Sources involved in drafting the document for Indonesia’s investment plan for a G7-led funding program to reduce carbon emissions in its power sector have stated that coal-fired power plants run by industrial estates will not be included.

The ruling signifies that Jakarta will not include a plan to phase out captive coal power plants in its comprehensive investment and policy plan (CIPP), which is necessary to receive the promised $20 billion in funding from the Just Energy Transition Partnership (JETP).

The schedule is set to be released on Wednesday for input from the public.

The JETP program provides funding through a combination of stock investments, donations, and low-interest loans from G7 members, international organizations, and private creditors. Its goal is to assist developing nations in transitioning towards more environmentally-friendly energy sources for their electricity needs.

According to an anonymous source, industries running coal-fired power plants were not included in the plan due to the need for more time to figure out how to safeguard the nickel smelting sector. The source also mentioned that this exclusion would only be temporary.

The exclusion will present a challenge for the biggest economy in Southeast Asia to achieve its goal of limiting power sector emissions to 290 million metric tons of CO2-equivalent by 2030. This is because the public sector will now have a larger responsibility in reducing emissions.

There are currently 13.74 GW of captive coal power stations in operation in the Southeast Asian archipelago, with an additional 20.48 GW in the planning stages. This increase is attributed to the growth of the metal processing industry, as stated in a July report commissioned by the Asian Development Bank.

Indonesia has promised to cease the construction of new coal-fired power plants, but continues to permit them for the purpose of smelting.

Indonesia has chosen to exclude industrial coal plants from its plan due to concerns raised by officials about the JETP financing terms. They were dissatisfied with the high interest rates on loans and the small amount of grants offered. Additionally, half of the JETP commitments are from private lenders.

Other countries are also struggling with the implementation of a JETP agreement, not just Indonesia.

According to documents reviewed by Reuters, G7 countries have provided Vietnam with a JETP financial package worth $15.5 billion, but only 2% of it is in the form of grants. The majority of the package consists of loans with interest rates determined by the market.

There have been concerns raised about the initial agreement between JETP and South Africa, as the country is currently experiencing frequent power outages. South Africa received a commitment of $8.5 billion in funding.

‘Good decision’

According to experts, the success of Indonesia’s JETP is crucial not only because it is the largest agreement, but also because it serves as a measure of the G7’s dedication to collaborating with developing countries.

According to Fabby Tumiwa, the executive director of a think tank called the Institute for Essential Services Reform and a member of a JETP technical working group, it is more beneficial to exclude coal-fired power plants at this time rather than postponing the plan.

Tumiwa stated that waiting for the captive power analysis may hinder the progress of JETP. They believe it is wise to proceed with the available information.

According to an anonymous source, the International Partners Group, a collective of donors and lenders, has given its approval for Indonesia to prioritize decarbonization efforts within their state utility. However, this is on the condition that their carbon reduction goals remain unchanged.

In late 2022, the utility’s grid will have a power generation capacity of 69 GW, with half of it being powered by coal.

The country of Indonesia has expressed worry over the level of reimbursement provided by Western nations in exchange for closing coal power plants ahead of schedule in order to transition to renewable energy sources.

Pradana Murti, a director at PT Sarana Multi Infrastruktur (SMI), a state-owned financing company overseeing energy transition funds, stated that the CIPP will only allocate $2.5 billion for the closure of coal plants under JETP funding.

According to Tumiwa, the plan demonstrates that Indonesia will require $95 billion by 2030 to achieve JETP goals. However, another source suggests that the amount could potentially reach $120 billion.