JAKARTA/HANOI -- Just Energy Transition Partnership (JETP) discussions on the early retirement of coal-fired power plants in Indonesia may have hit a snag as a local official said on Monday that western countries are not ready to finance such projects.
JETP, a financing scheme made up of equity investments, grants and concessionary loans from members of Group of Seven (G7), multilateral banks and private lenders, is aimed at helping developing nations accelerate their shift towards cleaner energy sources in the power sector and cut reliance on dirty fuel such as coal.
South Africa was the first country to reach a deal under the JETP, securing a $8.5 billion financing pledge in 2021. Indonesia secured $20 billion and Vietnam $15.5 billion in deals struck in late 2022.
Here's an update of JETP's progress in Indonesia and Vietnam.
Indonesia had planned to announce in August its investment plan for the funds pledged under JETP, but it has since delayed the announcement to later this year.
Indonesia's finance minister had said talks with international partners were made complicated by rising borrowing costs.
A member of the technical working group tasked to draft the plan said JETP Indonesia's Secretariat had to factor in additional captive coal capacity in its calculation. These include power plants built by industrial firms such as nickel smelters for their own consumption.
Under JETP, Indonesia is committed to cap and peak power sector's carbon emissions at 290 million metric tons by 2030. The 2030 peak would be at a level 25 percent lower than a previously forecasted peak in 2037.
The plan will eliminate 300 million metric tons of greenhouse gas emissions through 2030 and reduce well over 2 billion tons through 2060.
How does Indonesia plan to deploy JETP funds?
Little has been revealed on JETP's projects, but Indonesian senior government official has said he hoped JETP would help finance state utility Perusahaan Listrik Negara's (PLN) plans to upgrade its electricity grid to connect more renewable power to its network.
PLN is planning to add 32 gigawatts (GW) of baseload renewable power capacity and upgrade its grid to increase its variable load from renewables to 28 GW from 5 GW currently. The additional capacity and new grid would require up to $172 billion in investment until 2040, a PLN official said.
Indonesia also wants JETP to finance the early retirement of some of its coal power plants, however some banks are reluctant to finance these early retirement for fear of being seen as financing coal projects.
What are Indonesia's rules for green financing?
Indonesia is revising its green taxonomy to align with the Association of Southeast Asian Nations (ASEAN) which has included coal power plant retirement in its green taxonomy which defines environment-friendly investments.
Indonesia is also considering expanding the green label to loans for coal power plants used by industries that make products considered sustainable, such as batteries for electric vehicles (EV).
The JETP deal is expected to help Vietnam peak greenhouse gas emissions in the power sector by 2030, earlier than a previous 2035 projection, and cap the sector's CO2 emission at 170 million tons by 2030 and 101 million tons by 2050.
In July, Vietnam set up a secretariat led by the Minister of Natural Resources and Environment Dang Quoc Khanh and comprised of officials from the ministries of finance, industry and trade, and planning and investment, to implement the JETP.
What are the targets?
The JETP plan, approved by Deputy Prime Minister Tran Hong Ha on August 31, will mobilize international finance and technologies to switch from coal to renewable energy and new energy sources such as green hydrogen and ammonia.
It also aimed to cap the total installed capacity of coal-fired power plants at 30.13 GW by 2030 from 25.3 GW at the end of 2022.
Vietnam aims to terminate coal-fired power projects that are facing financing difficulties, and shut down existing aging facilities.
The government also wants to encourage the development of electric vehicles, including EV-based public transport and install EV chargers across Vietnam.
What needs to be done?
The Ministry of Natural Resources and Environment will coordinate with relevant stakeholders to complete a plan on mobilising resources for the implementation of the JETP by November.
The ministry is also tasked with building a mechanism and creating policies for carbon credit trading and to complete the National Marine Spatial Planning to facilitate offshore wind development.
Vietnam said it aimed to complete legal frameworks to facilitate renewable development and enhance efficiency of its power grid, including building a smart grid that can better integrate renewable sources.