20 summit in Bali in November 2022, the JETP was announced between Indonesia and the G7 countries as well as Denmark and Norway. It is intended to contribute to the Indonesian energy transition. 

Indonesia needs increasing amounts of energy for its growing economy. The increasing demand is largely met by coal, which is abundantly available in the country. As a result, Indonesia already ranks 8th among the largest emitters of CO2 worldwide. 

By mid-2023, Indonesia and the donor countries want to draw up an investment plan to achieve the ambitious JETP targets. Emissions from electricity generation are set to peak by 2030, seven years ahead of schedule. Climate neutrality is therefore already being sought for 2050, not by 2060 as previously planned. Coal-fired power plants are to be taken off the grid earlier and renewable energies are to be expanded more quickly. It is planned that renewables will cover around 34 percent of electricity generation in 2030. However, their share has stagnated at around 13 percent for years. According to Reuters news agency, the investment plan could be published in August 2023. 

Many actors involved 

By 2027, the JETP donor countries should mobilize 20 billion US dollars for various projects, half each through public funds and investments from the private sector. The federal states have set up a JETP secretariat specifically for coordination. Several actors are accompanying the project: The Asian Development Bank (ADB) is to provide institutional support. The Glasgow Financial Alliance for Net Zero, an association of major international banks to which Deutsche Bank belongs, is also said to play a key role in private investment. 

The EU and its member states plan to contribute $2.5 billion, including $1 billion through the European Investment Bank. As part of its Global Gateway connectivity initiative, the EU also included the JETP with Indonesia as a so-called lighthouse project. 

JETP is intended to be a long-term partnership. Much higher amounts and high compliance standards are likely to be required to achieve the goals. The rating agency Fitch assumes that the implementation of the JETP is subject to risks. However, she expects that the partnership could have a noticeable impact on Indonesia's energy sector in five to ten years. 

The plan should explicitly take into account sections of the population that are particularly affected by the negative effects of the coal phase-out. These include, for example, people whose work and livelihood is directly dependent on the coal industry. 

Coal is the most important energy source 

Coal is plentiful in Indonesia. Fossil fuels are therefore the most cost-effective option for the emerging country. Their share in the electricity mix is correspondingly high: the country generates around two-thirds of its electricity from domestic coal. The expansion of renewables is being pushed ahead. However, the additional capacities can just about keep up with the sharply increasing electricity requirements of the rapidly growing economy. 

For an energy transition, political actors have to overcome much higher hurdles than in developed countries. They must use far fewer financial resources to keep energy prices affordable for 275 million people, thereby eradicating poverty and creating prosperity. In addition, the export of coal is an important source of income for the Indonesian national budget. In 2022, exports reached a new record of $55 billion. However, where there is overcapacity in coal-fired power, the government has shown its willingness to shut down old coal-fired power plants with the financial support of international donors.