Indonesia Removes Private Coal Power Plants from JETP Investment Agenda

Indonesia has made a decision to exclude coal-fired power plants that are operated by industrial estates from its investment plan for a funding program led by the G7. The objective of this program is to facilitate the decarbonization of Indonesia's power sector.

This decision means that Jakarta will not include a strategy for phasing out the so-called "captive" coal power plants in its comprehensive investment and policy plan, known as the CIPP. This plan is a crucial component for securing the $20 billion in funding that has been pledged under the Just Energy Transition Partnership (JETP). The plan is set to be made public, allowing for public feedback.

The JETP is a financing initiative that involves equity investments, grants, and concessional loans from members of the Group of Seven (G7), multilateral banks, and private lenders. Its primary goal is to assist developing countries in transitioning to cleaner energy sources in the power sector.

One of the sources involved in the decision-making process, who wished to remain anonymous, explained that coal-fired power plants operated by industrial estates were being excluded from the plan. This exclusion was necessitated by the need for more time to devise measures to safeguard the nickel smelting sector. It's important to note that this exclusion is considered temporary in nature.

This decision is expected to pose challenges for Southeast Asia's largest economy in achieving its JETP target, which is aimed at capping power sector emissions at 290 million metric tons of CO2-equivalent by 2030. The greater responsibility for achieving emission reductions will now fall on the public sector.

Indonesia currently has captive coal power stations with a total capacity of 13.74 gigawatts (GW) in operation, and an additional 20.48 GW are in the planning stage. This growth can be attributed to the expanding metal processing sector, as indicated in a report by the Asian Development Bank in July. It's worth noting that Indonesia has committed to halting the commissioning of new coal power plants, although exceptions are made for those associated with smelters.

The decision by Indonesia not to include industrial coal plants in its plan follows concerns raised by officials regarding the financing terms offered by the JETP. These concerns are related to the relatively high interest rates on loans and the limited portion allocated for grants within the program. Approximately half of the JETP commitments are sourced from private lenders.

Indonesia is not the only country encountering challenges in implementing JETP agreements. For instance, G7 members offered Vietnam only 2% of its total $15.5 billion JETP financial package in grants, while a significant portion of its loans will carry interest rates determined by market conditions.