Illustration--A boy herds some cows near the Tolo Wind Power Plant in Jeneponto District, South Sulawesi Province, on Saturday (July 23, 2022). (ANTARA PHOTO/ARNAS PADDA/uyu)
(It is) because all of our attempts will also have a direct impact for the world.Indonesia, as chair of the 2022 G20 presidency, has outlined the three priority issues of global health architecture, sustainable energy transition, as well as digital and economic transformation.
The energy transition issue is deemed urgent to be solved to reduce greenhouse gas (GHG) emissions and maintain the Earth's temperature to lie below 1.5 degrees Celsius by 2050 according to the Paris Agreement.
Through its Nationally Determined Contribution (NDC), Indonesia has committed to reducing carbon emissions by 29 percent by 2030 by significantly reducing the use of fossil-based energy and optimizing the use of new and renewable energy (EBT).
Hence, to realize the commitment, Indonesia has set a target that EBT should make up at least 23 percent of the total energy mix by 2025.
A study conducted by the Energy and Mineral Resources (ESDM) Ministry found that Indonesia has the potential to produce 417.8 Gigawatts (GW) of renewable energy.
The sources of energy were ocean and tidal energy, 17.9 GW; geothermal, 23.9 GW; bioenergy power, 32.6 GW; wind, 60.6 GW; hydropower, 75 GW; and solar power, 207.8 GW.
According to the Renewable Energy Country Attractiveness Index (RECAI), Indonesia has a high economic growth as compared to other countries in Southeast Asia and a great opportunity to encourage the development of renewable energy investment, as the country is included as one of the 40 attractive nations for renewable energy investment.
However, high costs are involved in realizing energy transition.
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According to the National Development Planning Agency (Bappenas) and Global Green Growth Institute’s (GGGI’s) report on the Funding Mechanism of Renewable Energy Investment, Indonesia needs US$167 billion to achieve the energy mix and NDC targets.
Thus, adequate funding has a strategic role to play in accelerating the energy transition attempts.
Hence, the government will optimize Indonesia's role, as the chair of the 2022 G20 Presidency, to attract innovative and profitable funding for green projects in the country.
Indonesia is open to various forms of international cooperation, foreign investment, innovative funding schemes, as well as technology transfer practices based on mutually beneficial partnerships.
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Blended finance
One of the innovative financing schemes is blended finance, which combines funding from several sources, such as the government’s budget, private parties’ investment, and donors’ fund, to implement a certain project.
Based on the Finance Ministry’s website, blended finance is defined as a transaction scheme that optimizes the use of development financing instruments and philanthropic funds to attract private capital.
The scheme can reduce risk for investors, increase liquidity, and develop quality assets in accordance with sustainable development, as well as foster collaboration between private and public stakeholders for a common good.
Implementation of the financing scheme comprises three aspects: development finance, additional finance, and sustainable development.
Development finance is used to build infrastructure without any return on capital. The providers of funding are usually multilateral institutions, such as the World Bank and Asian Development Bank (ADB).
Meanwhile, additional finance is commercial-oriented and provided by private investors, for instance, through equity and loans. Its amount measures the success of the implementation of blended finance.
Sustainable development is the main goal of the blended finance scheme.
Executive Director of the Center of Reform on Economics (CORE) Indonesia Mohammad Faisal has assessed that the state budget (APBN) cannot be utilized as the main source of funding since the needs for EBT financing are very large.
Hence, he noted that the tranche of the blended finance used to fund the new and renewable energy projects must be larger, so the cost of projects will not burden the APBN.
He remarked that several foreign investors are interested in being involved in the development of the EBT ecosystem in Indonesia, especially in the construction of solar panels.
Thus, CORE strongly supports the government to attract investors to collaborate in the blended finance scheme to realize Indonesia’s sustainable development targets.
"The role of the government is to encourage cooperation between stakeholders in providing EBT financing," the executive director of CORE said.
Director General of Financing and Risk Management at the Finance Ministry Luky Alfirman said Indonesia is striving to encourage the implementation of a blended finance scheme that could be a win-win solution in the investment sector.
"Blended finance is one of the solutions for implementing energy transition. I am sure that all countries want to achieve this (development) goal. Thus, cooperation is required to be able to achieve it," he added.
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Seeking cooperation at the G20
One of the key players in energy transition in Indonesia is the state-owned electricity provider PT PLN (Persero).
The enterprise has made various attempts to reduce carbon emissions, including reducing emissions from power plants as well as encouraging the community to use electric machine in their daily lives.
President Director of PT PLN (Persero) Darmawan Prasodjo stated that in the company’s 2021-2030 Electricity Supply Business Plan (RUPTL), some 51.6 percent of the new power plant projects will use new and renewable energy.
Hence, PLN needs low-interest financing, supporting policies, and project collaborations to realize the projects.
The corporation requires an investment of up to US$500 billion, or approximately Rp7,500 trillion, to implement the energy transition project.
Thus, PLN invites G20 members to cooperate in reducing carbon emissions to achieve the net-zero emission target by 2060.
“(It is) because all of our attempts will also have a direct impact for the world," the president director of the company remarked.
Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan emphasized that the world should not doubt Indonesia's commitment to reducing carbon emissions.
As the chair of the 2022 G20 Presidency, Indonesia has implemented a carbon emission reduction roadmap.
However, these efforts need to be supported by other countries to succeed.
"We need concrete collaboration not only cooperation in funding, but also in technology sharing and investment to create (sustainable) jobs," the coordinating minister noted.
Director General of New and Renewable Energy and Energy Conservation of the ESDM Ministry Dadan Kusdiana said that the government was keen to make the most of the implementation of the 2022 G20 to realize Indonesia’s sustainable development targets, especially achieving net-zero emissions.
One of the blended finance scheme collaborations that had been agreed is the commitment of the Asian Development Bank (ADB) in financing PLN's electricity project, worth US$600 million, or equivalent to Rp8.5 trillion.
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The funding from ADB, which was agreed in May 2022, would be utilized by PLN for strengthening the transmission network in the provinces of West Java and Central Java as well as modernizing the existing electricity infrastructure.
Furthermore, the funding will be allocated to increase the use of clean energy and improve the company's financial management.
ADB has also invited all parties to assist Indonesia in achieving its carbon emission reduction targets. The institution has said that there are no doubts regarding Indonesia's commitment to realizing the targets.
"We have been helping Indonesia in (developing the) clean energy projects for a long time. Certainly, we will always support Indonesia," Vice President for East Asia, Southeast Asia, and Pacific of ADB Ahmed Saeed remarked.
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