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Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery 2 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
IMPRINT Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery Study by Acknowledgements Institute for Essential Services Reform (IESR) Our gratitude goes to all colleagues and experts Jalan Tebet Barat Dalam VIII No. 20 B from the CASE consortium who contributed insights, Jakarta Selatan 12810 | Indonesia and country-specific examples through interviews, T: +6221 2232 3069 | F: +62 21 8317 073 editorial comments, and written reviews; especially www.iesr.or.id | iesr@iesr.or.id to the Directorate of Electricity, Telecommunications and Informatics, Bappenas: In the context of CASE 1. Rachmat Mardiana - Directorate of The regional programme “Clean, Affordable and Electricity, Telecommunications and Secure Energy for Southeast Asia” (CASE) is Informatics jointly implemented by GIZ and international and 2. Yusuf Suryanto - Deputy Director for local expert organizations in the area of sustainable Electricity energy transformation and climate change: Agora 3. Jadhie J. Ardajat Energiewende and NewClimate Institute (regional 4. Muhammad Asrofi level), the Institute for Essential Services Reform 5. Jayanti Maharani (IESR) in Indonesia, the Institute for Climate and 6. Suhandono Sustainable Cities (ICSC) in the Philippines, the 7. Rizqi Koestendyah Energy Research Institute (ERI) and Thailand 8. Ferdy Nuralamsyah Development Research Institute (TDRI) in Thailand, 9. Rarasvitania D. A. P. and Vietnam Initiative for Energy Transition (VIET) in 10. Raga Septiarga. Vietnam, with the objective to change the narrative of the energy transition. In Indonesia, CASE is On behalf of the anchored with the Ministry of National Development German Federal Ministry of Environment, Nature Planning/National Development Planning Conservation, Nuclear Safety and Consumer Agency (Bappenas) - Directorate of Electricity, Protection (BMUV) within the framework of its Telecommunications and Informatics, and jointly International Climate Initiative (IKI). implemented by the Deutsche Gessellschaft fur Internationale Zusammenarbeit (GIZ) GmbH and CASE online: the Institute for Essential Services Reform (IESR). https://caseforsea.org/ https://www.facebook.com/CASEforSEA Author https://twitter.com/CASEforSEA Daniel Kurniawan (IESR). https://www.linkedin.com/company/caseforsea daniel@iesr.or.id Disclaimer Editors The findings, interpretations and conclusions Agus Tampubolon (IESR) expressed in this document are based on initial agus@iesr.or.id information gathered by the author. Further technical study and analysis upon possible programs and Tammya Purnomo (GIZ Indonesia) measures uptake and implementation are needed. tammya.purnomo@giz.de This report should be cited as: CASE Indonesia (2022). Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery. Clean, Affordable and Secure Energy for Southeast Asia (CASE) in Indonesia (CASE Indonesia). Publication: June 2022 3 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) Table of Contents 1. Introduction 5 1.1. Background 6 1.2. Objectives 9 1.3. Report structure 9 2. Green recovery spending framework 10 2.1. Green recovery: theory and practice 11 2.2. Green recovery spending trackers and frameworks 11 2.2.1. Fiscal stimulus spending taxonomy based on the Global Recovery Observatory 12 3. Indonesia’s COVID-19 handling and recovery spending 16 3.1 Indonesia’s COVID-19 situation overview 17 3.2. Regulatory framework for COVID-19 handling and economic recovery 18 3.3. Fiscal stimulus package allocation to COVID-19 handling and economic recovery 19 3.4. Indonesia’s green recovery stimulus 21 4. Methodology and green recovery context in Indonesia 25 4.1. Methodology 26 4.2. Broad context of green economic recovery in Indonesia 26 4.2.1. Green recovery context in Indonesia’s power sector 28 4.2.2. Why rooftop solar PV is prioritized 29 5. Measures for Indonesia’s green recovery 30 Measure 1. Create a public procurement program to install rooftop solar PV at government 31 buildings Measure 2. Create a public procurement program to install rooftop solar PV at subsidized 37 households’ houses (Surya Nusantara program) Measure 3. Incentivize small-scale rooftop solar PV adoption 41 Other measures 46 6. Conclusion and Policy Recommendations 48 References 51 4 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
