Indonesia is closely reliant on coal, which accounts for two-thirds of its electrical energy era, employs 1 / 4 of one million folks and is a significant export for the nation.
But, the nation has additionally pledged to succeed in net-zero emissions by 2060.
Moreover, developed nations have pledged $20bn to help Indonesia’s transition underneath a “simply power transition partnership” (JETP).
TransitionZero has used its new Future Power Outlook (FEO) open-source modelling and information platform to discover how greatest to spend this cash.
Our outcomes present that, if Indonesia makes use of JETP funds to shut round half of its current coal-fired energy crops early, it could not solely get monetary savings and lower carbon, however may additionally preserve dependable electrical energy provides.
Nonetheless, the untried nature of JETPs, in addition to the failure of developed nations to satisfy financing pledges traditionally, imply questions stay across the viability of the scheme – not just for Indonesia, however extra extensively.
Photo voltaic ‘massive winner’
The FEO methods mannequin for Indonesia has 34 “nodes” representing every of the archipelago’s island provinces, making it the best decision mannequin publicly accessible for this market.
It builds out the most affordable era possibility to satisfy demand at every node every year whereas adhering to identified constraints (similar to an finish to newbuild coal crops post-2030 or a strict carbon funds that places the ability sector on a internet zero-aligned pathway). It additionally builds additional grid connections between nodes, if that is cheaper than including extra era capability.
The top result’s a four-dimensional blueprint for redesigning the ability system within the least expensive potential method between now and 2050.
In whole, we used FEO to mannequin 4 situations for Indonesia: “early coal retirement”; “net-zero by 2060”; “present insurance policies”; and “least price”.
The latter – least price – is a theoretically unconstrained situation optimised purely round system prices that enables new coal crops to be constructed post-2030 whatever the emissions influence.
What’s putting is that photo voltaic PV emerges as the massive winner in all situations, together with least price, as a result of anticipated capital price reductions and Indonesia’s gorgeous, however underexploited photo voltaic useful resource potential.
By 2050, photo voltaic capability would hit between 170 gigawatts (GW) in “least price” and 210GW in “net-zero by 2060”. Photovoltaic era would displace coal as Indonesia’s largest energy supply underneath all situations, with greater than 300 terawatt-hours (TWh) in 2050. That is 30% greater than coal era underneath “least price” and 1,044% higher than coal underneath “net-zero by 2060”.
If Indonesia opts to revamp its energy system round least-cost rules then photo voltaic will come to dominate the grid, no matter emissions targets. Compelling economics would be the driving power for this transformation.
Our modelling reveals that biomass, hydro, geothermal, nuclear and batteries may even all play vital roles, to various levels, alongside some fuel for backup.
The chart under illustrates the evolution of capacities by know-how underneath every situation, with photo voltaic’s dominance turning into obvious from 2040 onwards.
![In any cost-optimised system, solar PV would become Indonesia’s dominant power source.](https://www.carbonbrief.org/wp-content/uploads/2023/07/How_installed_capacity_changes-compressed_-_FINAL-644x1024.png)
Aligning incentives
The FEO mannequin outcomes are significantly instructive close to Indonesia’s coal fleet. The federal government subsidises coal era with a view to hold this core financial engine ticking over and to maintain electrical energy tariffs reasonably priced for households.
Final 12 months, coal burning hit document highs in Indonesia, surging by 33% on 2021 ranges, contributing to a 20% enhance in carbon emissions, in accordance with information from the Indonesian Ministry of Power and Mineral Sources and reported by Mongabay.
This was largely pushed by efforts to kickstart a restoration following the Covid-19 pandemic, highlighting coal’s central function within the nation’s financial system.
Coal crops are financed by energy buy agreements (PPAs), which have to be paid off earlier than a plant will be retired.
If the JETP money materialises and is used solely to pay down coal PPAs – neither of that are a foregone conclusion – electrical energy may develop into each cheaper and cleaner in Indonesia.
Within the “early coal retirement” situation modelled, the place 21.7GW of coal capability is paid to shut, power-sector decarbonisation would initially occur extra shortly in comparison with the “Web-zero by 2060” situation, and the resultant system can be less expensive to run than the “present insurance policies” (baseline) situation.
Underneath “early coal retirement”, whole power-sector emissions are 1.3bn tonnes of carbon dioxide (GtCO2) decrease out to 2050 in comparison with “present insurance policies” – and the general price of working the ability system drops by $2bn in comparison with the baseline.
In economist-speak, this quantities to a damaging price of abatement: the price of chopping carbon is available in at minus $2 per tonne of prevented CO2 when JETP funds are used for early coal retirement.
This can be a vital discovering, as a result of financial and environmental incentives hardly ever align on this method.
Once more, the important thing enabler for these financial savings is the JETP. If this cash fails to materialise and the $20bn price of shopping for out Indonesia’s least worthwhile coal PPAs is added to the general system price, this leads to a value of abatement of $16 per tonne of prevented CO2. Indonesia is very unlikely to close coal crops if it has to pay to take action.
