JETP - The Commencement of Just Energy Transition Partnership

27 Jun

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General Overview

Indonesia has demonstrated its huge role in the global community through Indonesia’s G20 Presidency, which was held from 15 until 16 November 2022 in Bali. Despite the post-covid economic recovery as well as the uncertainty of global security, Indonesia was determined to hold the G20 Summit and settled all the G20 agenda, among others, the focus on the discussions regarding the Environment and Climate Sustainability agenda.

One of the results of the discussions regarding the Environment and Climate Sustainability is manifested in the European Commission, the Republic of Indonesia, and the International Partners Group (consisting of several G20 member states) (“IPG”) Joint Statement regarding Just Energy Transition Partnership (“JETP”) dated 12 November 2022 (“Joint Statement”) in which in the Joint Statement discusses steps and practical efforts of Indonesia to exercise and implement the Energy Transition to be applied as it will strengthen Indonesia’s role in supplying clean energy for the future.

This ARMA Update discusses further regarding the JETP, its Joint Statement, and the Action Plan contained within it.

Just Energy Transition Partnership

The JETP aims to commence the strategy and efforts to create and provide the global community with clean and sustainable energy, which is in line with the Paris Agreement and Glasgow Climate Pact that demands the international community to collectively exercise any necessary efforts to reduce CO2 Emissions as well as the transition to clean energy resources. ¹ Notwithstanding any collective measures to conduct and accomplish such things, through the G20 Summit, the G20 member states have pointed out that Indonesia holds a critical role in energy transition along with the recognition to apply the Environmental, Social, and Governance principles to be made of.²

Further, Joint Statement declared that JETP intends to:

Establish a JETP as a long-term partnership to help Indonesia pursue an accelerated and ambitious just energy transition that supports a trajectory that keeps a warming limit of 1.5°C above pre-industrial levels within reach and includes an ambitious power sector emissions reduction pathway and strategy based on the expansion of renewable energies and the phase down of on and off-grid coal-fired electricity generation; and the implementation of concrete actions achieving a just energy transition for workers and communities, particularly those most affected by an energy transition away from coal;
Implement the JETP as a partnership between the Indonesian Government and the IPG to enable the accelerated decarbonisation of Indonesia's power sector to achieve the most ambitious emissions cuts possible. This partnership will also include the Glasgow Financial Alliance for Net Zero (GFANZ) Working Group, which includes an initial set of financial institutions, including Bank of America, Citi, Deutsche Bank, HSBC, Macquarie, MUFG, and Standard Chartered, and it will also leverage the expertise, resources, and operations of the multilateral development banks; and
The partnership aims to develop a comprehensive investment plan (“JETP Investment and Policy Plan”) containing joint targets for the power sector, which include on-grid and off-grid power, and captive power systems for industrial uses, among others, to freeze the existing pipeline of planned on-grid coal-fired power plants included in the current Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik) for 2021 – 2030, and reaffirming a full moratorium on any new on-grid coal power generation capacity in accordance with Presidential Regulation No. 112 of 2022 regarding Acceleration of the Development of Renewable Energy for the Electricity Power Supply.

Action Plan

The Joint Statement has arranged several practical measures to be conducted in a specific period, including 3 (three) months and 6 (six) months after the declaration of JETP.

Within the first 3 (three) months, the JETP must carry out the following:

Finalise an inclusive political dialogue on the accelerated and just energy transition (including non-governmental actors such as civil society, private sector, etc.), identify an existing entity to act as secretariat, and provide leader-level updates on the partnership's progress;
Determine the scope of supported actions to operationalise the Joint Statement's intention;
Develop a policy reform strategy in the energy and financial sectors to accelerate investment, including from the private sector, in an efficient and market-driven manner, to support the JETP goals;
Identify a clear strategy for private sector engagement;
Further articulate and elaborate terms of financing;
Finalise initial sources of financing for specific JETP projects and efforts;
Assist Indonesia with structuring sustainable financial and technical support for the energy transition to a net-zero economy; and
Set up coordination platforms with development finance institutions and key stakeholders to further develop the conceptual approach and leverage additional technical and financial support towards their most impactful uses in the JETP Investment and Policy Plan.

In the first three 3 (three) months, Indonesia established the JETP Secretariat on 16 February 2023, as JETP Secretariat will act as the institution to provide general information, coordination and planning, and supervision as well as the evaluation of JETP efforts as declared through the Joint Statement. Further, Indonesia has begun to discuss the new progressive policy regarding New Energy and Renewable Energy through the collective efforts of the President of Indonesia and the House of Representatives. In addition, the Indonesian Government and the IPG’s member has been commencing a comprehensive dialogue regarding the JETP’s funding plan, which includes the funding mechanism as well as the investment opportunities.

