UK, US, and EU Lead $20 Billion Deal to Help Wean Indonesia Off Coal Power

 

 

November 15, 2022 - A major multi-billion pound deal to help wean Indonesia off coal-fired generation and ensure emissions from the nation's fast-expanding power sector peak by 2030 has been announced today, brokered by a coalition of industrialised nations, including the US, Japan, and the UK.

More than a year in the making, the so-called Just Energy Transition Partnership (JETP) aims to mobilise $20bn of investment over the next three to five years to help accelerate Indonesia's transition away from unabated coal power and towards cleaner, renewable sources of electricity, the governments confirmed this morning.

The deal sets out a pathway for Indonesia to bring forward the planned peak in its power sector emissions by seven years to 2030, backed by $10bn of public money from the partnership group of the UK, Canada, France, Germany, the US, Norway, Italy, Denmark, and the European Union.

In addition, at least $10bn of private finance is expected to be folded into the JETP by the Glasgow Financial Alliance of Net Zero (GFANZ), the Mark Carney-led initiative launched at COP26 last year that is backed by many of the world's largest investment firms.

It also includes a loan guarantee aimed at enabling the Indonesian government to extend its borrowing at "affordable" World Bank terms by up to $1bn to help support the partnership, according to the UK government.

The deal, which was launched at the sidelines of the G20 summit in Indonesia and coincides with the COP27 UN Climate Summit in Egypt, was described as "probably the single largest climate finance transaction or partnership ever" by a US Treasury official speaking to Reuters.

The JETP is modelled on a similar $8.5bn deal agreed with South Africa at the COP26 Summit last year that was also brokered by a group of industrialised nations to help accelerate the transition away from coal power. Similar deals are also currently under discussion with Vietnam, India, and Senegal, according to reports.

However, the South Africa deal has faced criticism from some quarters, with campaigners arguing the initiative has not moved fast enough to mobilise the investment necessary to bring forward the closure date for coal power plants.

British Prime Minister Rishi Sunak, who attended the formal launch of the JETP at the G20 Summit in Bali today, said the UK stood ready to support the delivery of the deal and help accelerate Indonesia's clean energy transition.

"I am proud to launch a new Just Energy Transition Partnership with the government of Indonesia," he said. "This will unlock billions in private finance for new green infrastructure."

Indonesia, which has committed to achieving net zero emissions by 2060, is heavily reliant on coal power, and with its economy rapidly expanding its demand for electricity is set to increase significantly in the coming decades. As such, it currently boasts a major pipeline of new coal-fired power plants in planning or development.

The JETP deal announced today is therefore expected to focus on both accelerating the early retirement of some of Indonesia's largest and oldest coal plants, while unlocking more investment in ramping up the nation's renewable energy capacity so as to allow the government to shrink its new coal plant pipeline.

As part of the JETP, the Asian Development Bank (ADB) today signed a memorandum of understanding with the country partners to jointly explore bringing forward the retirement of the 660MW coal fired power plant owned by CEP in West Java by up to 10 to 15 years.

Once a definitive agreement is reached over the coal plant's retirement, it is anticipated the ADB would provide senior debt in return for shortening the current power purchase agreement between CEP and Indonesia's state-owned electricity company PLN for the coal plant.

ADB president Masatsugu Asakawa hailed the agreement as a "landmark moment" that would help achieve significant carbon dioxide emissions reductions and provide a replicable model that could potentially be applied to other coal plants in Indonesia and more widely across Asia.

"We encourage other financial stakeholders to engage in the just and affordable energy transition here and across Asia and the Pacific," he said.

Meanwhile, GFANZ has formed a working group featuring Bank of America, Citi, Deutsche Bank, HSBC, Macquarie, MUFG, and Standard Chartered to attract billions of dollars of private sector finance and address barriers to investment in support of the JETP.

GFANZ said it would work closely with the Indonesian government to mobilise private sector investment, adding that the initial $10bn of government funding had the potential to generate "significantly more" in private finance in support of accelerating the country's transition towards clean energy.

Michael Bloomberg, GFANZ co-chair and UN Special Envoy on Climate Ambition and Solutions, said Indonesia held "enormous potential to build out clean energy and set an example for other countries working to grow their economies and cut their emissions at the same time".

"Turning that promise into reality - and speeding up the global transition to clean energy - requires public-private partnerships," he said. "By bringing financial firms to the table, we can multiply the impact of government commitments and attract more private investment to Indonesia."

The countries leading the JETP deal will be hoping it helps inject some much-needed momentum into the UN climate talks at COP27, while also providing evidence industrialised nations remain committed to mobilising climate finance to help developing nations decarbonise.

Industrialised nations have once again faced fierce criticism from climate vulnerable nations and environmental campaigners, who have highlighted rich nations' continued failure to meet the $100bn a year climate finance pledge at the heart of the Paris Agreement.

Alok Sharma, the UK's outgoing COP26 President, said the UK had been instrumental in pioneering the JETP models with South Africa and Indonesia, and that talks were also fast progressing with a view to launching another such deal with Vietnam before the end of 2022.

"JETPs are an innovative finance model that I am proud to say came out of COP26 and embody the ambition we called for in Glasgow," said Sharma. "They provide a means for partner countries to work with climate finance donors and private sector investors on a clean, just energy transition to create new jobs, economic growth, clean air and a resilient, prosperous future.

He added: "This country-led partnership will support Indonesia to accelerate its transition away from coal as part of the country's commitment to its 2060 net zero target."

Dr Achmed Shahram Edianto, an analyst for the think tank Ember based in Indonesia, said the JETP announced today "should be the final piece of Indonesia's puzzle to accelerate its energy transition".

Previous analysis by Ember earlier this year concluded that Indonesia could feasibly fully decarbonise its power sector by as soon as 2040, a decade earlier than the government's current target, if backed by strong political commitment and investment.  

"Under the JETP, Indonesia should maintain its remarkable momentum and show its leadership on accelerating the efforts to fully decarbonise its energy sector, while also ensuring the just transition for workers and communities that have historical reliance on fossil-based value chain economic activities," he said. "We are watching, seeing what is being planned to channel this deal to be integrated with government vision."

Further details regarding JETP deals with both India and Senegal are expected to emerge next year, with the former likely to be finalised to coincide with India's G20 presidency in 2023, the UK government said.

The news comes hot on the heels of India yesterday publishing details of its strategy for achieving a net zero economy by 2070, which sets out priorities for action across six sectors including electricity, transport, forest, finance, and industry, while also setting the stage for developing carbon capture and storage technologies.