Abstract
Indonesia is one of the fastest growing economies in the world and with its rapidly growing energy demand, abundant energy and mineral resources, it is set to play a key role in the global economic and energy landscape. Decarbonising its power system has been identified as a key enabler to achieve its pledge for net zero emissions by 2060, as coal power dominates its electricity mix. To support Indonesia’s power sector decarbonisation efforts, the Just Energy Transition Partnership was established during a G20 summit in Bali, in November 2022. The first deliverable of the Just Energy Transition Partnership, which was supported by the IEA, is the Comprehensive Investment and Policy Plan, published in November 2023. It details an energy transition pathway for the power sector, proposes policy reforms, provides a framework for a just energy transition and outlines financing needs and requirements. In this report, we take stock of the current power sector landscape of Indonesia, summarise IEA’s role in the JETP Secretariat and contributions to the work that led to the JETP’s Comprehensive Investment and Policy Plan. We also provide an overview of the JETP pathway as well as analysis and recommendations for the effective decarbonisation of Indonesia’s power sector.
Acknowledgements, contributors
and credits This report was prepared by the Renewable Integration and Secure Electricity (RISE) Unit in the in the Directorate of Energy Markets and Security (EMS). The principal author was Isaac Portugal Rosas, with major contributions from Zoe Hungerford, Javier Jorquera Copier, Axel Priambodo (consultant). Pablo HeviaKoch, Head of the Renewable Integration and Secure Electricity Unit, directed this report. Thanks to Astrid Dumond, Isabelle Nonain-Semelin and Jethro Mullen of the Communications and Digital Office (CDO) for their roles in producing this report. Zoe Hungerford edited the report. The report would not have been possible without the support from Michael Waldron, Kieran Clarke, Vrinda Tiwari, Ranya Oualid, Craig Hart, Yu Nagatomi, Javier Jorquera Copier, Keith Everhart, Enrique Gutierrez Tavarez, Rena Kuwahata, Jacques Warichet, Julia Guyon (ex-IEA) and Minna Genser (ex-IEA), all which provided support and contributions to the collaboration with Indonesia.
Executive summaryThe decarbonisation of Indonesia’s energy system involves a significant transformation. It implies shifting away from fossil fuels, which in 2021 accounted for 80% in the electricity mix, to higher shares of clean energy generation. This should be implemented while ensuring economic growth and equitable energy access to its population of 276 million people. Several national and international efforts underpin Indonesia’s decarbonisation objectives. Nationally, the Energy Law No. 30 of 2007 and the 2014 National Energy Plan guide the Indonesian government’s efforts to reduce fossil fuel dependence. These are complemented by policies aimed at phasing out fossil fuel subsidies in line with Indonesia’s goal to achieve net zero emissions by 2060. In 2022, as part of the initiatives within the country’s G20 presidency, the Indonesian government along with the International Partners Group (IPG) released the Joint Statement on the Just Energy Transition Partnership (JETP). The United States and Japan co-led the group, with members including Canada, Denmark, the European Union, France, Germany, Italy, Norway, and the United Kingdom. The JETP aims to mobilise USD 20 billion over the next 3-5 years to help Indonesia pursue an accelerated just energy transition that supports a trajectory that keeps a warming limit of 1.5°C above pre-industrial levels within reach.
The Indonesian energy
landscape Indonesia is a significant player in the global energy landscape Indonesia is a significant player in the global energy landscape. The country is the sixteenth-largest economy in the world, and its economy was the fourth-fastest growing G20 member in 2022, behind only the Republic of Türkiye, India and Saudi Arabia. The cornerstone of Indonesia’s energy sector has historically been its rich natural resource endowment, with abundant reserves of coal, oil, and natural gas, particularly coal. Indonesia is the fourth-largest coal producer and one of the biggest coal exporters in the world. In 2021, coal-fired generation made up 61% of the generation mix, and the country’s coal exports reached approximately 470 million metric tonnes in 2022 (about 6% of global coal consumption). In total, fossil fuels make up 81% of the electricity mix, and as a result, Indonesia is grappling with high carbon intensity in its electricity sector. The country’s Energy Law No. 30 of 2007 and the 2014 National Energy Plan (NEP 14) have set targets to achieve a more sustainable electricity mix, aiming to increase the contribution of renewable energy to 23% of total electricity consumption by 2025 and at least 31% by 2050. These targets aim to reduce carbon emissions, mitigate climate change, and address the environmental impacts of fossil fuel use. Indonesia has also committed to achieve economy-wide net zero emissions by 2060.