1 Introduction Two years into the pandemic, global economies, including Indonesia, are still battling the coronavirus. In dampening the impact and recovering the economy, governments around the world have announced trillions of dollars into rescue- type and recovery-type measures, of which the latter is sometimes also associated with measures that are aimed not only to kickstart the economy in the short term, but also facilitate transformative change that is sustainable, resilient, and environmentally positive in the long term, or often referred to as “green recovery”. This report seeks to provide analyses and recommendations on green recovery measures that Indonesia can adopt to recover its economy post-pandemic, particularly through power sector initiatives, i.e. rooftop solar photovoltaics (PV), given its deflationary cost as well as its quick-to-deploy and labor-intensive nature. 5 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) 1.1. Background Global economies faced heavy contraction due to the COVID-19 pandemic The coronavirus disease (COVID-19) While the growth projection certainly looked pandemic caused by severe acute respiratory gloomy in 2020, growth projections in 2021 syndrome coronavirus 2 (SARS-CoV-2) and 2022 were painted with a rosier tone. has impacted the world’s economy in a big, According to the IMF’s latest World Economic perhaps even permanent, way. To contain the Outlook in October 2021, the global economy spread of the virus, social restriction measures is projected to grow by 5.9% in 2021, and and sometimes lockdowns were and continue 4.9% in 2022 (IMF, 2021b). The October 2021 to be imposed, causing a significant impact on outlook did revise downward its previous the output of the economies. In April 2020, the July 2021 forecast to reflect a downgrade for International Monetary Fund (IMF) projected in advanced economies, partly due to supply their World Economic Outlook that the global chain disruptions and bottlenecks, and for low- economy will experience its worst recession income developing countries, largely due to since the Great Depression (1929–1933), worsening pandemic conditions. The forecast surpassing even that seen during the Global indeed had not taken into account the rising Financial Crisis (2007–2009) (IMF, 2020a). concern over the new, more transmissible The Great Lockdown, as the IMF calls it, has variant such as Omicron that has resulted in contracted the global economy by 3.1% in rising cases all over the world over December 2020. 2021–February 2022 (see Figure 1). Source: Our World in Data, Johns Hopkins University CSSE COVID-19 Data. Data shown until March 9, 2022. Figure 1. Daily new confirmed COVID-19 cases per million people in the World, Asia, and Indonesia. 6 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) The global pandemic hit Indonesian lives As a result of the imposed large-scale social no differently. While Indonesia had never restrictions, Indonesia’s gross domestic officially imposed a lockdown, several large- product (GDP) contracted by 2.07% in 2020. scale social restrictions were implemented to However, Indonesia’s GDP has bounced contain the spread of the virus. Indonesia saw back to 3.69% in 2021, thanks to improved its first positive COVID-19 case as early as vaccination rates and the government’s March 2020, around the time when the World comprehensive response to the pandemic Health Organization (WHO) declared the that prevented a deeper downturn despite SARS-CoV-2 outbreak as a global pandemic. the worse second wave (Statistics Indonesia, Since then, Indonesia saw increasing numbers 2022). The IMF projects 5.6–6.0% growth for of cases that peaked at the end of January Indonesia in 2022, although looming concerns 2021 with 14,518 daily cases and faced a over the newer and more transmissible worse second wave in July 2021, due to the variants such as Omicron remain (IMF, Delta variant outbreak, with 56,757 confirmed 2022). More importantly, however, now that daily cases (record-high), leading to tighter, Indonesia has slowly recovered its economy, emergency social restrictions in Jakarta and the timing could not be better for Indonesia to throughout Java (COVID-19 Handling Task start planning for a cleaner, more sustainable Force, 2021). post-pandemic recovery. Fiscal stimulus spending: rescue-type and recovery-type spending As a response to the health and economic economies was recorded in 2020. Out of the crisis, governments around the world have $14.6 trillion, a lion’s share of 76% ($11.1 announced trillions of dollars in financial trillion) was directed to immediate rescue support for companies and individuals since efforts, which signified that most economies the start of the COVID-19 pandemic to contain are still in the rescue phase. About 13% of the virus (rescue) and to recover the economic the total spending ($1.9 trillion) was devoted activities. However, as researchers at the to long-term recovery measures, in which only Global Recovery Observatory (GRO) found, 18% ($341 billion) of the $1.9 trillion recovery many have yet to use this opportunity to “green” spending was recorded as green recovery their measures. According to O’Callaghan and spending. A remainder of $1.6 trillion was Murdock (2021), a total of $14.6 trillion in fiscal recorded as unclear spending stimulus measures from the world’s 50 largest Source: O’Callaghan and Murdock (2021). Figure 2. Total non-green and green recovery spending in 2020. 