Indonesia, the world’s fourth-largest producer of coal and Southeast Asia’s largest gas supplier, has a strong connection to fossil fuels. However, the country’s population is increasingly supportive of climate goals, and the challenge for Indonesian policymakers lies in balancing the need for economic development, energy security, increased access to energy and affordability with the growing demand for a shift towards renewable energy sources (RES). The country’s reliance on fossil fuels and its abundant coal resources could prolong the use of existing infrastructure, complicating the energy transition. To address this, Indonesia is considering a multi faceted approach that includes a clear and consistent regulatory framework for RES development, a re-evaluation of its fossil-heavy strategy, and the creation of a transparent project procurement process. Indonesia’s final draft Rencana Umum Ketenagalistrikan Nasional (RUKN) or National Electricity General Plan, released in November 2023, provides a pathway for achieving net-zero emissions in the energy sector by 2060 (or sooner).
To help the country achieve its energy goals, in November 2023, Indonesia’s Just Energy Transition Partnership (JETP) unveiled the Comprehensive Investment and Policy Plan (CIPP) 2023, a road map for the country’s energy transition with an initial commitment of $20 billion. This was a follow-up to the launch of the JETP by the Indonesian government and the International Partners Group (IPG) on the sidelines of the G20 Summit in Bali, Indonesia, in November 2022. The IPG comprises the governments of Japan and the US, which are co-leaders of the partnership, as well as Canada, Denmark, the European Union, Germany, France, Norway, Italy, and the UK and Northern Ireland.
The CIPP, prepared by the JETP Secretariat team, outlines various scenarios with RES and CO2 reduction targets, recommends policy reforms and establishes a transition framework. It sets out five JETP investment focus areas (IFAs) till 2030. The first of these is transmission lines and grid deployment (IFA 1), which will span 8,000-14,000 ckt km and entail an investment of $19.7 billion. IFA 2 is early coal-fired power plant retirement, managed phase-out coal flexibility retrofits and early retirements, entailing an investment of $2.4 billion. IFA 3 is despatchable RES acceleration, involving a build-out of 16.1 GW at $49.2 billion. IFA 4 is variable renewable energy (VRE) acceleration involving a build-out of 40.4 GW at $25.7 billion. IFA 5 is RES supply chain enhancement.
By 2030, Indonesia’s annual average power sector investments are expected to exceed $15 billion, rising to over $25 billion during the 2031-40 decade and to nearly $30 billion in the 2041-50 period. Hydropower will account for the largest portion, with cumulative investments of over $100 billion by 2040. Geothermal and solar photovoltaic (PV) investments will each total over $55 billion by 2040. Investments in electricity networks will total over $50 billion by 2040, encompassing $42 billion in transmission and $9 billion in distribution.
The plan is to steer Indonesia towards an economically and environmentally sustainable net zero future, while also helping it play a significant role in the regional and global energy landscape. Indonesia is strengthening its cross-border interconnectivity in the Association of Southeast Asian Nations (ASEAN) region. It is working on two interconnections with Malaysia through Sumatra and Kalimantan, both of which are part of the larger ASEAN Power Grid (APG). As part of its commitment to APG, Indonesia also plans to work on the Nusantara grid project to connect the country’s main islands via high voltage submarine cables to optimise RES use across the country.
Power system overview
Indonesia has been working on fostering competition and reducing the monopoly of state-owned utility PT Perusahaan Listrik Negara (PLN) since the opening up of its electricity market in 2009, which enabled independent power producers (IPPs) to generate and distribute electricity to consumers. However, PLN and its subsidiaries still control the majority of the country’s installed capacity, as they hold the right of first refusal for electricity purchase and manage the transmission sector.
In September 2023, approximately 65 per cent of Indonesia’s installed electricity capacity of 71 GW was generated by PLN. Of that, 59 per cent was from thermal sources, 5 per cent was from hydro and 1 per cent was from RES. The remaining 35 per cent was contributed by IPPs and rented diesel.
The Indonesian power system is marked by an excess of power capacity in densely populated areas and shortages in remote regions. The lack of interconnections among the major islands hinders the utilisation of surplus power. Four main power systems account for 95 per cent of the country’s electricity demand: Jawa-Madura-Bali (70 per cent), Sumatra (17 per cent), Kalimantan (5 per cent) and Sulawesi (3 per cent). Regions such as Maluku, Papua and Nusa Tenggara have significant RES potential but low electricity demand due to underdeveloped generation and grid infrastructure.
As of September 2023, Indonesia’s transmission network comprised 63,433 ckt km of alternating current lines at the 150-500 kV voltage levels, while its transformer capacity stood at 164 GVA. The country’s transmission grid is mainly made up of 150 kV lines, with a limited number of 275 kV and 500 kV lines, concentrated in Java-Bali and Sumatra.
Future plans
To deliver Indonesia’s long-term emissions reduction goals and economic growth targets, the country is working towards decarbonising its fossil-fuel-dependent power sector. The JETP scenario under CIPP 2023 considers only grid-connected power sector emissions and targets, with a strong emphasis on new transmission interconnections, policy reforms to accelerate RES deployment and measures to reduce the role of coal in the power mix. The targets are quite ambitious, compared to the main scenario of the final draft RUKN. By 2030, the JETP scenario aims to establish an RES share of 44 per cent compared to 25 per cent in the final draft RUKN scenario. Moreover, several captive coal plants (off-grid), planned for industries including nickel, cobalt and aluminium smelters, will have to be addressed to fully decarbonise the economy.
Nevertheless, by 2050, Indonesia’s generation mix is set to undergo a significant transformation, with a strong RES focus. Currently, RES development is primarily centred on despatchable RES such as hydropower, geothermal energy and bioenergy. By 2050, Indonesia aims to rely heavily on VRE sources such as solar PV and wind for electricity generation.
JETP investments and funding sources
Public and private financing amounting to $20 billion has been committed under the JETP agreement, with the aim of catalysing the $97 billion of cumulative power sector investments required under the JETP scenario. As the JETP funds represent only a fraction of the total needs, realising this outlook will require the mobilisation of much higher funding from diverse sources of capital. The $20 billion JETP agreement comprises $10 billion in public finance from the IPG, and $10 billion in private finance facilitated by the Glasgow Financial Alliance for Net Zero Working Group members.
The public finance, to be contributed by IPG countries and the Energy Transition Mechanism, includes concessional loans at below-market rates, grants, technical assistance and non-sovereign guaranteed, non-concessional loans with risk-based pricing from public international financial institutions. This includes $153.8 million in grant funding, $141.6 million in technical assistance and $6.9 billion in concessional loans. Non-concessional loans at market interest rates, with greater political risk absorption and longer maximum tenors, will also be available. The IPG has pledged $384.5 million in equity investments. The $10 billion in private finance will be primarily driven by transition-aligned financing opportunities and generation of returns.
Conclusion
Indonesia’s JETP has outlined the CIPP for the country’s energy transition with the aim to lay an ambitious pathway for the power sector. The plan aims to modernise the power supply chain and optimise grid operations, with investments in electricity networks that are vital for interconnecting island systems and integrating RES. The JETP agreement has secured financing, but much greater funding from diverse sources of capital is required to realise its goals. The success of the JETP’s efforts will be crucial for Indonesia to achieve its long-term emission reduction goals and economic growth.