The Indonesian power
system Indonesia has relied mainly on fossil fuels for electrification Indonesia’s power sector underpins the country’s economic development and has seen rapid growth over the past three decades. Access to electricity is nearly universal, growing from about 50% in 1991 to around 99% today. Today, the country needs to strike a balance between economic growth, environmental concerns, and expanding secure access to electricity across a diverse archipelago of at least 17 000 islands. In the early 20th century, Indonesia met its energy needs with small-scale diesel generators, predominantly serving urban centres and industrial zones. The limited availability of electricity hindered broader economic growth and social development. Following its independence in 1945, the government established state-owned utilities to centralise power generation and distribution. Entities like Perusahaan Listrik Negara (PLN) played a pivotal role in expanding electricity access across the archipelago. This phase witnessed the development of larger power plants and transmission networks, gradually extending electricity to rural and remote areas. The expansion from the mid-20th into the 21st century relied heavily on fossil fuels, especially coal and oil. The country’s abundant coal reserves provided a readily available energy source, contributing significantly to power generation. However, this dependency on coal also leads to environmental concerns and high emission intensity for the power sector.
The power sector in Indonesia has expanded significantly to keep pace with the growing economy and population. Indonesia’s electricity generation, which amounted to near 310 TWh in 2021, primarily comes from thermal power plants, with coal accounting for around 61% of the country’s electricity generation in 2021 and natural gas accounting for about 17%. Additionally, it boasts the world’s second-largest geothermal capacity, offering a clean and renewable energy source. As of 2022, Indonesia had a total installed capacity of 83.8 GW, consisting of 42.5 GW from PLN and 41.3 GW from Non-PLN.
The carbon dioxide intensity of electricity generation in Indonesia has been on the rise in recent years, remaining significantly above the global average. In 2022,
In recent years, the Indonesian government has introduced policy reforms to encourage investments in renewable energy and reduce the nation’s reliance on fossil fuels. Initiatives such as the National Energy Policy, the Energy Resilience Policy, and the National Medium-Term Development Plan outline strategies for sustainable energy development and emphasise the importance of cleaner sources in the energy portfolio. Indonesia holds immense potential in renewable energy, particularly in solar, wind, hydro, and geothermal resources. The Geothermal Law and Feed-in Tariff policy are among the regulatory mechanisms designed to attract investments and promote renewable energy utilisation. The government is also working on phasing out and rationalising its fossil fuel subsidies as part of its efforts towards sustainable development, in addition to the targets for 23% and 31% of electricity to come from renewable sources by 2025 and 2050.
The Indonesia Just
Energy Transition Partnership Origin of the Just Energy Transition Partnership On November 15, 2022, during the G20 Summit’s Partnership for Global Infrastructure and Investment event in Bali, President Joko Widodo and leaders of the International Partners Group – co-led by the United States and Japan, alongside Canada, Denmark, the European Union, France, Germany, Italy, Norway, and the United Kingdom – introduced a Joint Statement on the JETP. Developed within Indonesia’s G20 Presidency, this USD 20 billion partnership aims to ensure an equitable shift in the nation’s power sector to uphold the 1.5°C global warming limit. The JETP focuses on accelerating the decarbonisation of the country’s power sector for maximum emissions reduction. The joint statement outlines key objectives, with a pivotal focus on mobilising USD 20 billion in capital through a mix of instruments, including grants, concessional loans, market-rate loans, guarantees and technical assistance. This financial commitment aims to expedite the decarbonisation of Indonesia’s power sector, striving for ambitious cuts in emissions. Half of the funds are pledged by IPG members, further catalysing at least USD 10 billion in private finance, supported by the Glasgow Financial Alliance for Net Zero Working Group. The JETP, emphasises a blend of public and private investments to support Indonesia’s transition away from fossil fuels.
Role of the IEA in the
JETP CIPP Supporting the process The IEA’s engagement in the JETP began early in 2023 with discussions regarding the terms of reference for the working groups. The IEA collaborated with the JETP Secretariat and the Asian Development Bank in formulating these terms of reference, along with defining the objectives for the working groups. Once finalised, an agreement was reached, which gave the IEA the mandate to lead the Technical Working Group and to participate in the Policy Working Group. IEA officials then travelled to Jakarta to oversee the official launch of the Technical Working Group. The IEA’s contribution involved extensive co-ordination with institutional partners, including all members of the Technical Working Group, the JETP Secretariat, and key Indonesian stakeholders, in particular PLN and MEMR. The overarching goal was to establish a shared view of the decarbonisation pathway for Indonesia. This process also included exchanging with specialists of other working groups, in particular those for policy and finance. The first draft of the CIPP was drafted at the June. At this stage, further crucial input from PLN and MEMR was expected to reflect the views of the government of Indonesia and enhance the pathway.
