Rising borrowing costs complicate Indonesia’s energy transition plans
INDONESIA’S talks with international partners on setting up a US$20 billion fund for the country’s transition from coal to cleaner energy have taken longer than anticipated, and been complicated by rising borrowing costs, its finance minister has said.
A coalition of countries, led by the United States and Japan, in November pledged to mobilise US$20 billion of public and private finance to help Indonesia shut coal power plants, and bring forward the sector’s peak emissions date by seven years to 2030. It was based on a similar US$8.5 billion initiative in 2021 to help South Africa more quickly decarbonise its power sector.
The plan is known as the Indonesia Just Energy Transition Partnership (JETP) fund, and Jakarta was initially due to unveil a financing proposal for it on Aug 16, but this has been delayed until later this year, said Indonesia’s JETP secretariat.
Finance Minister Sri Mulyani Indrawati told Reuters in an interview on Thursday (Aug 24) that reaching agreement within the Indonesian government on projects included in the JETP, and matching them with the International Partners Group’s wishes and funding sources, have proven to be challenging.
“Especially now that pricing (for borrowing) has risen, and (with) interest rates on capital also becoming increasingly high, we also have to see whether this will fit with our principle of a just and affordable energy transition.”
Among the toughest topics under discussion, she said, is the proportion of the fund that will come in the form of grants, which will be combined with loans from private lenders and multilateral institutions (such as the World Bank and the Asian Development Bank) to reduce costs.
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Another challenge lies in the amount of time it will take to hold public consultations with communities that could be affected by a project, such as the construction of a renewable power plant, the minister said.
But Dr Sri Mulyani said she remains hopeful that Indonesia will be able to come up with an investment plan “before the end of this year, or if there’s any delay, it won’t be too long”.
Experts hired to draw up the proposal have said that some lenders are reluctant to fund projects for early retirement of coal power plants, for fear of being seen as funding dirty coal assets.
Indonesia has been pushing for coal power plant retirement financing to be seen as “acceptable” among global lenders, and brought this up at a meeting of G20 finance ministers in July.
Asean (the Association of South-east Asian Nations) has included coal power plant retirement in its green taxonomy – a framework defining the investments considered environmentally friendly. REUTERS
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