The Elon Musk of climate plans gets a test drive
It’s a decent way to think of the $20 billion deal announced in Bali this week to put Indonesia on a path to net-zero emissions by 2050.
By any stretch of the imagination, the plan – known as the Just Energy Transition Partnership, or JETP, and intended to be funded 50-50 by a consortium of wealthy countries and banks from the developed world – is a moonstroke. It would cap emissions from the Indonesian power sector at 290 million metric tons by 2030, not much more than the 258 million tons of pollution in 2019. Renewable energy generation would rise to 34% of the total by the same date, compared to 18% currently. , while coal-fired power plants would retire earlier.
If successful, the project will show that the energy transition is possible even where the natural and political barriers to decarbonization are strongest. If it fails, attitudes toward swift climate action could be tainted for years to come.
It is crucial to pull Indonesia out of its current resource-intensive trajectory. The world’s fourth most populous country, with 276 million people, is also its biggest coal exporter. Although its current emissions are relatively minor – somewhere between those of Canada and South Korea, and less than a third of China’s per capita – left unchecked, they could increase significantly as the country grows. urbanizes and grows rich.
Yet Indonesia’s natural barriers to switching to renewables are among the highest in the world. Strung across more than 17,000 islands along the calmed equator, wind speeds are among the lowest in the world. The solar potential is also mixed, comparable to that of central Europe.
The topography makes things worse. Java, with a population larger than Japan and almost five times the density of the UK, is almost devoid of decent conditions for large-scale renewable energy production. The best resources are on the islands of Sumatra and Sulawesi, but to get that electricity to the people who need it would require underwater transmission lines stretching hundreds of miles, which would probably add 10 to $20 to the cost of each megawatt hour of renewable electricity.
For countries representing 90% of electricity consumption, renewables are now the cheapest source of new generation. Indonesia is an important exception: new coal-fired power at $73/MWh is more affordable than solar at $83/MWh and wind at $136/MWh, even before these transmission costs are paid. Putting fuel into an existing coal plant is even cheaper.
Faced with all this, the power of the national coal industry. In rich countries and even in emerging market giants like China and India, coal has not been very competitive with renewables for years. The development of wind and solar power would be even faster if regulatory inertia did not tip the balance in favor of fossil fuels.
This is not the case in Indonesia. Its vast surface mines produce low-sulphur coal that is cheap to burn, especially considering the minimal shipping cost to home kilns. Its plants are young, with an average age of 12 years. The utility PLN is guaranteed a price-capped fuel supply, while take-or-pay contracts mean coal-fired megawatts must be paid for whether they are used or not. Much of the cost of the JETP will likely come from simply dismantling these rules and compensating the PLN for the policy reversal.
Even after such reforms, renewables do not seem competitive with other countries. BloombergNEF estimates that falling PV prices will still not see the median solar power plant undermine existing coal-fired power plants for a decade, which is already happening in much of the world. The wind won’t make it this side of 2050.
In the worst-case scenario, the JETP could provide a slush fund to shut down generators that would pull out anyway due to gross overcapacity on the Indonesian mainline, with enough exit clauses for existing dirty practices to continue. Having short term goals will help to quickly assess if the plan is on track, but we need a lot more detail before we can judge.
That’s important, because the world is often driven by just-like stories told between overworked executives and politicians, rather than the most sober analysis. The popular meme that ESG investing caused this year’s energy crisis seems to have generated more headlines than policy reversals. If the JETP fails, the argument that the energy transition plans are little more than vast boondoggles might be more persuasive.
Already, there are signs that South Africa’s transition plan, in some ways a model for Indonesia, is collapsing amid local coal politics. That could jeopardize the biggest prize on the horizon, India’s trillion-dollar power sector transition launched by Prime Minister Narendra Modi last year. Further still is China, which burns more than half of the world’s coal and could see the JETP as a model for renewing its own generation fleet.
These concerns are all valid. And yet Indonesia – rich in battery materials, biofuels and workers eager to assemble the supply chain of the global energy transition – has much to gain from transforming itself into a green superpower. If the JETP succeeds, it will have done what the Tesla Roadster did 14 years ago: show a skeptical public that the potential of the energy transition is limited only by the scale of our ambitions. It’s a bet to take.
More from Bloomberg Opinion:
• Coal agreements should put small print in bold: Clara Ferreira Marques
• Data can unlock massive new green investments: Michael R. Bloomberg
• We learn the wrong lesson from the third energy crisis: David Fickling
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.
More stories like this are available at bloomberg.com/opinion