The JETP pathway
Energy efficiency can smooth the growth of on-grid electricity demand Electricity demand in Indonesia is growing and changing in nature. The Comprehensive Investment and Policy Plan outlines demand projections for electricity in Indonesia. The projections integrate, in addition to the on-grid electricity demand from the low-growth scenario of the draft General National Electricity Plan 2023-2060, the demand from off-grid industrial facilities expected to connect to the grid in 2030, 2035, and 2040. Projections for on-grid demand take into consideration many factors such as industrialisation, growing income, low-emission hydrogen production and ambitious targets for electrification of end uses, notably in the transport sector. This will also see changes in the demand pattern over time. Demand grows at an annual rate of 6.4% from 2022 to 2030 and 5.8% from 2022 to 2050. In 2022, the residential sector consumed 54% of ongrid electricity, the commercial sector about 30%, and the industrial sector approximately 16%. In the pathway, by 2050 the shares will be 36% for the residential sector, 29% for the commercial sector and 23% for the industrial sector. The CIPP anticipates a transformative shift in the relationship between economic growth and electricity demand. Out to 2035, electricity demand growth in the JETP pathway outpaces GDP growth, due to increased industrial activity and electrification in industry and transport. However, as stronger energy efficiency measures kick in during 2036-2040 and onwards, electricity demand growth becomes decoupled from GDP, with demand growing at a slower pace than the economy.
Renewables dominate generation capacity
additions In 2022, renewable energy represented just under 15% of on-grid generation in Indonesia, with solar and wind accounting for less than 5%. In the JETP scenario, capacity expansion envisions a favourable cost-competitive environment for VRE, achieved through the relaxation of current inhibiting policies such as requirements to use locally manufactured goods or domestically provided services. The renewable expansion is mainly led by solar PV, wind and hydropower, with bioenergy gaining prominence after 2040. Variable renewables deployment is expected to come mainly from solar PV, which is projected to exceed 29 GW of installed capacity by 2030. PV then doubles to 77 GW by 2035 and maintains dominance through 2050, reaching over 260 GW and constituting 55% of the total installed capacity in the country. Wind power also experiences rapid growth, benefiting from favourable policies and financing, reaching 9 GW in 2030, more than 29 GW in 2040, and about 44 GW in 2050. It is possible that more wind resources could be tapped based on technologies designed to work under lower wind speeds, but this requires further study and analysis due to potential costs and impacts on competitiveness.
The JETP scenario constitutes an accelerated decarbonisation pathway for the on-grid system in Indonesia. It projects shares of wind and solar of over 35% of the on-grid electricity generation in 2050, sitting in between the projections for Southeast Asia of two IEA scenarios – the Announced Pledges Scenario (APS) and the Stated Policies Scenario (STEPS). However, interests in fast industrial development, particularly for nickel mining and smelting, if not matched with on-grid supply growth, may trigger the development of new off-grid coal power plants, which could lock in higher emissions in the country in the following decades. This issue requires in-depth analysis.
Conclusions and
outlook The CIPP, developed with IEA’s support, provides a common vision for MEMR and PLN, outlining increased targets for renewable deployment and power sector decarbonisation. Nonetheless some aspects of power system development will require more detailed planning and analysis. This includes the need for more analysis of off-grid power demand, which should take into account detailed studies of the demand for critical minerals, which is a key driver. Based on challenges and uncertainties identified in the development of the CIPP, in this chapter we identify a number of key recommendations.
Iterative and probabilistic processes are necessary for robust planning Planning the system for the next decades is a complex task with many uncertainties. Therefore, planning should ensure robustness with respect to these uncertainties. This can be achieved by using stochastic approaches and multiple scenarios complemented with sensitivity analysis for major assumptions. Scenarios should span a large set of possible futures, allowing for uncertainty in aspects such as the penetration of EVs, electrification of end uses in industry, and the anticipated impact of energy efficiency. Planning should not solely focus on demand or supply but incorporate feedback loops and iterations. This allows system planners to learn continuously from real-world outcomes and adjust strategies accordingly. By adopting a flexible and adaptive planning mindset, organisations can navigate uncertainties effectively and stay responsive to changing circumstances.
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