TRACTION ENERGY ASIA

TRANSFORMING ASIA’S ENERGY FUTURE

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We share the vision of a future in which climate change is being tackled by more ambitious and committed action from governments, the business sector, and society as a whole. As one of the world’s largest carbon emitters, and because of its growing role and influence in the global community, we believe that Indonesia can and must do a lot more to alleviate the threat of even more dangerous climate change. We are united in our commitment to removing the obstacles blocking Indonesia’s path to a low carbon future.

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We advocate, promote and provide innovative solutions for government, the business community, and for society as a whole, aligning their interests in order to tackle climate change with the urgency needed.

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How Will Indonesia’s JETP Move The Country Beyond Coal?

The Just Energy Transition Partnership for Indonesia announced last year – with more details due in mid-2023 – targets coal-fired power plants. Nithin Coca reports on how it will, and will not, change the country’s energy system.

This photo taken on 21 September 2021 shows village houses as smoke rises from the chimneys at the Suralaya coal power plant in Cilegon, Indonesia. (Photo by BAY ISMOYO/AFP via Getty Images)

Indonesia, the world’s fourth most populous country and fifth-largest greenhouse gas (GHG) emitter, is crucial to the success of the Paris Agreement and any attempt to limit global temperature rise to 1.5°C. However, as a developing country still highly dependent on natural resources and fossil fuels, it has long been clear that it will not decarbonise without significant international support. That is why many are hopeful about Indonesia’s Just Energy Transition Partnership (JETP), announced in November 2022 alongside the G20 Summit in Bali, Indonesia, as COP27 was playing out in Egypt. It promises $20bn in financial support, is led by the US and Japan, and includes other developed countries like Canada, the UK, France and Germany.

“The international partners should help… Indonesia to define a coal phase-out or phase-down strategy,” says Achmed Shahram Edianto, a Jakarta-based energy analyst with the climate think tank Ember. “For the US and Japan, as leaders of the Indonesia JETP, we expect more technological knowledge transfer, capacity building and assistance with financial mechanisms that can lower the risk of developing renewable energy.”

Indonesia’s JETP was the second globally following one announced for South Africa in 2021. It was followed by a third for nearby neighbour Vietnam just weeks later in late 2022. While the details of Indonesia’s JETP are set for release sometime in mid-2023, according to the initial joint statement, the goals are to peak “total power sector emissions by 2030”, bring the sector’s net-zero target forward by ten years to 2050 and “accelerate the deployment of renewable energy… to at least 34% of all power generation by 2030″.

Indonesia’s JETP falls short of a 1.5°C-aligned pathway

Indonesia’s national commitments versus IEA pathways

Source: Ember, PLN RUPTL 2021–30, JETP announcement, IEA’s Energy Sector Roadmap to Net Zero Emissions in Indonesia

Indonesia’s JETP: Focus on coal

Historically, Indonesia’s emissions have primarily come from land use change and forestry, notably deforestation due to the expansion of the palm oil, paper pulp and mining industries. Land use change and deforestation have, since 1990, made up more than 50% – and in years with widespread forest fires, up to 80% – of Indonesia’s GHG emissions.

That is changing, however. Alongside some progress on slowing down deforestation, Indonesia has seen its consumption of fossil fuels rise. According to the US-based non-profit Global Energy Monitor, coal accounted for 195 million tonnes (mt) of Indonesia’s CO2 emissions in 2022 – the seventh-highest for any country’s coal fleet in the world, just below the figure for Germany – while total energy sector emissions grew to 650mt in 2019. This has been driven by a massive expansion of coal-fired power generation capacity over the past 15 years.

Climate Action Tracker, another non-profit, ranks Indonesia’s climate commitments as “highly insufficient” on a 1.5°C pathway and says the “international community has a critical role in helping Indonesia to implement a coal phase out”. That is where the JETP could be decisive, says Achmed.

Indonesia’s targets depend heavily on the forestry sector

Indonesia’s emissions in different domestic pathways and scenarios for global warming, MtCO2e/year, 1990–2050

Data as of 27 October 2021. Climate Action tracker does not have the data for forest emissions beyond 2016. MtCO2e/year stands for megatonnes of CO2 equivalent per year.
Source: Climate Action Tracker

The JETP is actually just one of five different Energy Transition Mechanisms (ETMs) that are being implemented in Indonesia. Another is being led by the Asia Development Bank and the three others are domestic. This includes one led by the national electricity company PLN, one led by the government’s Indonesia Investment Authority and another led by the state-owned infrastructure company PT Sarana Multi Infrastruktur, or Persero.