Further, JETP ought to commence several actions within 6 (six) months as follows:

Develop a domestic renewable manufacturing capability roadmap that addresses local content requirements;
Develop a biannual review process to assess adherence to the top-line targets included in the joint statement and to the commitment to limiting additional coal capacity in instances where timely, zero-emissions, affordable and reliable alternatives are available;
Develop a JETP Investment and Policy Plan to identify the investment requirements and opportunities for a just energy transition led by the Indonesian Government with administrative and technical support provided by a Secretariat and with the collaboration of PT Sarana Multi Infrastruktur. The Investment and Policy Plan will also provide an outline of the policy reforms to address any regulatory barriers in the energy and financial markets that hamper private investment for a just energy transition;
Develop a full program of work for the partnership based on the JETP Investment and Policy Plan, with inclusivity through participation from non-governmental actors, including the private sector and civil society—that addresses the social and economic impacts of Indonesia's just energy transition;
Develop a power sector roadmap for 2030 in line with the net zero targets to support green development;
Identify a plan to accelerate the early retirement or avoid construction of on and off-grid coal-fired power plants both before and after 2030 that substantially decreases emissions while maintaining stable and affordable power for the Indonesian people;
Identify potential financing instruments and policies that will act to improve Perusahaan Listrik Negara (“PLN”), and relevant subsidiaries for long-term financial sustainability;
Develop a strategy to leverage further financial resources, including domestic institutions, to support Indonesia’s just energy transition activities.

As of this date, PLN has built a strategic partnership with International Energy Agency, an intergovernmental organisation that also focuses on the sustainable energy transition, in which such partnership will help PLN to conduct a zero net emissions roadmap as Joint Statement has stated that PLN holds a strategic role for Indonesia’s energy transition.

Furthermore, as mandated through the Joint Statement, PLN also conducted their best effort to commence the shutdown of the electric steam power plant (Pembangkit Listrik Tenaga Uap or “PLTU”) as well as to identify the schedule and priorities for such operations shutdown. On the other hand, the Ministry of Energy and Mineral Resources (“MOEMR”) has announced several states that may support the financing of JETP through the capital injection in the amount of USD21 billion. Such financing support will help PLN to determine the PLTU shutdown in Indonesia, as PLN also needs the certainty of financial support in order to maintain the energy transition, financing, and workers' sustainability.

ARMA Law Commentary

We note that JETP is one of the efforts for Indonesia to accelerate the country’s energy transition and reach net zero emissions by reducing 50 million tonnes of greenhouse gasses by 2023 and 160 million tonnes by 2040. Through the Joint Statement, Indonesia is given the opportunity and responsibility by the global community to play an important role in the energy transition and, therefore will bring many benefits, especially to the world's sustainability environment as well as Indonesia’s potential economic growth itself. At last, Indonesia must commence all necessary efforts to support JETP as stipulated in the Joint Statement, for it may increase energy efficiency, create quality ‘green’ jobs and bring many economic benefits.

In order to support PLN, first and foremost the Government of Indonesia must prioritise the enactment of the New Energy and Renewable Energy Law for it shall be an umbrella regulation to support the energy transition as well as to arrange the ‘green’ financing system and to harmonises all the stakeholders role in the energy transition.

On another note, the Indonesian Government is also actively formalising the framework for the Indonesian cap-and-trade mechanism, with the PLTU sector being prioritised through the MOEMR regulation and decrees ³ to commence sectoral carbon trading to accelerate the decarbonisation of Indonesia's power sector. The carbon pricing policies outline the renewable energy power plant’s role in carbon trading, in which unused carbon emission quotas or emission reductions may be certified to be traded with PLTUs to ensure that the sector does not exceed its maximum emission limit.

Point (1) of Joint Statement↩
Point (6) of Joint Statement↩
MOEMR Regulation No. 16 of 2022 regarding Carbon Pricing Mechanism in the Power Plant Subsector and MOEMR Decree No. 14.K/TL.04/MEM.L/2023 of 2023 regarding the Technical Approval for the Upper Limit of Greenhouse Gas Emissions for Coal-Fired Power Plants Connected to the Electricity Network of PLN for Phase One↩

Disclaimer:
This client update is the property of ARMA Law and intended for providing general information and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. ARMA Law has no intention to provide a specific legal advice with regard to this client update.

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