Indonesia's clean energy shift doesn't hinge on financing, but on the feasibility of projects, according to a JETP official.
Indonesia, a country heavily reliant on coal for electricity, is grappling with the slow procurement of clean energy by Perusahaan Listrik Negara (PLN), the state-owned electricity company. The oversupply of electricity has led to a lull in the adoption of renewable energy sources.
The Indonesian government, however, is not standing still. The Just Energy Transition Partnership (JETP) is currently exploring the potential for renewables to replace coal in captive power facilities, such as those used in nickel and aluminium smelters. Industrial units in the power generation sector, under pressure to reduce carbon emissions and diversify energy sources, are potential candidates for this transition.
The JETP programme, launched in 2022 with an initial US$20 billion financing promise from rich countries, lists around 40 priority renewable energy projects. Some of these include the Muara Laboh geothermal project in West Sumatra and a solar farm in Saguling, West Java.
However, the path to a cleaner energy future is not without its challenges. The margins on PLN projects are low, making them unattractive to investors. The total investment required for all JETP projects is US$97.6 billion, leaving a US$76 billion funding gap.
One issue with acquiring funding for renewables in Indonesia is that most projects tend to be widely spread out across the archipelago and are relatively small. This makes it difficult to attract large-scale investments.
President Prabowo Subianto announced that Indonesia aims to phase out all fossil fuel power plants and develop over 75 GW of renewable energy capacity within the next 15 years. However, this ambitious plan has been met with scepticism, with some calling it "economic suicide."
Despite these challenges, Elrika Hamdi, deputy head of Indonesia's JETP secretariat, stated that the country has no problem in accessing transition finance. In fact, some US$230 million has already been disbursed through JETP in grants and technical assistance, as well as US$1 billion in equity investments and loans for approved projects.
The key to unlocking this potential lies in finding ways to bundle projects and attract skilled aggregators and project managers. Cleaning up captive power holds potential for investors, but presents different risks, such as finding the right facility owners and piping clean energy into industrial or commercial parks.
The withdrawal of the US from all JETP programmes this month has not affected the US$20 billion funding pool, as Germany has stepped up its contribution to the fund.
In conclusion, Indonesia's renewable energy transition is a complex endeavour, fraught with challenges but brimming with opportunities. With the right strategies and investments, the country can pave the way towards a cleaner, more sustainable future.
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