All three domestic schemes will also target coal retirement, with 23.2GW of capacity identified so far. PLN’s ETM also has the goal of increasing Indonesia’s renewable energy capacity to 16GW by 2030 – but how all these schemes will work together remains to be seen. They are all looking to attract both public and private finance.

“There is a lot of money coming into Indonesia, or already allocated from the state budget, for the energy transition,” says Martin Baker, director of strategy and communications at the Jakarta-based non-profit Traction Energy Asia.

Beyond coal-fired power plants

Since its first nationally determined commitment (NDC), or national climate plan, was submitted to the UN in the run-up to COP21 in 2015, Indonesia, like other developing countries, has always provided two figures for its emissions reductions targets – one without international support and one with international support. In its latest NDC, submitted in September 2022, the unconditional target was a 32% reduction below a business-as-usual baseline by 2030, going up to 43% with international support.

While the focus is on getting this support from other governments, the private sector is also expected to play a key role. According to US-based non-profit RMI, half of the JETP’s budget, or $10bn, will be mobilised from private financial institutions that are part of the Glasgow Financial Alliance for Net Zero (GFANZ). There are many questions about how those funds will be used and whether they will come in the form of loans or grants. GFANZ declined an interview request from Energy Monitor, as did the Indonesia Coal Mining Association.

Fitch Rating Singapore, a credit ratings company, said in an analysis that the JETP and other ETMs could push Indonesian coal producers “to consider investments to diversify away from thermal coal, which could have an impact on ratings”. Elrika Hamdi, an energy finance analyst at the Institute for Energy Economics and Financial Analysis, a think tank, says the industry should be ready for this.

“Coal players… have experienced… how difficult it is to get funding for new coal-fired power plants, or mines,” she told Energy Monitor. “Institutional investors and lenders already have in place strict divestment policies for coal.”

Hamdi sees some positive signs that Indonesian coal companies are indeed diversifying. “The top ten coal companies [in Indonesia] have started to invest in greener technologies like solar, wind, hydro, geothermal and electric vehicle-supporting facilities like batteries and charging stations,” she says. One example is Adaro Energy, the second-largest coal miner by production volume, which launched a “Green Initiative” to invest in biomass, hydrogen and solar power in 2021.

Loopholes: from coal plants… to coal plants

Some are concerned that Indonesia’s JETP, like South Africa’s, focuses only on grid-connected coal-fired power plants, ignoring not only other GHG sources but even the use of coal outside of electricity production.

Indonesia is a major coal exporter, ranking number one or two in most years for thermal coal exports, primarily for use in coal-fired power plants in other parts of Asia. Part of the reason for the buildup of domestic coal-fired power production capacity in the past decade has been to increase domestic coal consumption as export markets became less reliable, also due to climate policy.

Indonesia’s power sector needs to reach net zero by 2040 to be 1.5°C compatible

Power sector emissions in JETP (IEA APS) scenario and 1.5°C (IEA NZE) scenario, MtCO2

JETP stands for Just Energy Transition Partnership. IEA APS stands for International Energy Agency’s Announced Pledge Scenario. NZE stands for IEA’s Net Zero Emissions by 2050 Scenario. MtCO2 stands for megatonnes of CO2.
Source: Ember, adopted from IEA report ‘An Energy Sector Roadmap to Net Zero Emissions in Indonesia’

However, with major financiers Korea, Japan and China announcing an end to funding all overseas coal plants, the coal industry has also been looking for alternative ways to use coal. One is coal gasification, which can provide an alternative to natural gas or petroleum in industrial, chemical or transport applications. As reported by Energy Monitor in 2021, the Indonesian government’s coal gasification plans could, if fully realised, consume nearly as much coal as the country’s entire coal-fired power fleet – and negate its commitment to phase out the use of coal in power generation by 2040.

