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Indonesia and Vietnam signed a multi-billion dollar energy transition agreement in 2022, a landmark financing shift that will help coal-dependent countries transition to cleaner energy.
The deal, known as the Partnership for a Just Energy Transition, was funded by rich countries to help the two countries phase out heavily polluting coal-fired power plants and replace them with clean energy alternatives like solar and geothermal.
But nearly two years later, critics say there has been little progress on the deal. Supporters say it is not fair, that stakeholders are now collectively making policy for the first time, which could attract more funding, and that the project simply needs more time.
Let’s take a look at the JETP deal between Indonesia and Vietnam, the challenges faced and the progress made.
What does the deal between Indonesia and Vietnam entail?
Indonesia’s agreement provides more than $20 billion for the early phase-out and retirement of coal-fired power plants and the development of clean energy sources such as solar and geothermal. It also moves toward strengthening the country’s renewable energy supply chain over the next three to five years.
Indonesia’s energy needs are currently met almost entirely by fossil fuels, with 60 percent coming from highly polluting coal. According to the International Energy Agency, Indonesia’s energy sector emissions in 2021 will be the ninth highest in the world, with an estimated 600 million tonnes of carbon dioxide. Population and economic growth are expected to triple energy consumption by 2050.
Vietnam signed a $15.5 billion deal in December 2022 to aim to get half of its electricity from clean energy sources by 2030. Much of that will require Vietnam to develop its energy infrastructure to keep pace with the country’s rapidly growing renewable energy production.
Vietnam has seen tremendous growth, from having no solar power at all in 2018 to generating more than 10% of its electricity from solar power in the first half of 2022.
Without a blueprint, progress was slow.
Grant Hauber, an adviser to the Institute for Energy Economics and Financial Analysis, a U.S. nonprofit, said the massive financial package focuses on the clean energy transition, but there is no guidance for executing the deal.
“It turns out that there are so many social, political and economic factors that it’s really hard to figure out,” he said.
The only country to introduce JETP before Indonesia was South Africa, but that country also struggled with funding issues.
In November 2023, Indonesia and Vietnam attempted to address this issue by outlining how much money they would need and which projects they would use. Indonesia’s Comprehensive Investment and Policy Plan and Vietnam’s Resource Mobilization Plan each listed 400 potential projects. An updated version of Indonesia’s plan is expected to be released this year.
Vietnam has prioritized grid and energy storage while laying the groundwork for offshore wind. But neither this plan nor previous national electricity plans have answered the big question of how to persuade operators of Vietnam’s relatively new coal-fired power plants to retire them or how to compensate them for doing so.
Rakhmat Kaimuddin, who leads the Vietnamese government and Indonesia’s national energy transition task force, did not respond to AP’s requests for comment.
The mismatch between money and expectations
The promised funding for JETP is just a fraction of what countries need: Indonesia says it needs more than $97 billion to meet its 2030 goals, while Vietnam says it needs about $134 billion.
The source of funding has also raised concerns. At least 96 percent is expected to be financed by debt, with the rest by grants, according to the ASEAN Energy Centre, an intergovernmental body that tracks Southeast Asia’s energy interests.
Poor countries have criticized the use of loans for climate finance, saying debt prevents rich countries, which have historically been the biggest emitters of greenhouse gases, from adapting quickly to climate impacts.
“Indonesia and Vietnam face similar risks related to their ability to service this debt and the resulting impact on their debt-to-income ratios and national fiscal health,” researchers from the ASEAN Climate Change and Energy Project wrote.
Fabby Tumiwa of the Institute for Essential Services Reform, a think tank that focuses on Indonesian energy policy and regulation, said the deal was designed to lure prospective investors, so projects are taking their time figuring out how much money they need and how best to get it, he said.
Experts say there have been delays in national governments and financial institutions providing funding for projects that are ready to launch.
Tija Mapira, executive director of the Indonesia Climate Policy Initiative, said foreign investors expected “shovel-ready projects” and that Indonesia would provide financing with clearer terms. “That just wasn’t the case.”
More focus on clean energy and new policies
According to Western diplomats, Vietnam’s policy reforms face a range of challenges, from a cautious bureaucracy that is reluctant to make decisions and spend money amid a sustained anti-corruption campaign to internal conflict within the Communist Party, which also insists that electricity prices remain low even as public services suffer losses.
Recent policy changes have addressed some of those challenges, including a $884 million, 500-kilometer (310-mile) transmission line from central Vietnam to the north that was completed in about six months, a law allowing factories to buy electricity directly from wind and solar power producers, and a new draft law on rooftop solar.
Sandeep Pai, director of Swaniti Global, a multinational energy think tank, said the deal could serve as a model for other countries. But the limited funding, provided primarily through loans, could prevent other major fossil fuel-dependent countries from signing similar deals.
“Until there is real money on the table and other countries see real success in the early JETP countries, it will be difficult for other countries to join,” he said.
