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Can Southeast Asia afford to retire its coal plants?

  • Published
    29th Dec, 2023
Context

Indonesia and Vietnam will need to balance their sustainability ambitions and financing, with the reality that many of the power systems already approved for construction will be coal-fired.

About

About Just Energy Transition Partnership (JETP):

  • In recent developments, Indonesia and Vietnam have unveiled their plans to utilize funds from the Just Energy Transition Partnership (JETP), a G7-backed initiative, to drive sustainable development.
  • The JETP, supported by the International Partners Group and private banks in the West, aims to allocate €18 billion to Indonesia and €14.1 billion to Vietnam for their green energy transition efforts.

Indonesia's Ambitious Roadmap

  1. Targets and Projects
    1. Indonesia aims to raise the share of renewable energy in its power generation to 44% by 2030, a significant increase from the previous target of 34%.
    2. The Comprehensive Investment and Policy Plan outlines 400 priority projects, seeking substantial investment from JETP donors.
  2. Public Involvement
    1. The plan is currently in draft form, with the Indonesian government actively seeking stakeholder inputs to formulate a final investment plan expected to be released next year.
    2. Edo Mahendra, Head of Indonesia's JETP Secretariat, emphasizes the public's role, stating that energy transition is a matter of public interest.

Funding Sources for Indonesia

  1. Government and Development Banks
    1. Japan, the US, and European governments and development banks will contribute half of the JETP funds, primarily in the form of loans.
    2. Notable pledges include nearly €1 billion from the European Investment Bank, €500 million from the French Development Agency, and almost €1.3 billion from Germany.
  2. Private Financing
    1. The remaining €9 billion will come from private financing through the Glasgow Financial Alliance for Net Zero, involving key financial institutions such as BlackRock, Bloomberg, Brookfield, and HSBC.
    2. The initial $10 billion aims to jump-start clean energy investment, with the expectation that the private sector will follow suit.

Vietnam's Vision at COP28

  1. Equity Investments and Grants
    1. At COP28, Vietnamese officials outlined their vision for utilizing €14.1 billion in equity investments, grants, and concessionary loans from JETP.
    2. The initiative has garnered support from the International Partners Group, private banks, and investors, showcasing a collaborative effort in sustainable development.

Concerns and Controversies

  1. Leaked Documents and Disappointments
    1. Reuters reported that only 2% of the €7.3 billion committed to Vietnam will be in grants, raising concerns about the substantial reliance on loans, some of which are at market rates.
    2. Indonesia's plan has faced criticism for excluding power plants supplying off-grid systems, potentially neglecting significant capacity and future projects in the coal sector.
  2. Decarbonization Challenges
    1. Indonesia acknowledges the need for a detailed study and roadmap on decarbonizing off-grid captive power systems, addressing concerns raised by stakeholders.
    2. The EU ambassador to Indonesia emphasizes the opportunity to collaborate on off-grid decarbonization pathways.

Regional Dynamics and Future Challenges

  1. Comparison with China's Investments
    1. In contrast to China's direct investments, there are concerns in Vietnam and Indonesia about the nature of the support they receive through JETP.
    2. Critics argue that some proposals may be unambitious, potentially allowing for the continued development of unsustainable energy production.
  2. JETP's Regional Impact
    1. South Africa and Senegal have already joined the JETP, while India and China grapple with vast numbers of permitted and under-construction coal-fired power stations.
    2. JETP's impact on the region's sustainability ambitions is a subject of ongoing debate, highlighting the complexities of balancing national interests and environmental commitments.

Way Forward:

  • As Indonesia and Vietnam navigate the challenges and opportunities presented by the JETP, the success of these initiatives hinges on effective collaboration, transparent planning, and responsiveness to stakeholder concerns.
  • The region's journey toward sustainable development underscores the delicate balance between economic growth and environmental responsibility.
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