Another potential loophole is the use of coal in what are called ‘captive’ plants. These coal-fired power plants are not connected to the grid but are used to power factories or industrial parks. Global Energy Monitor estimates there is 5GW of operating captive coal power in Indonesia, with another 4GW under construction. Some of these plants are being built to power aluminium smelters and processing facilities for minerals like cobalt and nickel, for use in the global electric vehicle and battery supply chains.

Will Indonesia’s JETP help make space for renewables?

Many see scaling up renewables as key to displacing coal, and the inclusion of the 34% renewables target in the JETP joint statement is seen as potentially giving a boost to the country’s lagging solar and wind power sectors.

“Currently, there is no real renewable energy sector in Indonesia, because it doesn’t make economic sense,” says Martin, pointing to a lack of incentives such as a feed-in tariff. “The state power utility, PLN, still makes it very difficult for solar to go on to the grid,” he says.

The Indonesian Parliament is debating a New and Renewable Energy bill that, in theory, should address some of the issues facing renewable energy in Indonesia, but Baker is concerned by how “new” is being defined. “It [the draft bill] strongly incentivises coal gasification, carbon capture and store, and biomass, but it does not incentivise solar, wind or geothermal enough,” he says.

Indonesia currently gets a paltry 0.2% of its electricity from solar, and only 0.5% from wind, despite abundant available solar and wind resources across the archipelago. Geothermal energy – for which Indonesia has more estimated potential resources than any other country in the world – also remains vastly underdeveloped, says Baker.

Solar and wind made up only 0.07% of Indonesia’s electricity consumption in 2021

Electricity consumption by source, TWh, 1965–2021

TWh stands for terawatt-hours.
Source: Our World in Data

For Hamdi, there is merit to focusing on phasing out coal first, particularly on the Java-Bali grid, home to more than half the population. “Currently, for Indonesia, because of overcapacity, a coal phase-out and retirement needs to be done as early as possible, as it will create room for renewables to enter,” she says.

The next few months will be crucial. Baker, Achmed, Hamdi and others are hopeful that Indonesia will, as promised in the joint statement, engage with civil society as it develops both the details of the JETP and its implementing policies.

The impact will be felt globally, not only because of Indonesia’s size and GHG emissions but because it will provide lessons for other developing countries dependent on fossil fuels that are seeking assistance with their energy transition.

“Indonesia will not be the last country who will receive this kind of international support,” says Achmed. “It is important for Indonesia to show its commitment and be a leader for [other] developing countries.”

This article already published in energymonitor.ai entitled:”How will Indonesia’s JETP move the country beyond coal?

Indonesia’s Biofuel Push Must Go Beyond Palm Oil to Reduce Risk, Experts Say

Palm oil fresh fruit bunches in Riau, Indonesia. Image by Hans Nicholas Jong/Mongabay.
  • Indonesia faces deforestation, energy and security risks from its overreliance on palm oil as a feedstock for its biofuel transition program, observers say.
  • The government will in February increase the biofuel blend in diesel to 35%, from the current 30%, with an eye on a 50:50 blend by 2025 — and eventually fossil-free biodiesel.
  • But the program calls for a massive increase in palm oil production — and with yields largely stagnant, this will almost certainly mean clearing more land to establish new oil palm plantations.
  • Experts say the government should diversify its sources of biofuel feedstock to curb the expansion of plantations into forests and to reduce the other risks that comes from relying on a single feedstock.

JAKARTA — Indonesia must develop a new feedstock alternative to palm oil as the government intensifies an ambitious biofuel program meant to move away from diesel, observers say.

From February this year, diesel sold at the pump must be a blend of 65% fossil diesel and 35% plant-based biodiesel, or B35. The currently available blend of diesel is B30, which means it contains 30% biofuel, derived from palm oil.

This intensification, set to increase to B50 by 2025, and eventually B100 — biofuel with zero fossil diesel — will invariably mean more oil palm plantations will have to be established. And with new plantations comes the associated risk of an increase in deforestation, experts warn.

“From the studies that we collected … there’s a resounding theme,” Anggalia Putri, from the environmental NGO Madani, said at a recent discussion in Jakarta. “It looks like additional lands will be needed [to meet the biofuel demand].”

She cited a 2021 study by the Institute for Essential Services Reform (IESR), an Indonesian policy think tank, that estimated 4 million to 6 million hectares (10 million to 15 million acres) of land will have to be converted into oil palm plantations to fulfill domestic and export demand for palm biofuel by 2024.

