DBS Research: Indonesia aims to achieve net zero emissions in 2060, what are the implications for the energy sector?

Indonesia aims to achieve net zero emissions by 2060. While this objective is considered ambitious due to the large number of coal-fired power plants, a study by the International Energy Agency (IEA) and the Ministry of Energy and Mineral Resources (MEMR) shows that Indonesia can achieve the goal through renewable energy resources, energy-efficient electrification, and grid interconnections.

To achieve the target, the government has drawn up a concrete decarbonisation plan, the 2021-2030 Electricity Business Plan (RUPTL), which is considered to be the greenest RUPTL in history. Under the plan, renewable energy will contribute 21GW (gigawatts) to the total additional capacity. Additionally, the government is committed to realising the 35GW power project with some adjustments such as the renewable energy mix target of 23% by 2025 and the planned closure of coal-fired power plants. Going forward, the Indonesian government may impose stricter restrictions such as carbon taxes and other decarbonisation-related measures on coal mining companies as part of its decarbonisation plan.

Senior Equity Researcher DBS Group William Simadiputra said, "Net zero emissions is a decarbonisation benchmark that should be achieved collectively so as not to add new emissions to the atmosphere. There are several paths to follow to achieve this, such as the use of clean energy and electrification, new-age materials and battery minerals, as well as circular economy and energy efficiency. Multi-party collaboration is key to supporting the government's effort to make Indonesia carbon-free by 2060 and to create a better world for future generations."

To achieve net zero emissions by 2060, Indonesia State Electricity Corporation (PLN) is committed to adding 40.6GW of new and renewable energy power generation capacity by 2030. This is to meet electricity demand, which is increasing at an annual rate of 4.9 percent, according to data in PLN's RUPTL. Renewable components will account for more than 50 percent of the renewable power generation, with hydropower accounting for 26 percent, solar energy 12 percent, geothermal energy 8 percent, other renewable energy sources 4 percent, and a mix of other renewables and gas 2 percent.

"The transition from conventional energy to greener energy takes time. Security of supply, sustainability, and affordability are the challenges faced by the industry while undergoing energy transition. Along the way, energy transition also requires huge funds to build new facilities and provide adequate technology to create independence and reduce raw material imports. Therefore, the banking industry can contribute by providing financing in the form of green loans or bonds, sustainability-linked loans or bonds, and transition loans or bonds. As a purpose-driven bank, we promote transition financing and in 2022, Bank DBS Indonesia channeled IDR2 trillion of funds to assist corporations making the transition. This is in line with our goal of becoming the Bank of Choice for Transition," said Executive Director, Institutional Banking Group PT Bank DBS Indonesia Heru Hatman.

DBS Group has three sustainability pillars, namely Responsible Banking, Responsible Business Practices, and Impact Beyond Banking. Providing financing to support customers as they transition to green energy is a concrete manifestation of the first pillar, Responsible Banking, DBS Group’s foundation in realising its vision as the Best Bank for a Better World. DBS Group plans to achieve net-zero emissions by 2050, ahead of the countries in which it operates. To that end, DBS Group is taking a more proactive approach by launching a decarbonisation guide entitled "Our Path to Net Zero-Supporting Asia's Transition to a Low-carbon Economy". The guide lists nine sectors as the main focus, namely the aviation, automotive, property, chemical, food and agriculture, oil and gas, energy, steel, and shipping sectors. The nine sectors were chosen because they represent 31% of the overall loan portfolio, yet they account for more than 90% of carbon emissions. In addition, the potential for synergies between sectors is also high, adding value to the selection of these sectors. Through these nine sectors, DBS Group serves as advisor to corporate customers to assist them as they transition to renewable energy.

"We are pleased to see that the trend and level of corporate awareness of ESG (environmental, social, and governance) issues are increasing. With the collaboration of various parties, from business people, banks to the government, strategic approaches can be reviewed and formulated together to achieve a sustainable Indonesia," Heru Hatman concluded.

For more information on DBS Group's sustainability commitments, visit the following page: https://www.dbs.id/id/corporate/sustainability/our-path-to-net-zero.

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