An Energy SectorRoadmap to NetZero Emissions inIndonesia

Indonesia is an extraordinary development success story When Indonesia declared independence in 1945, its GDP per capita was more than ten‐times lower than today. Since then, its economic development has been an extraordinary success story. From 1968 to today, Indonesia has been the fourth‐fastest growing large economy in the world, joining Korea, Singapore and China in sustaining very rapid growth over half a century. The share of the population below the national poverty line has fallen from 60% in 1970 to less than 10% today. Today, Indonesia is the world’s fourth‐most populous country, seventh‐largest economy, twelfth‐largest energy consumer, and the largest coal exporter.

Economic and social context Indonesia’s economy sustained a very severe hit during the Asian financial crisisin 1997, with GDP falling nearly 15% from its peak in 1997 and only regaining that level six years later. Recovering from the financial crisis, Indonesia’s GDP increased 4.9% per year from 2000 to 2021, although it experienced a 2.1% decline in 2020 owing to the Covid‐19 pandemic. In 2021, GDP expanded by 3.7%, lower than the historical average, as uncertainty around the pandemic lingered and the country experienced continued public health‐related restrictions. Nonetheless, in 2021 GDP recovered to above the pre‐pandemic level. GDP per capita was around USD 13 000 (PPP) (equivalent to about Indonesian Rupiah [IDR] 62 million per capita in 2021 at current prices). This puts GDP per capita in Indonesia at 70% of the global level and 55% of the G20 level (Figure 1.1). Indonesia is classified in the World Bank income classification as a lower middle‐income country, alongside economies such as Egypt and Tunisia. Despite its strong historical economic advances, Indonesia still requires strong economic growth to deliver high standards of welfare to its citizens.

Growing economic activity is the key driver of Indonesia’s increasing CO2 emissions (Figure 1.11). As the country’s population increased over the last two decades, welfare and consumption grew and economic output boomed. Population growth alone is responsible for about one‐fifth of the increase in emissions. But the primary driver of the substantial rise in CO2 emissions was the growth of GDP per capita, which accounted for more than half the increase in emissions. The increase in the carbon intensity of energy supply was responsible for about a quarter of the growth in emissions. However, the energy intensity of Indonesia’s GDP improved which helped to avoid a much bigger increase in emissions. Absent improved energy intensity, CO2 emissions would have almost quadrupled instead of the doubling that took place in the 2000‐21 period.

Natural gas Natural gas‐fired power plants provide another dispatchable source of electricity in Indonesia, albeit significantly smaller than coal. Through to 2060, natural gas use in power generation transitions from unabated to a lower emissions technology profile, both through the inclusion of CCUS and by co‐firing with hydrogen. The changing availability of domestically produced natural gas limits its role in terms of generation. Overall, the share of unabated natural gas in total generation falls by a few percentage points between 2021 and 2030 before decreasing to lessthan 1% in 2060 in the APS (Figure 3.4). Gas‐fired power plants also play an important role to support electricity security, providing flexibility and contributing to the reliability of the system.

In the megacity of Jakarta, motorbikes are by far the most common mode of transport for commuting, accounting for 64% of daily trips (Figure 3.20) (Sofiyandi and Siregar, 2020). More than two‐thirds of daily commutes are for distances of less than 30 km and 22% are under 10 km (BPS, 2015). The prevalence of motorbikes and relatively short daily travel distances offer an attractive opportunity for Indonesia’s largest city to shift to electromobility. The average home‐to‐work commuting distance of under 20 km can be easily served with battery‐ powered two/three‐wheelers available in markets today (Sofiyandi and Siregar, 2020). Electrifying Jakarta’s motorbike fleet could be achieved at limited additional cost and would benefit residents with improved air quality. Electric motorbikes are much more energy efficient than those that burn gasoline and so would help to reduce CO2 emissions in the near term even with Indonesia’s coal‐intensive electricity system. Maximising the mitigation benefits of electromobility requires decarbonising electricity generation.

Most Indonesians live in areas in which average daily temperatures exceed 25 °C. Even when and where temperatures are lower, high humidity levels increase perceived temperatures. Space cooling needsin Indonesia are among the highest in the world, with an average of over 1 500 cooling degree days per year. Comfort provided by air conditioners is available to only a fraction of the population today, with one‐in‐ten households having an air conditioner. Fans are much more common at an average of 1.5 units per household. With increasing income, purchasing an air conditioner is high on the list of priorities for many households and businesses. In the APS, air conditioner ownership increases to an average of 0.4 units per household in 2030 and almost 2 units per household in 2060, at which time there are 210 million additional air conditioners in Indonesia compared to today (Figure 3.28), with around 550 million units sold between today and 2060 as units are replaced.

In addition, it is both necessary and cost effective to develop the inter‐regional electricity system to allow the transfer of low emissions electricity from outside Java to load centres on the island. By 2050, transfer capacities of around 25 GW are required between Sumatra and Java, while around 17 GW are built between Kalimantan and Java, and around 16 GW between Java and Nusa Tenggara (Figure 5.20). These interconnections assist with balancing variable renewables, as well as with the transfer of bulk electricity between sources of low emissions supply and demand centres. They can build upon the very significant progress that has been made on the costs and performance of high‐voltage direct current (HVDC) transmission projects.

In parallel, public finance, including from DFIs, will be important to improve the financial and operational performance of state‐owned enterprises, PLN in particular. PLN is the main investor in the electricity sector in Indonesia and is the main counterparty to independent power producers (IPPs) in generation. However, PLN’s existing take‐or‐pay contracts (mainly with IPPs operating coal‐fired electricity generators) and a lack of cost‐reflective tariffs has been putting pressure on its balance sheet and government finances. Frozen tariffs since 2018, and a combination of government discounts introduced during the pandemic, lower electricity demand and reduced payment capability of consumers has added stress. DFI support in these areas – alongside necessary policy and regulatory changes – is essential to facilitate the phase‐out of coal.


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