Indonesia is currently preparing for a transition in the energy sector, which requires significant amount of funding. Various initiatives have been introduced to fund just energy transition efforts in Indonesia, such as the Just Energy Transition Partnership (JETP) and the Energy Transition Mechanism (ETM). However, Indonesia realized that energy transition will need to be conducted both at the national level and the sub-national level. Aside from the technical elements, financing for a just energy transition also needs to include the justice-related elements, to minimize negative social and economic impacts.oC. Laporan tersebut juga menyatakan, pentingnya melakukan pengurangan emisi gas rumah kaca (GRK), dengan melakukan transisi di sistem kelistrikan. Indonesia saat ini juga tengah mempersiapkan diri dalam melakukan transisi di sektor energi, yang tentunya memiliki kebutuhan pendanaan yang tidak sedikit. Beberapa inisiatif kemudian muncul untuk mendanai upaya-upaya transisi energi berkeadilan, khususnya di Indonesia, seperti _ _ _ _
Recognizing the significant role of financing to enable a just energy transition, particularly in Indonesia, the Indonesia Research Institute for Decarbonization (IRID) held a focus group discussion on "Financing Just Energy Transition in Indonesia" on October 26, 2023. Some key findings from the discussion can be clustered into financing energy transition at the national level and at the sub-national level.
A. Financing energy transition at the national level
- All attempts of energy transition cannot be funded through the national budget (Anggaran Pendapatan dan Belanja Negara/APBN), especially on the early-retirement of coal-fired power plants. Therefore, the Government of Indonesia planned to use blended finance mechanism to mobilize the financing required for energy transition. The potential source of funds that can be used for blended finance are:
- State income, including carbon market mechanism revenue in the form of State Equity Participation (Penyertaan Modal Negara/PMN), concessional loans, and guarantees;
- Commercial funding from the Indonesia Investment Authority (INA);
- Multilateral/bilateral development finance, such as from the World Bank, Asian Development Bank (ADB), Just Energy Transition Partnership (JETP), and Asian Infrastructure Investment Bank (AIIB), and other climate-related funds;
- Philanthropy.
- Despite the growing efforts carried out for financing renewable energy projects, some challenges still need to be addressed, which are:
- Financial barriers to developing renewable energy projects. Renewable energy projects are still considered as less bankable and have high risks, particularly for community-based and/or small-scale projects. Increasing the capacity of human resources in creating tangible and bankable project proposals could pave the way for small-scale renewable energy projects to be funded by interested investors;
- Financing scheme for business entities. BPDLH (Badan Pengelola Dana Lingkungan Hidup or Indonesia Environment Fund) is currently reviewing the possibility to provide funding for business entities. The existing instruments still require improvement, particularly in terms of shifting from substantive to financial issues. This includes determining the instrument of assessment and control;
- Limited fund allocation for pre- and post- construction/installation of renewable energy power plants. The development of Feasibility Study (FS) is one of difficult components to finance. This is due to the expected quality of FS that should cover the local social and economy aspects of the installation. The ideal quality of FS to be financed is the ones that can be well implemented.
B. Financing energy transition at the sub-national level
- The Government of Indonesia aims to increase the role of village fiscal transfer (dana desa) by developing an Ecology-based Provincial Budget Transfer (Transfer Anggaran Provinsi Berbasis Ekologi/TAPE) scheme and Ecology-Based Regency Budget Transfer (Transfer Anggaran Kabupaten Berbasis Ekologi/TAKE) scheme. The Ministry of Villages, Disadvantaged Regions, and Transmigration (Kementerian Desa, Pembangunan Daerah Tertinggal, dan Transmigrasi) views that strengthening the role of Village-owned Enterprises (Badan Usaha Milik Desa/BUMDes), provides an opportunity to increase the role of villages in energy transition.
NB: (This original publication is only available in Bahasa Indonesia)
