Indonesia’s JETP is ‘no free lunch’: deputy minister
INDONESIA is struggling to find affordable financing to develop its transmission network and retire its coal plants early as financiers are mostly interested in renewable energy projects, said Rachmat Kaimuddin, Indonesia’s Deputy Coordinating Minister of Maritime Affairs and Investments in Infrastructure and Transportation.
This is because transmission network development and the early retirement of coal-fired power plants are infrastructure projects that require financiers to provide concessional financing and grants.
While these initiatives are important in facilitating Indonesia’s energy transition – which is the objective of a US$20 billion climate deal between South-east Asia’s largest economy and a group of mostly G7 nations as well as private financiers – investors are willing to put in capital for only renewable energy projects as they are the most commercially viable, said Rachmat.
These observations came about after almost a year of negotiations between the parties involved in the deal known as the Just Energy Transition Partnership (JETP).
“Unfortunately, we’ve found out that there is no free lunch here,” said Rachmat, who was making a speech at the Singapore International Energy Week conference on Monday (Oct 23).
“Sometimes in a climate discussion, political statements are made. ‘Hey, you’re going to get money. I’m going to help you, I’m going to give you cash to wean off coal.’ But what we understand and we realise is that most of these financings are not (gifts from) Father Christmas. It basically has to be commercially viable as well. And of course, if it’s commercially viable, it will be a little bit more challenging,” he added.
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It has been previously reported that the world’s biggest climate deal had stalled as parties were not able to agree on how much of the funds would come in the form of grants and concessional loans, which are cheaper sources of financing than commercial loans.
Rachmat also pointed out that there is no silver bullet for the climate crisis and that financiers should not be “too dogmatic” about what solutions can be financed. For example, some financial institutions have totally cut out coal financing even if it is for early retirement.
“In order to build renewables, you need to build the foundation, which is transmission. And if you want to lower emissions, you need to do an early retirement or managed phase-out of coal plants. Because building renewables doesn’t reduce emissions, it just doesn’t generate emissions,” he said.
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Gillian Tan, chief sustainability officer of the Monetary Authority of Singapore (MAS), acknowledged the difficulties of retiring coal plants early as such endeavours are “inherently uneconomical”.
While blended finance is an important financing mechanism for early coal retirement, Tan, who was speaking at a separate panel, said the reality is that concessional capital does not exist in abundance.
One way for such projects to generate revenue is through carbon credits, which is a theoretical concept the MAS had launched last month with McKinsey.
Besides sorting out the economics of coal phase-out, Yuki Yasui, who heads the Asia-Pacific chapter of the Glasgow Financial Alliance for Net Zero, said that early coal phase-out requires social acceptance and social support.
In addition to concerns that people employed in coal-related sectors would be severely disrupted with the closure of these plants, Yasui also said that there are concerns over how electricity prices would increase or that its supply would become unstable or inaccessible.
“So we need to ensure that accessibility, affordability are thought through quite carefully, not just by the asset owner of the coal-fired power plant, but also the municipality’s and national government’s consensus,” she added.
Speaking on a similar topic, Dilhan Pillay, chief executive officer of state investor Temasek, pointed out that the costs involved in developing new power plants to meet the higher energy demand expected in South-east Asia, concurrently with transitioning existing power plants, are too high.
The new energy capacity needed to meet the expected increase in usage over the next few years should be sourced from renewable energy first, said Pillay in a separate discussion on the same day.
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