That’s in addition to the existing oil palm estate in Indonesia of more than 16 million hectares (40 million acres) — an area the size of Florida.

Indonesia is by far the world’s biggest producer of palm oil, but even so faces a challenge ensuring supplies for its ambitious biofuel program. The mandatory increase to the B35 blend next month alone will push up annual demand for palm biofuel to 13.1 billion liters (3.5 billion gallons) from 10.6 billion liters (2.8 billion gallons) in 2021.

And even if new plantations are established, there might not be enough suitable land to meet the increase.

A 2021 study, by researchers in the U.K. and the Philippines, indicates there’s less than 4 million hectares suitable for new sustainable oil palm plantations in Indonesia, but these are scattered fragments across the country, making them unsuitable for large-scale production.

An oil palm plantation and natural forest in Jambi, Indonesia. Photo credit: Rhett A. Butler

Calls to diversify feedstock

Besides the threat of deforestation, relying on palm oil as the sole feedstock for biodiesel poses national energy and security risks to Indonesia, according to Rafika Farah Maulia, a researcher at the University of Indonesia’s Institute for Economic and Social Research.

“Don’t put all your eggs in one basket,” she said at the discussion in Jakarta. “When all people use palm oil-based biodiesel, there will be risks that come, both in the present and in the future. That’s why it’s important to diversify [the feedstock] to transfer the risk.”

One viable alternative that experts say should be considered is used cooking oil, which itself is made from palm oil. An analysis by Traction Energy Asia, an organization that advocates for a clean energy transition, shows that biodiesel from waste fat and used cooking oil could meet 35% of the country’s existing demand, as they’re widely available and yet mostly go to waste.

“Maybe now the supply [of palm oil] is abundant, but we don’t know the future,” Rafika said. “So we need to look for feedstock of biofuel that comes from more sustainable sources, that doesn’t compete with food, that has more stable prices and doesn’t need new lands to be opened up.”

The government says it’s considering the use of other feedstocks, as the plan is to keep increasing the use of biofuel.

“If the spirit is to increase the blending percentage, then we will need more supply of feedstock,” Herbert Hasudungan, an official in charge of the biofuel program at the energy ministry, said at the Jakarta discussion. “So indeed, we have to be open [to the use of alternative feedstock.”

Deforestation for oil palm plantations by palm oil industries in Malaysian Borneo. Image by Rhett A. Butler/Mongabay.

Boosting productivity, restricting exports

Another solution is to boost the productivity of existing oil palm plantations to avoid having to clear land for new plantations, Anggalia said.

At present, Indonesia produces 2.8 metric tons of palm oil per hectare of plantation, or about 1.25 short tons per acre.

“In Malaysia, there’s already a cap of 6.5 million hectares [16 million acres of oil palm plantations],” Anggalia said. “With a cap, [Indonesia] will be encouraged to boost our productivity because there’s no other option.”

That avoids what she called “the easier and cheapest option,” which is to open up new plantations by clearing forests. “Maybe that’s one of the reasons why [our palm oil productivity] is stagnant,” Anggalia added.

But a key hurdle to boosting productivity is the shortage of chemical fertilizers, exacerbated by the Russia-Ukraine war; Russia is the world’s biggest fertilizer exporter.

That’s driven fertilizer prices in Indonesia to triple since early 2022, according to the Association of Indonesian Palm Oil Farmers (Apkasindo).

“As a result, 60% of farmers’ plantations use no fertilizer at all, and this has caused a reduction in the productivity of farmers’ plantations,” Apkasindo chair Gulat Manurung said as quoted by local news outlet bisnis.com. “Due to this, the national production of crude palm oil [CPO] will decrease by 5-11%.”

To ensure the availability of palm oil for the domestic market, including for the biofuel program, the government has restricted CPO exports this year.

Normally, exporters are allowed to ship eight times their domestic sales volume, but as of the start of 2023, the ratio is reduced to six times.

The Indonesian Palm Oil Business Association (GAPKI) says there are also concerns over cooking oil supply due to the biofuel program, and expects lower palm oil production in the first quarter of the year.

This article already published at mongabay.com entitled: “Indonesia’s biofuel push must go beyond palm oil to reduce risk, experts say

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