The chart under illustrates the general cumulative price of working Indonesia’s energy system between now and 2050 underneath every situation in comparison with the “present insurance policies” (baseline) situation, and the distinction in greenhouse gases emitted over this era.
When PPA buyout prices are added to the system price, the price of abatement will be seen to rise from -$2 to $16 per tonne of prevented CO2.
![The cost of buying out 21.7GW of coal (PPAs) is $2bn.](https://www.carbonbrief.org/wp-content/uploads/2023/07/When_PPA_buyouts_are_excluded_from_system_costs_-_FINAL.png)
Driving out inefficiencies
Within the “early coal retirement” situation, the system price falls as crops are eliminated as a result of a lot of them at present obtain capability funds to maintain them accessible on island grids with very excessive “reserve margins”.
Early closure of crops which might be redundant as a result of overcapacity ends these funds, driving out inefficiencies and making area for renewable power to satisfy incremental demand.
The bottom hanging fruit on the coal-retirement tree is to be discovered on grids with the best reserve margins – and Indonesia has many remoted grids with big scope for optimisation.
Reserve margins measure the quantity of spare capability accessible above peak demand, and are a proxy for overcapacity. Southeast Asia energy planners usually goal 25-30% reserve margin ranges, whereas the European and international common is round 15%.
The typical throughout Indonesia’s 5 most important grid networks is 49%. In Java-Bali, Indonesia’s largest and most populous island province, reserve margins are virtually 60%. That is significantly acute on Java-Bali’s Banten subregional community, the place reserve margins are 127%.
Banten is house to eight.8GW of coal plant capability, of which 7.3GW can be prioritised for closure underneath the “early coal retirement” situation. We configured FEO to cut back reserve margins to 35% by 2030 to drive out this extra capability and enhance system effectivity, whereas guaranteeing a protected era margin to satisfy peak demand in all situations.
Extra money, higher ambition
The FEO mannequin outcomes are clear: all “least price” pathways lead Indonesia to a future powered by photo voltaic and different renewable and low-carbon applied sciences. However the pace of the transition is much less sure. What we do know is that accelerating coal closures now pays dividends later.
Underneath the “early coal retirement” situation, power-sector emissions drop quickly within the first 5 years as these 21.7GW of underutilised capability begin to come offline, funded by the JETP’s $20bn PPA buyout fund. Energy-sector emissions initially fall extra shortly on this situation than underneath “net-zero by 2060”, as a result of crops are compelled offline sooner slightly than later.
Indonesia is at present constructing 13GW of recent coal crops this decade, all of which come on-line as scheduled in all FEO situations. However the fee of closures underneath “early coal retirement” exceeds the speed of recent additions, which means that Indonesia may save 87m tonnes of CO2 between now and 2028 in comparison with the “net-zero by 2060” situation.
Nonetheless, these early emissions positive factors are prone to being misplaced. The FEO mannequin reveals that the JETP cash runs out in 2028 and, thereafter, emissions begin to rise once more.
This implies the necessity for a brand new local weather finance mechanism to exchange the JETP after the $20bn is spent, if decarbonisation of the power sector in Indonesia is to proceed.
Moreover, the mannequin suggests a mixture of ongoing worldwide help for PPA buyouts and binding energy sector emissions targets to make sure local weather finance may ship the most important potential carbon abatement “bang per buck”.
As will be seen within the chart under, emissions initially rise extra slowly underneath the “early coal retirement” situation, however they then shoot up once more post-2028 when the JETP cash runs out.
![In ‘current policies’ scenario, all coal plants run until the end of their assumed economic life.](https://www.carbonbrief.org/wp-content/uploads/2023/07/Early_coal_retirement_is_essential_to_meet_emissions_targets_-_FINAL.png)
Quantifying the chance
The FEO methods mannequin permits us to quantify, with higher spatial and temporal granularity than ever, the advantages of leveraging worldwide local weather finance into early coal retirement in Indonesia, by way of each decrease emissions and prices.
The query now could be whether or not the cash might be forthcoming and provided on phrases which might be acceptable to Indonesia.
Donor nations and monetary establishments are but to log off on any of the promised JETP funds. It’s unclear whether or not these might be primarily grants and concessionary loans, or whether or not lenders will insist upon business rates of interest.
The price and emissions advantages of early coal retirements are much less prone to materialise if Indonesia is required to saddle itself with burdensome repayments to unlock capital inflows.
JETPs are a promising, however untested mechanism for accelerating decarbonisation in low- and middle-income nations, similar to Indonesia.
If JETP members can align on the phrases of funding and the way greatest to deploy capital, they might create a mannequin for profitable north-south local weather cooperation for different recipient nations to copy.
There might be many pitfalls to navigate, however not less than the advantages of mobilising local weather finance for coal PPA buyouts are actually extra clearly understood.
Full particulars on the Future Power Outlook modelling platform and the findings of the primary mannequin runs can be found on the TransitionZero web site.
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