Spotlight on Indonesia’s Energy Transition – COP29 to Net Zero 2060
As delegates from the Indonesian government were in Azerbaijan making headline grabbing announcements at COP29, Baker Botts was pleased to host an evening seminar in Jakarta on 13 November 2024 with a panel of experts sharing key insights into Indonesia’s energy transition initiatives as we look forward. We were lucky to hear from Pak Bayu Satria Pratama of PLN EPI, Ibu Dr. Belladonna Maulianda, P.Eng of Indonesia CCS Center and Pak Femi Sastrena of Medco Power Indonesia - giving us a spread of state-owned entity, non-governmental institute and private sector perspectives.
Indonesia has a long-term goal of achieving net zero by 2060. The country has a number of pathways to doing so and at COP29 the centrality of renewables was made clear: the Indonesian delegation announcing plans to add 100GW of power over the next 15 years, 75GW of which will be from renewable sources. The ambitious target can be put in context by reference to Indonesia’s current total installed generation capacity of 90GW (with around 80GW of that coming from conventional fuel power generation, two thirds of which is from coal).
Indonesia’s ambitions will require strong collaboration between government, the private sector and financing institutions – a point well noted by Femi Sastrena of Medco Power in panel discussions. The investment required to develop a further 75GW of renewable power generation is estimated to be in the region of US$235 billion. The need for strong collaboration is a central theme for energy transition globally.
Energy security and affordability will be central policy themes as we look forward in Indonesia. In this context, gas (including LNG) must be viewed as a transitional fuel and carbon capture and storage (CCS) could materially decarbonize the existing coal fleet (of Indonesia).
In this regard, Indonesia’s estimated carbon storage potential is massive (up to 600GT). This storage capacity comprises both onshore and offshore depleted petroleum fields and saline aquifers. The ICCSC are driving the discussion in Indonesia with respect to CCS development and regulation and the great strides of 2024 (which saw new presidential regulations for CCS) will carry forward into 2025. Indonesia’s potential as a storage reservoir for Asia’s captured carbon is immense and the ICCSC and Dr Belladonna are driving this forward.
So, what of gas? Indonesia’s state-owned monopoly PLN’s ambitions to reduce its coal consumption rely heavily on natural gas as a transition fuel (for approximately 75% of its energy needs in the near term) coupled with an increasing volume of renewable energy power generation over a 15-20 year timeline. PLN EPI is the arm of PLN responsible for sourcing fuel for power generation and there will need to be a combination of imported LNG and domestic production to meet this demand. As we heard from Bayu Satria Pratama (of PLN EPI), this will be a delicate balancing act given the optics of a country so rich in natural gas, needing to import that resource. Similar dynamics are confronting near neighbor Australia – so Indonesia is not alone in balancing optics. One trend that is likely to continue is the oil and gas regulator requiring CCS and CCUS activities (as part of petroleum operations) to be adopted by international energy companies as a condition to receiving government approval for new field development plans for natural gas projects.
Substantial amounts of capital will also be required for Indonesia to achieve its net zero 2060 ambitions. One initiative that the Indonesian government has indicated that it intends to pursue to raise such capital (as much as up to US$65 billion by 2028) is by selling carbon credits for over 200 million tons of CO2 annually on the international market. The government plans to generate such credits through carbon-offsetting projects such as forest preservation, reforestation and mangrove and peatland replanting. Whether this is achievable will depend largely on factors such as: (i) the scale of projects; (ii) the international market price for nature-based carbon credits; and (iii) the quality of such credits that Indonesia is able to generate. Avoiding the pitfalls (of poor quality carbon credits) will give this a real chance of succeeding, as nature-based solutions remain fundamental to global ambitions on combating climate change.
The acknowledged backbone to the success of energy transition (globally) is fit-for-purpose transmission systems. Indonesia’s grid ambitions, as announced at COP29, were primed with ambition but essential to delivering on the country’s net-zero commitments. Indonesia’s transmission assets must grow - transforming the grid’s geographical reach with around 70,000km of new cables.
At COP29, Indonesia also announced that it had entered into a bilateral carbon trading agreement with Japan, being one of the first government to government agreements of its kind under the Paris Agreement framework. Such agreement will, at a high level, provide a platform for trading carbon credits between the two countries as well as likely leading to increased investment from Japan in Indonesian CCS projects, including projects for the transporting of carbon from Japan to Indonesia to be stored. It is expected that Indonesia will also reach similar agreements with South Korea and Singapore in the near future. It is clear therefore that Indonesia is positioning itself to become a regional leader in cross border carbon trading.
One thing that is for certain however is that the ever-evolving landscape within the energy sector as Indonesia attempts to make inroads into its net zero 2060 commitments creates opportunity for energy companies and international investors in the region. We as a firm look forward to continuing to use our broad energy sector expertise and in-depth regional knowledge to help our clients navigate such risks and capitalize on relevant opportunities in 2025 and beyond.
For more details on the broader outcomes of COP29 please see edition 21 of P2N0, a Baker Botts periodical which highlights major global news items on the drive to reduce greenhouse gas emissions to net-zero. Edition 21 covers our take on the key outcomes from COP29.
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