According to Indonesia Investment Authority (INA)’s article published on November 16, 2022, Indonesia Investment Authority (INA) signed 3 (three) Memoranda of Understanding (MoUs) marking the commitment in the collaborative efforts between all the key stakeholders underpinning the energy transition mechanism (ETM) program for supporting the energy transition in Indonesia.
As evidenced by the signing of the MOUs, INA continues to play an active role in attracting and partnering with both highly regarded domestic and international stakeholders for sustainable development in Indonesia.
ETM is based on a simple premise: how best to mobilize, marry, and deploy concessional public and private finance to accelerate a just energy transition away from coal to clean energy, which is necessary to make large-scale reductions in global greenhouse gas emissions. Specifically, INA’s ETM program intends to provide a mix of equity and debt financing to acquire, optimize, and accelerate the retirement of operational coal-fired power plants (CFPPs), which supports carbon emissions reduction in the long run, in line with Indonesia’s pledge for carbon neutrality by 2060.
INA’s CEO, Ridha Wirakusumah said, “Accelerating the adoption of various renewable energy sources will play a key role as an enabler of sustainable development and climate resilience. We are excited to support Indonesia’s energy transition journey.
“We believe in employing a two-pronged approach through a) the phasing down of carbon intensive power generation, and b) investing in large-scale renewable energy sources which will allow Indonesia to meet its carbon neutrality pledge, create new jobs, stimulate growth, and enable social and health benefits.
“The most important thing is that we begin the transition journey now, starting with carbon emission reductions,” added Mr. Wirakusumah.
All three MoUs open opportunities to further explore partnerships with other prospective equity investors and/or lenders on INA’s proprietary deal pipeline in the ETM program.
Promoting blended finance for ETM
The first MoU was signed between INA and PT SaranaMulti Infrastruktur(Persero) (PT SMI). PT SMI, which has been appointed as Indonesia’s ETM country platform manager, has agreed to jointly evaluate, cooperate, and possibly invest to optimize the phase down of INA’s shortlisted CFPP assets with its ability to direct and deploy its own capital and/or concessional financing from third party sources.
The second MoU was signed between INA and the Global Energy Alliance for People and Planet (GEAPP)a coalition of public and private sector partners including philanthropic anchor partners including the Rockefeller Foundation, Ikea Foundation and Bezos Earth Fund. GEAPP and INA will jointly explore, and potentially participate in opportunities intending to accelerate the shutdown of existing operating coal-fired power plants ahead of the scheduled or technical end of life of these plants. The aim of this acceleration is to a) avoid CO2 emissions from these plants as quickly as possible and b) assist in the just transition to environmentally sustainable sources of power generation such as renewables.
GEAPP's CEO,Simon Harford commented, "We commend the Government of Indonesia’s leadership in decarbonization and the advancement of a clean energy, pro-growth model, which will be key to meeting, critical climate goals within this decade. GEAPP is proud to work with INA and partners across Indonesia to share learnings from our work on energy transition projects worldwide. Together we will support an energy transition for Indonesia that has jobs, livelihoods and inclusive economic growth at its core.
”These MoUs align with this year’s B20 Indonesia priorities in the Finance & Infrastructure Task Force, in which INA is actively participating. The Task Force seeks to promote blended finance for ETM by expanding the supply of financing, structuring suitable financing solutions using various instruments, and assisting in project pipeline identification.
INA is expected to lead the key transaction workstreamsunder both MoUsthat include exchanges of information betweenINA and the prospective CFPPs sponsors and continuing to grow our proprietary deal pipeline from the current 1.5GW of total installed generation capacity, conducting due diligence on target assets, developing suitable structure and financing terms, and negotiations and finalization with all relevant stakeholders.
A just transition for CFPP retirement
ADB first pioneered the Energy Transition Mechanism (ETM) when it launched the ETM Southeast Asia Partnership at COP26 in late 2021 along with the governments of Indonesia and Philippines. This program aims to retire several meaningful coal-fired power stations in those countries, ahead of their technical end of life.
The third MoU was signed between INA, Asian Development Bank(ADB), PT Perusahaan Listrik Negara (Persero) (PLN), and PT Cirebon Electric Power (CEP) to explore the feasibility of financing the early retirement of Cirebon-1 CFPP.
The MoU between the four parties will open discussions on phasing down Indonesia’s first IPP-based CFPP under the ETM program.
INA, ADB, PLN,and CEP endeavor to find a suitable structure and financing terms to maximize the shortening of theCirebon-1 CFPP ahead of its scheduled or technical life.
INA and ADB are committed to ensuring the ETM program will strongly apply the principles of a Just Transition, to minimize any negative impacts that might occur due to the phase-down of the CFPP. INA is supported by DBS Bank Limited as the financial advisor to INA for this ETM program.
About Indonesia Investment Authority (INA)
The Indonesia Investment Authority is Indonesia’s sovereign wealth fund, mandated to increase investment to support the country’s sustainable development and build wealth for its future generations. INA conducts investment activities and collaborates with leading global and domestic investment institutions in sectors that strengthen Indonesia's advantages and provide optimal returns.
For more information, please visit www.ina.go.id.
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