Indonesia is the world’s biggest archipelago and boasts a diverse topography, climate, and geography. The home to the fourth-largest population globally, it is also one the largest coal exporters in the world. Hence, Indonesia’s clean energy transition is in the works to support its commitment to reducing its greenhouse emissions.
Indonesia is making a huge step toward its sustainable future with a $500 million policy loan approved by the Asian Development Bank (ADB) on Sept. 19, 2024. With the help of the Affordable and Sustainable Energy Transition Program, the country will be able to meet its net-zero power emission targets by 2050, which is the first of two subprograms. It also aims to increase nationally determined contributions.
This is also a significant milestone as the country shifts away from its coal-dependent energy sector and embraces clean energy solutions. It is also aimed at accelerating Indonesia’s clean energy transition.
Jiro Tominaga, ADB country director for Indonesia, acknowledged that the country is at a turning point in its energy transition journey. “This policy-based loan program supports Indonesia’s foundational and collaborative policy development to identify and address the sector’s complex challenges to accelerate its shift towards sustainable and clean energy,” he added.
This initiative is a collaborative effort between ADB and cofinancing partners, Agence Française de Développement (AFD) and German Development Cooperation through KfW.
Although Indonesia has overcome many of its power supply challenges thanks to the rapid increase of its electrical generation capacity, the system is still heavily dependent on fossil fuel-based power sources like coal, gas, and diesel.
Between 2000 and 2021, Indonesia’s overall energy supply grew by around 60%. Coal became the primary source of energy as the demand increased. Its energy industry now releases one-third more CO2 per unit of energy consumed than in 2000. Over the past 20 years, the total emissions from the energy industry have more than doubled, growing faster than the energy demand. Indonesia ranked ninth globally in terms of carbon dioxide emissions from the energy sector in 2021.
Indonesia ranks among the highest global emitters due to its reliance on coal for energy production. The country ranked second in methane emissions through waste. However, with projects such as the ADB-supported transition plan, the country is on track to significantly reduce its carbon footprint.
In line with its commitment under the Paris Agreement, Indonesia has set ambitious targets for cutting emissions by 29% by 2030, with international support potentially pushing this figure to 41%. The energy transition plays a pivotal role in achieving these goals, as coal-fired plants are responsible for over 60% of Indonesia’s electricity production.
The program is focused on creating a strong policy and regulatory foundation to support Indonesia’s clean energy transition. It also aims to enhance governance and ensure the financial stability of the energy sector as well as ensuring the transition is fair and inclusive for all.
A key component in this effort is the Comprehensive Investment and Policy Plan (CIPP), developed through the Indonesia Just Energy Transition Partnership. This plan identifies the necessary investments and opportunities for achieving a fair energy transition. Additionally, the program emphasizes improving regulations to boost renewable energy capacity and strengthening the governance of state-owned energy enterprises. This also includes efforts to promote gender equality within the sector.
There aren’t any open tenders for the project; it runs on policy-based lending. However, because ADB’s procurement standards control procurement, chances for Requests for Qualifications (RFQs) or bidding may exist in the future.