Decarbonisation pathways for the Indonesian power system : policy measures and financial schemes options

Sammanfattning: In view of the potential threat climate change poses around the globe, countries are pledging to emission reductions to alleviate its consequences. As part of the Paris Agreement, Indonesia set sustainability targets for the energy sector, where one of the biggest emitters is the national power system. Although the country set an ambitious strategy for reducing emissions from electricity generation, it is still dominated by coal consumption and is currently not on track towards meeting its sustainability targets. Policy measures and financial schemes stand as one of the most powerful ways to rapidly reduce emissions in the power system. This paper aims to propose policy measures and financial schemes for the Indonesian decarbonisation scene by analysing its key inefficiencies, the available international policy options and the national power system’s future projections.International examples prove to be useful implementations of the myriad of options when it comes to measures for the power sector. In terms of policy measures, Indonesia could make use of a liberalisation process to induce more competitiveness in the sector and drive down prices, while allowing easier access for private entities to enter the market. A CO2 tax or cap-and-trade system stand as the most effective standalone way to rapidly reduce emissions in the country, as it targets the most emitting sectors of the power system. Incentivising schemes like Feed-in-Tariff or net-metering foster generation technologies which may not be cost-competitive yet and do not have a sizeable role in the power mix now, but could play a big role in lowering emissions in the power system. These measures, however, pose the threat of raising the retail electricity price and ultimately hinder Indonesia’s ability to further develop economically.Financial schemes have the ultimate goal of facilitating access to finance for sustainable generation technologies and lowering risk for project developers. Attracting private and foreign investment is critical for the development of the power system in Indonesia. Using forms of lending like on-lending structure or loan syndication would promote larger spending in the industry while minimising risk. Further use of guarantees would attract a wider range of investments into generation technologies, as they would protect lending entities from potential risks when partaking in projects of this nature. Finally, the country would benefit greatly from the introduction of innovative financial schemes and business plans for the domestic solar energy industry, allowing Indonesia to tap into the great potential it has to disrupt the current state of affairs of the power system.