7 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) These numbers only changed slightly in 2021. as green spending. While these numbers As of December 31, 2021, total fiscal stimulus generally do not tell much about the specific measures spending amounts to $18.16 trillion spending or measures, at least, they tell us (an increase of $3.5 trillion), with a total of $3.11 how “not green” the world’s fiscal measures trillion recorded as recovery spending where have been, including Indonesia’s, which will 31.2% of that ($0.97 trillion) was recorded be discussed in more detail in Chapter 2. What is green recovery? Green recovery is a widely adopted term importantly, must be able to contribute to for a package of environmental, regulatory, greenhouse gas emissions reduction and and fiscal reforms to recover after a crisis. support climate progress (BloombergNEF, In essence, green recovery is a set of green 2020). Green recovery generally covers a stimulus1 aimed at stimulating an economy wide range of energy sub-sectors, such as during (or soon after) a crisis. Being a green (clean) electricity, green transportation, stimulus, a green recovery measure should green buildings and energy efficiency, natural ideally be ready for quick deployment, can capital, and green research and development deliver maximum economic impact (such (R&D) (O’Callaghan & Murdock, 2021). as providing value for money, increasing However, only power, buildings and energy private sector consumption, creating jobs, efficiency, and to a lesser extent, green R&D etc.), fit for government budgets, but most will be discussed throughout this report. Why is it important? Adopting green recovery measures is closely that governments will focus on crisis- aligned with the global ambition to limit global containment (rescue-type) spending first, they warming to 1.5 degree Celsius, as agreed in the can start planning for a longer-term recovery- Paris Agreement. Governments have a choice type spending that also supports low-carbon on how to address post-pandemic economic energy transition after the pandemic crisis recovery, and green recovery pathways is at a sufficiently controlled stage. While can be well aligned with the challenges of each country’s situation might be different— achieving climate mitigation targets. As such, in macroeconomic conditions, fiscal space, the COVID-19-induced economic crisis does climate ambition, and many other faceted not change the basic climate challenge, or the landscapes that are country-specific—some proper response to it. general principles can still help policymakers to properly “green” their response to the The IMF (2020b) noted that decisions made COVID-19 crisis. Therefore, it is in the interest now will shape the climate for decades, and of this report to support Indonesia’s greener that fiscal policymakers should thus create economic recovery, particularly through the greener recovery. While it is understandable lens of the energy sector initiatives. 1 Green stimulus differs from green policies; in that, green stimulus is intended to have a shorter-term economic stimulus potential by its implementation generated by the aggregate demand shock. Green policies, on the other hand, are not intended to directly stimulate the economy, but rather intended for a longer-term effect as it takes time to make an impact in the market (BloombergNEF, 2020). 