At the closing of the first day of the recent G20 Summit, US President Joe Biden announced a US$20 billion investment plan from the US and its international partners that will help Indonesia transition from coal-fired electricity towards more sustainable sources. The plan launches the Just Energy Transition Partnership (JETP) as described in a joint statement from The International Partners Group (IPG), co-led by the US and Japan. The plans falls under the banner of the Partnership for Global Infrastructure and Investment (PGII).
Key stakeholders involved in the deal include:
- The Government of Indonesia
- The International Partners Group (IPG): Comprised mostly of G7 countries, the group is co-led by the US and Japan, and includes Canada, Denmark, the EU, France, Germany, Italy, Norway and the UK
- Glasgow Financial Alliance for Net-zero (GFANZ): A global coalition of leading financial institutions committed to accelerating the decarbonization of the economy
- PT Perusahaan Listrik Negara (PLN): Indonesia's state-owned electricity company
- PT Sarana Multi Infrastruktur (SMI): Dubbed a “special mission vehicle,” the firm operates under the Ministry of Finance to facilitate financing and investment for infrastructure projects.
What it means for Indonesia
JETP aims to develop a comprehensive investment plan for Indonesia to achieve new targets and policies in reducing emissions and supporting its trajectory for a net-zero transition in the power sector by 2050. The investment means there will be new targets and policies to reduce greenhouse gas (GHG) emissions and support impacted communities based on the declared announcement points below:
- Peaking total power sector emissions by 2030 will be readjusted to no more than 290 metric tons (MT) of CO2 (down from a 2030 baseline value of 356 MT CO2) and readjusted to a target of net-zero in the power sector by 2050, including accelerating the retirement of coal plants, conditional on international support.
- Accelerating the deployment of renewable energy so that the renewable energy share is at least 34% by 2030.
- Accelerating the deployment of energy efficiency and electrification tools, technologies, and reforms.
- Developing local industries for renewable energy and energy efficiency by investing in local technological capacity and knowledge through collaboration with IPG.
- Delivering a just energy transition by developing a robust plan in consultation with the relevant stakeholders.
- Restricting the development of captive coal power plants in accordance with the Presidential Regulation Perpres 112/2022 regarding Acceleration of the Development of Renewable Energy for the Provision of Electric Power, and collaborating with key players to find potential zero-emissions renewable energy solutions outside Java and Bali.
- Freezing the existing plan for on-grid coal power plants, including the current Electricity Supply Work Plan (RUPTL) 2021-2030, and reemphasizing the moratorium on coal-fired power plants.
- Aligning local requirements with the roadmap for domestic renewable energy capability to achieve the renewable energy goals in RUPTL and to scale renewable energy deployment domestically.
- Mobilizing sufficient capital to achieve the targets through several tools or instruments, namely grants, concessional loans, market-rate loans, guarantees, and technical assistance, some of which will be used to de-risk and encourage private investments.
- The $20 billion fund mobilization will be channeled over the next three to five years through partnerships where: $10 billion will be mobilized by IPG members, and the other $10 billion will be mobilized by GFANZ Working Group members, including Bank of America, Citi, Deutsche Bank, HSBC, Macquarie, MUFG and Standard Chartered.
The IPG's commitment specifically mentioned that private sector finance will be subject to catalytic public finance, including increased engagement with multilateral development banks and other public financing sources. Those resources will have to concur with the JETP investment and Policy Plan agreement. The EU and its member states have declared that they intend to invest $2.5 billion. The EU has allocated support for the partnership through the European Investment Bank (EIB) with €1 billion earmarked for infrastructure development projects and €25 million in grants and technical assistance.
Partnership Action Plan
The plan lists key action items for the first three and six months.
- Finalize an inclusive political dialogue on accelerated and just energy transition
- Identify existing entity to act as a secretariat and provide leader-level updates on partnership progress
- Determine the scope of actions to operationalize within the joint statement
- Develop a policy reform strategy in the energy and financial sectors
- Identify a clear strategy for private-sector engagement
- Further articulate and elaborate the terms for financing
- Finalize initial source of financing for JETP projects
- Collaborate with Indonesia in structuring sustainable financial and technological support within the broader energy transition to a net-zero economy
- Set up a coordination platform with development finance institutions and key stakeholders
- Develop a roadmap for domestic renewable manufacturing capability that addresses local content requirements
- Develop a biannual review process with the commitments of limiting coal emissions, zero-emission, affordable, and reliable energy alternatives
- Develop a JETP Investment and Policy Plan to identify investment requirements and opportunities – to be led by the Indonesian Government and supported by the “secretariat” and PT SMI
- Develop a full program of work for this partnership based on the JETP Investment and Policy Plan that includes participation from non-governmental actors
- Develop a roadmap for 2030 net-zero emission in the power sector with a clear pathway to green development
- Identify a plan to accelerate the clean retirement or avoid construction of on- and off-grid coal power plants before and after 2030
- Identify financing instruments and policies that will improve PLN's, and relevant subsidiaries' long-term financial sustainability
- Develop a strategy to leverage financial resources, including domestic institutions, to support just energy transition
- Joint Statement by the Government of the Republic of Indonesia (GOI) and the Governments of Japan, the United States of America, Canada, Denmark, the European Union, the Federal Republic of Germany, the French Republic, Norway, the Republic of Italy, and the United Kingdom of Great Britain and Northern Ireland (together the “International Partners Group” or IPG). – The White House
- Indonesia and International Partners Secure Groundbreaking Climate Targets and Associated Financing – The White House
- The EU and International Partners launch ground-breaking Just Energy Transition Partnership with Indonesia – European Commission (EU)
 PGII is a collaborative effort by G7 countries to fund infrastructure projects in developing nations. The Partnership was announced on June 2021 at the 47th G7 Summit in the UK. The initiative is seen by some as similar to China’s Belt and Road Initiative. The initiative pledges to invest $600 billion over the next five years.