Coal-reliant Indonesia receives $20 billion to boost green energy

Coal barges are anchored on Mahakam River in Samarinda, East Kalimantan, Indonesia, Dec. 19, 2022. Indonesia has vast renewable and green energy potential from solar, wind, geothermal, and other sources, experts say. Dita Alangkara/AP

February 14, 2023

Indonesia, one of the largest coal-producing countries, agreed to drastically reduce its reliance on fossil fuels with the aid of a $20 billion energy transition deal, the largest of its kind. But more energy innovation is still needed, regional experts say.

In Indonesia’s region of East Kalimantan, the country’s dependence on coal is on full display.

Driving on the region’s toll road, passersby can watch excavators digging coal from shallow pits as trucks filled with the carbon-rich rocks rush by. Under a bridge in Samarinda, the region’s capital, hundreds of mammoth, jet-black mountains of coal sit in barges being pulled along the waterway, headed to plants across Indonesia or other countries.

They’re sights that Indonesia has pledged to phase out – or at least drastically reduce – by agreeing to some five schemes with international stakeholders, including the largest-signed $20 billion Just Energy Transition Partnership deal. While the deals aim to turn one of the largest coal-producing countries toward its vast greener energy sources, experts warn that financial, policy, infrastructure, and other challenges need to be overcome.

Indonesia’s energy transition is “very unique” because of high economic growth, geography, population centers, and clean energy potential, said David Elzinga, a principal energy specialist at the Asian Development Bank.

Despite Indonesia’s energy potential from solar, hydropower, geothermal, wind, and other sources, only some 12% of them are tapped, according to the International Renewable Energy Agency. Nearly all energy demand is met by fossil fuels, with 60% coming from highly polluting coal.

That means people like boat maker Jembong, who like many Indonesians uses only one name, can rely on solar for a lightbulb or to watch television. But for the energy-intensive power tools he uses to handcraft boats from his home on Karampuang Island, he needs diesel.

“If I can’t use the diesel engine, I can’t work,” he said.

It’s impacted the environment: In 2021, Indonesia’s energy sector emissions were around 600 million tons of carbon dioxide, the world’s ninth highest, according to the International Energy Agency. And population and economic growth are expected to triple the country’s energy consumption by 2050.

“It’s a challenging environment to make change while you have such substantial growth,” said Mr. Elzinga. “It is different than a developed country which is characterized by having significant financial resources and low economic growth.” Many more-developed economies have stronger renewable ambitions, though researchers say no country is currently in line with global climate goals.

Indonesian officials have signaled they’ve started the shift: They’ve announced new regulations around solar, set a goal to raise the market share of electric vehicles in Indonesia to 25% of total vehicle sales by 2030 and have deployed charging stations. But experts warn Indonesia is lagging behind its Southeast Asian peers.

Indonesia has voiced it needs help from more-developed nations.

“We don’t want to be limited in terms of our ability to grow economically,” said Deputy Coordinating Maritime Affairs and Investment Minister Rachmat Kaimuddin. “Industrialized nations can support us.”

With the new JETP deal, Indonesia will aim to reach net zero emissions from the power sector by 2050, bringing forward its target by a decade, and reach a peak in those emissions by 2030. It’s increasing its target for renewable energy to make up over a third of all power generation by 2030, which would mean doubling the pace of current deployment.

But financing remains an obstacle, said Elrika Hamdi, an Indonesia-based energy finance analyst at the Institute for Energy Economics and Financial Analysis. By one estimate, Indonesia will need up to $2.4 trillion in cumulative investment across the energy system by 2050 – a number far larger than the money currently pledged.

“We still have a long way to go to find out ... how we could gather up the financing to do this,” said Ms. Hamdi.

How the money is provided – be it loans, grants, or other funding schemes – is also a concern, said Grita Anindarini, a program director at the Indonesian Center for Environmental Law.

“We just want to make sure that these funds won’t lead to a debt trap,” said Ms. Anindarini.

Ms. Hamdi raised concerns over how money from transition schemes could be spent. In a recent report, she critiqued “a lack of disclosure on the selection criteria” for plants selected for early retirement buyouts by Indonesia’s state-owned electric company, PLN, including some plants that will be “beyond their economic useful life by 2055.” JETP funding could be used to support the buyouts.

“PLN should retire them within the next couple of years and write them off,” Ms. Hamdi wrote in the report.

Another concern raised by activists is that the JETP deal doesn’t make clear what, if any, restrictions it will put in place regarding Indonesia building new coal plants, or whether Indonesia would be required to decrease coal exports. A 2022 presidential regulation provides an exemption to build previously planned coal plants or those attached to nationally strategic projects.

Coal is a valuable part of Indonesia’s economy, with the country being the largest exporter by tonnage in the world. Customers include China, India, and Japan. The war in Ukraine has caused a spike in energy costs, with the increased price likely to remain for the next two or three years, said Ms. Hamdi.

“You can understand the rationale for them wanting to develop their industries and their natural resources,” said Ms. Elzinga. “The responsibility of the development community and those who want to support Indonesia is very much to come up with solutions that allow them to do both.”

In a written statement sent to The Associated Press, Darmawan Prasodjo, the CEO of PLN, wrote that the company has already canceled some coal-fired plants in their near-term business plan and is “committed to lead the energy transition in Indonesia.”

Muliawan Margadana, vice chairman of the Indonesia Mining Association, and experts raised concerns over the future of communities reliant on the coal industry, which makes up 35% of East Kalimantan’s GDP and employs nearly 9% of its population.

“More than 250,000 people are directly employed by coal mining. If we calculate their families, about 1 million people are impacted,” said Mr. Margadana.

But he said that reskilling workers is possible – something Hamdi agrees with.

“What’s important, and will be considered as just, is how the transition funding will be allocated to help these impacted workers, whether through upskilling, reskilling, or community development,” said Ms. Hamdi.

Domestic energy policy is also not up to speed with the transition – especially for solar energy, which is a key source on Indonesia’s pathway to net zero – noted Daniel Kurniawan, a researcher who focuses on solar for the Institute for Essential Services Reform.

There is a lack of a solid policy-making environment and political commitment for Indonesia to “transition to clean energy amidst the overcapacity, driven by overreliance on coal power,” he said. “Although that is bound to change with JETP.”

Geography presents another challenge. Indonesia is a large archipelago with significant differences in energy resources, distribution, and population centers, said Ms. Elzinga. For example, Java, the country’s administrative center, accounts for around 60% of the population and some 75% of electricity consumption, but only a small percent of renewable potential.

While the challenges are varied, they’re not insurmountable, said Ms. Hamdi. Her organization and others are monitoring developments with Indonesia’s energy transition.

“We have to watch as well how this energy transition will create a better impact and a better future for our communities,” said Ms. Hamdi. “It has to be for the whole range of citizens.”

This story was reported by The Associated Press. Sibi Arasu reported from Bengaluru, India. AP photojournalist Dita Alangkara contributed from Indonesia.

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