The global net zero transition can represent a $3.5 trillion investment opportunity for Indonesia, according to a new report entitled Net-Zero Transition: Opportunities for Indonesia, published on Saturday at the BNEF Summit Bali by research company BloombergNEF (BNEF), as the former Opec member moves increasingly to renewable energies by 2050.

Against this backdrop, carbon capture and storage (CCS) will play an increasing role in reducing emissions from future gas, liquefied natural gas and coal projects.

Based on BNEF’s New Energy Outlook, its annual long-term scenario analysis on the future of the energy economy, the report examines how the Asean republic’s energy supply may evolve under BNEF’s economic transition scenario (ETS) as well as a net zero scenario (NZS) compliant with the goals of the Paris Agreement.

To finance the energy transition, Indonesia will need just under $2 trillion of investment in BNEF’s ETS and as much as $3.5 trillion under the NZS.

Both scenarios expect that growth in electricity demand can primarily be met by the deployment of renewables such as solar, thanks to their decreasing costs. Under the ETS, Indonesia’s electricity demand is set to triple by 2050 to reach 919 terawatt-hours compared with 306 terawatt-hours last year. Coal-fired plants currently meet more than 60% of Indonesia’s power demand. Under the ETS, coal’s share increases to a peak of 74% by 2027 and then declines to 24% in 2050. By then, the combined share of renewables in Indonesia’s electricity supply reaches 74%.

Under the NZS, Indonesia’s electricity demand is set to grow fivefold by 2050, as electricity accounts for a greater proportion of final energy demand, including replacing oil as road transport fuel. The NZS forecasts that 75% of electricity supply by mid-century would come from renewable energy, with the remainder supplied by coal-fired power plants equipped with CCS (17%) as well as supply from nuclear (7%).

BNEF said that under NZS, zero carbon generation sources in the power sector will be the biggest driver of energy supply investments in Indonesia, with 44% of total investments from 2022 to 2050 happening between 2026 and 2035.

However, the country will need to act fast to implement the necessary regulatory and market reforms to unlock these investments. The Indonesian government needs to meet investors’ interest in the market with a domestic investment environment that provides long-term clarity and a stable pipeline of opportunities, noted the report.

Caroline Chua, BNEF’s Southeast Asia clean power lead analyst, said: “Under the net zero scenario, as demand for Indonesia’s coal exports decline by more than 60%, domestic coal power plants equipped with carbon capture and storage could provide a just transition pathway for the country’s coal industry. On the other hand, Indonesia also needs to consider measures to accelerate the growth of renewables within this decade.”

Indonesia today has limited support schemes in place for renewables, although the government is trying to change that. Large-scale auctions have been limited after a 2013 large-scale solar auction by the Ministry of Energy & Mineral Resources (ESDM) was deemed unconstitutional by the Supreme Court. Since then, the only mechanism has been infrequent solar tenders by national electricity company Perusahaan Listrik Negara (PLN). However, BNEF noted that progress is being made on this front.

The recent presidential regulation specified that for some technologies such as solar and wind, projects will be tendered based on a capacity quota to be determined by ESDM and implemented by PLN, the report said.

Net zero discussions have been gaining momentum in Indonesia. Over the last two years, Indonesian government ministries and state entities have published decarbonisation roadmaps for the country. However, the proposed pathways and targets in these roadmaps are inconsistent, according to BNEF and the country has yet to formally adopt a net zero goal.

The Low Carbon Development Initiative is the most ambitious document with the aim of replacing all of Indonesia’s power generation with clean sources. The LCDI, published in September 2021 by the Ministry of National Development Planning (BAPPENAS), targets renewables having 60.14% of the electricity mix by 2030 and 82% by 2060, with coal’s share being 25.1% at the end of this decade and no coal-fired power generation by 2035.

New export opportunities

The report added that global net zero transition also represents new export opportunities for Indonesia, as lithium-ion battery demand for electric vehicles is forecast to increase to more than 2 terawatt-hours annually by the latter half of this decade. Thanks to its wealth of nickel resources, Indonesia has already attracted plans for 25 gigawatt-hours of battery manufacturing capacity, noted BNEF.

Allen Tom Abraham, BNEF’s Asia-Pacific lead transport analyst, said: “As the country with the world’s largest nickel reserves, Indonesia has significant opportunity to scale up lithium-ion battery manufacturing capacity. To do so, it will need to improve the environmental performance of its mining sector as well as increase domestic battery demand by accelerating the electrification of mobility.”

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