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ISSN 2753-7757 (Online)

Indonesia’s push to reach net zero to power new phase in economic development

14/9/2022

Jakarta city skyline at night Photo: Adobe Stock
Indonesia’s economic development in the last 50 years has brought electricity to almost all citizens across its 17,000 islands and the country now has a viable path to reaching net zero by 2060, the IEA says

Photo: Adobe Stock

The clean energy transition is a key opportunity for Indonesia to diversify its economy while making its energy supplies more secure and affordable. However, while the country has a viable path to reaching its target of net zero emissions by 2060, key policy reforms and international support will be vital for success, according to a new report from the International Energy Agency (IEA).

The report notes that Indonesia’s economic development over the past half century has been a remarkable success story, lifting millions of people out of poverty and bringing electricity to almost all citizens across the country’s 17,000 islands. Access to affordable supplies of energy from the country’s abundant resources as well as revenues from fossil fuel exports have been important drivers of this success.

 

Today, the clean energy transition offers huge opportunities for the next chapter of Indonesia’s development as it seeks to become an advanced economy by 2045. According to the IEA Roadmap, many of the ingredients for reaching net zero emissions and advanced economy status are the same – innovation, knowledge, technology, and economic diversification.

 

For instance, Indonesia’s export revenues from critical minerals, which are needed for many clean energy technologies, are set to be greater in 2030 than its largest ever export revenues from coal. Even bigger opportunities exist if Indonesia can capture more of the clean energy value chain. At the same time, the clean energy transition and economic diversification will have significant impacts on Indonesia’s coal-producing regions, demanding attention from policy makers to ensure a fair and people-centred transition, according to the report.

 

The IEA Roadmap shows that by reaching net zero by 2060, Indonesia would reduce total household energy bills as a share of income from today’s level. It also suggests that for the country’s economy as a whole, the pathway to net zero by 2060 could lower oil import bills by one-third in 2030 compared with a business-as-usual scenario. This saving on oil imports could by itself cover the extra cost the transition would require in terms of new investments – meaning that the transition would effectively pay for itself, says the IEA.

 

The report stresses that the technologies Indonesia needs for the initial steps in its journey to net zero – such as energy efficiency solutions, solar, wind and electric vehicles – are already commercially available today and cost-effective, provided that the right policies are put in place.

 

Enforcing energy performance standards, especially for air conditioners, and supporting electrification of transport and cooking are essential to lower energy costs and emissions at the same time. Indonesian homes are set to add another 20mn air conditioners by 2030 – shifting to the best available technologies could avoid annual electricity demand equivalent to the output of around 10 coal power plants, suggests the study.

 

The IEA states that driving rapid expansion of renewables, especially solar, demands an immediate and sustained policy push. Solar projects in Indonesia are currently more than twice as costly as those in similar emerging market countries, but costs can be brought down by introducing transparent and competitive tariffs and a predictable project pipeline. At the same time, by allowing coal plants to operate more flexibly and remunerating them for it, Indonesia could reduce power system costs by more than 5% and help free up the space in the power system that needs to go to renewables.

 

To achieve net zero by 2060, Indonesia will need to almost triple energy investment by 2030 from today’s level. That means an extra $8bn in investment a year by the end of this decade compared with the level in a business-as-usual pathway. Mobilising that additional financing will hinge on policy reforms and international financial support. International cooperation will also be critical to bring technologies such as nuclear power, hydrogen and carbon capture to market in Indonesia and to reduce costs, the report concludes.

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