Can Southeast Asia afford to retire its coal plants?

In November, Indonesia announced a technical road map for how the country would spend a portion of the €18 billion ($20 billion) pledged to it through the Just Energy Transition Partnership (JETP), a G7-backed investment program for sustainable development.

At the COP28 summit in Dubaia few days later, Vietnamese officials laid out their vision for how they would spend the €14.1 billion in equity investments, grants and concessionary loans that is on offer through JETP.

The green financing mechanism is supported by the International Partners Group — which includes Denmark, the EU, France, Germany, Italy, Japan, Norway, Britain and the United States — as well as by private banks and investors in the West. 

According to Jakarta's Comprehensive Investment and Policy Plan, Indonesia will increase the share of renewable energy in nationwide power generation to 44% by 2030, up from a previous target of 34%.

It also mapped out 400 priority projects that would require a large chunk of the investment from the JETP donors.

But the plan remains a draft, and Indonesia's government is currently collecting stakeholder input for the formulation of a final investment plan, which may be released in 2024.

"Energy transition is a matter of public interest. JETP is one of the initiatives within Indonesia's broader energy transition efforts. Therefore, we would like the public to have access to the draft before it is finalized in the hopes that we may receive as much input as possible," Indonesia's JETP Secretariat head, Edo Mahendra, said in a statement.

Where will the financing come from?

In the case of Indonesia, half of the JETP funds will come from governments and development banks in Japan, the US and Europe — mostly in the form of loans.

For instance, the European Investment Bank, the EU's lending arm, has pledged just under €1 billion. The French Development Agency has committed €500 million, and Germany has pledged nearly €1.3 billion.

Funding from the US and the UK is more complex; in essence, they'll guarantee loans to Indonesia from the World Bank.

The remaining €9 billion will come as private financing from the Glasgow Financial Alliance for Net Zero, led by a group of CEOs and other leaders from financial institutions, including BlackRock, Bloomberg, Brookfield and HSBC.

"The idea is that the initial $10 billion will be used to jump-start investment and demonstrate that Indonesia is a viable market for clean energy development," James Guild, an expert on economic development in Southeast Asia, wrote recently.

"Once this proof of concept has been shown, the private sector will follow with an additional $10 billion or more in market rate financing and investments," he added.

In 2021, South Africa became the first country to reach a deal under the JETP, which could see €7.7 billion in financing. The West African nation of Senegal also signed onto the scheme last year.

In Southeast Asia, Vietnam agreed to a JETP initiative in December 2022 and published its Partnership Resource Mobilization Plan on December 1 this year at COP28.

"The launch of the Resource Mobilization Plan is a great milestone for the implementation of the Just Energy Transition Partnership," European Commission President Ursula von der Leyen said in a statement this month.

"It demonstrates Vietnam's leadership in paving the way for a clean energy future," she added. "The EU is proud to be part of this Partnership and we remain committed to working with Vietnam to support the necessary reforms for speeding up crucial investment into renewable energy and a green economy."

The proposals, however, are not without controversy.

Financing the region's sustainability ambitions

In a region of the world where China has pumped tens of billions of dollars into infrastructure projects in recent years — often as direct investment rather than loans — there has been some disappointment in Vietnam and Indonesia about what exactly they could receive.

Reviewing leaked documents last month, the Reuters news agency noted that, of the €7.3 billion in public funding committed to Vietnam, only 2% will be as grants, mostly provided by the European Union. Almost the entirety of the funding will be in the form of loans, and a high percentage of those will be at market rates.

Some of the financiers have also been a little discouraged. In its most recent plan, Indonesia excluded power plants that supply off-grid systems, such as industrial estates, most of which are coal-fired, from its targets.

Thus, as Reuters pointed out, the plan ignores about 13.74 gigawatts (GW) of capacity and another 20.48 GW planned by Indonesia's private coal power station operators in the metal sector alone.

According to the Comprehensive Investment and Policy Plan, which is constantly referred to as a "living document" that will be regularly updated, the Indonesian governmental department in charge of JETP matters "will carry out a more detailed study and roadmap on decarbonizing Indonesia's off-grid captive power systems."

Denis Chaibi, the European Union's ambassador to Indonesia, welcomed the publication of Jakarta's Comprehensive Investment and Policy Plan in November, but he noted in a statement that "moving forward, we have a unique opportunity to work together on the implementation of the CIPP, including on off-grid decarbonisation pathways."

Tiza Mafira, director of the Climate Policy Initiative, an Indonesia-based organization, has argued that Indonesia is "not alone in facing this conundrum" in having to manage its sustainability ambitions with the reality that many of the power systems already approved for construction will be coal-fired. 

India and China also have vast numbers of coal-fired stations permitted and under construction.

"It demonstrates that commitments for no new fossil fuel expansion come with a lot of caveats, seemingly exempting strategic national interests and permits already in the pipeline," Mafira wrote recently.

Others, though, argue that the proposals made for JETP funding are in some ways rather unambitious.

For instance, under its JETP proposals, Vietnam will cap peak greenhouse gas emissions from the power sector by 2030, at 170 million tons, and then bring this down to 101 million tons by 2050.

And Hanoi says it will cap the capacity of coal-fired power plants at 30.13 GW by 2030, up from 25.3 GW at the end of 2022.

But environmentalists point out that it still allows for rapid development of unsustainable energy production over the decade.

Edited by: Keith Walker