RI doubtful over JETP funding for PLTU retirement, seeks options
One of the JETP's initial priorities is to encourage the early retirement of PLTUs as it can significantly reduce greenhouse gas emissions. However, in its development it looks less likely that the JETP would provide enough funding to finance the early retirement of PLTUs. Finance Minister Sri Mulyani Indrawati mentioned an estimated US$25 billion-30 billion required to decommission 5.5 gigawatts (GW) of PLTUs by 2030. According to PT Sarana Multi Infrastruktur calculations, the shutdown of a 1 GW capacity PLTU would incur costs of approximately US$400 million-500 million.1
There is still uncertainty surrounding the realization of public funding of the US$20 billion financial commitment from the donor countries within the International Partner Group (IPG), led by the United States and Japan, to support the JETP Indonesia. Coordinating Maritime Affairs and Investment Minister Luhut Binsar Pandjaitan expressed his disappointment with the US’ noncommitment over JETP funding after his meeting with John Kerry during his visit to Washington in May.2 More recently, Denmark, another IPG country, also expressed its inability to confirm its commitment and stated that it would decide after reviewing the program proposed by Indonesia through the Comprehensive Investment and Policy Plan (CIPP), which is scheduled to be completed on Aug. 16, 2023.3
While public funding is still in question marks, funding form the private sector is even more difficult considering the fact that PLTUs financing, including their early retirement, is classified as "red" under the green finance taxonomies. Numerous global investors are cautious about including fossil fuel-based assets in their portfolios as it can adversely affect their image, especially concerning their Environmental, Social, and Governance (ESG) performance.4
In addition to the JETP, the Indonesian government has established an Energy Transition Mechanism (ETM) Country Platform to attract investments from both the private and public sectors to finance early retirement of PLTUs. Through this platform, Indonesia has secured concessional financing commitment of US$500 million coordinated by the Climate Investment Funds (CIF). This funding will leverage over US$4 billion fund to accelerate the retirement of 2 GW PLTUs and reduce approximately 50 million tonnes of carbon dioxide (CO2) emissions by 2030.5 PT Sarana Multi Infrastructure (SMI) is currently conducting due diligence on a number of PLTUs to get funding for their early retirements, but none have been closed.
Energy experts have proposed other cheap financing options for early retirement of PLTU, that is, through bilateral cooperation with China, considering that Chinese investors own most coal-fired power plants operating in the last 15 years.6 However, involving China in financing energy transition is a bit tricky as developed countries in the JETP Indonesia try to exclude China from the program.
President Joko “Jokowi” Widodo has warned developed countries under the JETP not to burden Indonesia with debts to finance its energy transition. Even Luhut has mentioned that if concessionary loans do not exhibit significant differences with those of commercial loans, Indonesia would go its own way as the JETP funding could potentially escalate Indonesia's debt obligations. The government’s budget is already burdened for servicing debt interests totalling Rp 440 trillion ($29 billion) this year, about 15 percent of this year budget, and an estimated Rp 480 trillion next year.
Therefore, Indonesia is seeking more concessionary loans and grants from the JETP to fund its energy transition. However, Indonesia has another concerns about the low percentage of grants under the JETP. According to Energy and Mineral Resources Ministry’s New and Renewable Energy and Energy Conservation Director General Dadan Kusdiana, Indonesia will receive $160 million in grants under the JETP, or about 0.8 percent of total JETP funding commitments, especially to finance identification of projects for JETP funding and their feasibility studies.7
Some quarters have questioned the small portion of grants under the JETP as grants would also be needed to finance the “just” elements of JETP such as safeguarding and reskilling programs for affected workers and vulnerable groups impacted by the energy transition. Activists have proposed that the ideal amount of grants for JETP should be around 10-15 percent of the total funding commitments.8
In addition to the JETP, the government is looking for other low-cost financing sources to finance its energy transitions. Energy and Mineral Resources Ministry’s energy conservation director, Gigih Udi Atmo, mentioned that one potential funding source arises from the Asia Zero Emission Community (AZEC) program initiated by Japan. Through this initiative, Indonesia is prioritized to receive US$500 million in funding to implement energy transition programs and foster public-private cooperation and decarbonization initiatives.9
Furthermore, the government could explore financing schemes based on carbon credits. The Rockefeller Foundation and Global Energy Alliance for People and Planet have introduced the Coal to Clean Credit Initiative, a financing scheme to facilitate the transition from coal-fired power plants in developing countries using carbon credits.10 This scheme will be presented at COP28, scheduled in Dubai from Nov. 30 to Dec. 12, 2023.
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