Can Indonesia really achieve a net zero power sector by 2040?

And why would it want to do it?

Dr Achmed Shahram Edianto

Asia Electricity Analyst

19 September 2022 | 3 min read

Available in:  Indonesia

On Friday, 2 September 2022, the IEA released its much-awaited report on “Energy Sector Roadmap to Net Zero Emissions (NZE) in Indonesia”. It pushes the boundaries to examine what’s possible in Indonesia, that keeps Indonesia consistent with a 1.5 degrees pathway, building on the global modeling that the IEA laid out in their 2021 landmark report, “Net Zero by 2050”.

This mini-briefing outlines some of the main highlights from the IEA’s analysis, to showcase why Indonesia should proudly and quickly set out a rapid electricity transition to bring power sector emissions to net zero by 2040 to accelerate the all sector net zero emissions by 2050, a decade earlier than the government target. Accelerating the transition brings more benefits to the country, from energy security to new job opportunities.

Renewables, especially solar and wind, are breaking records around the world, providing widely available lessons to reshape existing energy systems. It is possible for Indonesia to decarbonise by 2040 and provide a sustainable, affordable and secure energy supply. It just needs integration of government vision, political commitment and the implementation.

Dr Achmed Shahram Edianto Asia Electricity Analyst

It’s all about electricity

The IEA 2050 scenario shows that by far the biggest and quickest emissions cuts come from the electricity sector. It turns from the biggest emitting sector in the 2020’s to the first sector to hit net zero, in 2040. The CO2 emissions from the electricity sector are expected to grow around double and reach its peak in the 2020’s, compared to 2010.

This means no unabated coal by 2040

Indonesia by far is the largest coal generating country in ASEAN, and among top 10 globally. The IEA shows that a “net zero by 2050” pathway means that unabated coal power will need to be phased out by 2040. This would need to start in the 2020’s. It is also important to note that unabated coal needs to fall drastically starting in the 2020s. The report highlights that in the 2050 NZE scenario, coal-fired generation in 2030 would be 70% lower than the announced pledges scenario due to the high flexibility of coal power leading to less operational time.

That means more clean investment is needed

To accelerate the transition in the electricity sector, the annual electricity sector investment should be tripled in this decade to reach almost USD 40 billion, and increased by eightfold in the following decade to around USD 80 billion, compared to 2010s; around 50% of which should be placed on renewable energy development.

According to Indonesia’s Ministry of Energy and Mineral Resources, the investment target for renewables by 2025 is around USD 36 billion, or USD 7 billion per year. This is insufficient and needs to increase to USD 20 billion per year until 2030. Much of this investment should be particularly allocated to solar and wind, followed by investment in flexible grid technology to accommodate high penetration of renewables across the country’s spread-out geography.

Average annual investment in the electricity sector by type in Indonesia in the Net Zero Emissions by 2050 Scenario

Cheaper energy system costs

The average energy system cost under the 2050 NZE scenario will be slightly higher in the short-term compared to the other two scenarios due to the high investment, but it “pays dividends in the long term” in the form of lower fuel bills.

Average annual energy system costs in Indonesia in the three scenarios, 2016-2050 (Notes: STEPS = Stated Policies Scenario; NZE = Net Zero Emissions by 2050 Scenario; APS = Announced Pledges Scenario)

More jobs in the energy sector

There will be additional 500,000 new jobs in the energy supply sector, the majority coming from the electricity sector. At the same time, the transition will affect 230,000 job losses, which mainly come from the coal mining industry. Although the net gains of the energy sector employment reach 265,000 jobs, just energy transition policies should be in place to ensure the transitions are socially inclusive and support the current employment that would be at risk in the transition process, particularly in the coal-producing regions.

Of course, it’s technically possible

With an abundance of renewable energy sources, transition to renewable energy is technically feasible for Indonesia. Indonesia has a high technical potential of utility-scale solar and wind, around 1,462 GW and 500 GW respectively. However, current electricity system operations under the state-owned electricity company, PT PLN, hinder the flexibility of the plants and restrict a higher penetration of renewable energy. The main reason is the minimum “take or pay” clauses, under the Power Purchase Agreements (PPAs), which often displace the renewable generation. At the same time, coal plants are not designed to adapt with high penetration of variable renewable energy such as solar and wind. Indonesia should learn from other countries that have already shifted the role of coal to be more flexible in the system.

The other challenge is the mismatch between the renewable energy sources and the demand centres. Inter-regional connectivity among the main islands will be the key to overcoming this challenge.

All of this is possible and desirable, it just needs the political ambition to match it

Just two weeks after the IEA report was launched, the Government of Indonesia issued a Presidential Regulation No. 112/2022 on the acceleration of renewable energy development for electricity supply to attract more renewables investment and achieve national energy targets. It provides a new mechanism for determining renewable energy tariffs and the first formal regulation for early retirement of coal power in Indonesia.

This is an encouraging new beginning. It demonstrates initial signs of political ambition towards realising the benefits of achieving decarbonization of the electricity system in Indonesia, in alignment with the IEA report. Both the new regulation and the IEA scenarios show a promising future, requiring integration of the government vision, political commitment and the implementation, which is vital to achieve 2040 NZE. A successful transition of all sectors to NZE by 2050 will likely depend on the availability of emissions-free electricity.

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