8 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) 1.2. Objectives This report aims to provide analyses and recommendations on green recovery measures that Indonesia can adopt to recover its economy post-pandemic, particularly by looking at rooftop solar PV technology, given its quick-to-deploy and labor-intensive nature. The report also aims to: 1. Track and analyze Indonesia’s economic recovery spending since the onset of the pandemic to date, while also summarizing relevant existing studies from the public and the private sector—with a particular focus on the power sector 2. Provide several green recovery measures on rooftop solar PV for Indonesia’s green recovery, where it includes cost and benefit analyses on each option 1.3. Report structure This report is structured in six chapters: Chapter 1 Starts by setting out the context of the study: the global pandemic, the state of global fiscal stimulus recovery spending, and the critical need for a green recovery. Chapter 2 Provides a general theory and practice for green recovery and discusses fiscal spending taxonomy developed by leading institutions that will be used as a basis of what constitutes green spending in this study. Chapter 3 Discusses Indonesia’s COVID-19 situation: its impact on the Indonesian economy, and particularly, the government responses to COVID-19 handling and national economic recovery. The chapter also aims to answer whether or not Indonesia has been prioritizing or allocating green recovery measures in its current national economic recovery program. Chapter 4 Explains the general methodology used in considering and designing the green recovery measures in this study. The chapter also provides a broader context of green recovery in Indonesia, particularly within its power sector and discusses why rooftop solar PV was prioritized. Chapter 5 Then elaborates and analyzes the proposed green recovery measures within Indonesia’s power sector, by looking specifically at rooftop solar PV. The chapter also provides analyses on the short-term and long-term cost and the benefit of each measure. Chapter 6 Closes with the conclusion of the study. 9 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
2 Green recovery spending framework Two years into the pandemic, governments have announced trillions of dollars to cushion the impact to the health sector and to recover the economy. Leading institutions around the world have developed recovery spending trackers and frameworks to see the effectiveness of the spending measures to recover from the pandemic. In this section, the general theory and practice of green recovery, as well as how green recovery fiscal spending measures are categorized within a recovery spending taxonomy will be discussed. 10 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) 2.1 Green recovery: theory and practice Green recovery is a widely adopted term for In theory, green recovery measures could proposed fiscal measures directed toward be implemented in the form of fiscal policy an environmentally-positive, sustainable, and instruments, monetary policy, and regulatory inclusive economic recovery after a crisis intervention. In practice, however, fiscal policy that is also aligned with long-term climate measures—such as government expenditure objectives. In essence, green recovery is a and investment, transfer payments, and set of stimulus measures designed to not tax cuts—have been the dominant policy only kick-start the economy in the short term, measures for output stabilization during the but also facilitate a sustainable, resilient, and COVID-19 (Marquardt & Fearnehough, 2021). climate-neutral transformative change in the The use of expansionary monetary policy long term (GIZ, n.d.). Being a stimulus, green has been more limited, given the diminished recovery measures should ideally be ready for returns amid already near-zero interest rates quick deployment, able to deliver maximum in most developed countries. While developing economic impact (e.g. providing value for countries tend to have higher policy rates that money, creating jobs, increasing private allow them to lower the rates, the effect of sector consumption, can ideally lead to private lowering policy rates may not be transmitted investment, etc.), fit the government budgets, well in these countries, especially since they and most importantly, able to contribute to have relatively underdeveloped financial greenhouse gas emissions reduction and markets and thus have less impact (Marquardt support climate action (BloombergNEF, 2020). & Fearnehough, 2021). Therefore, recovery measures are still likely to lie in the form of fiscal policy measures in most countries. 2.2. Green recovery spending trackers and frameworks In order to contextualize the fiscal spending advanced economies (AE) and 26 emerging measures, recovery spending trackers and markets & developing economies (EMDE) frameworks have been created by leading archetypes. In addition, the tracker also institutions and experts. Table 1 summarizes provides a general framework on how green six existing global fiscal stimulus recovery recovery spending is conceptualized, which spending trackers. will become the basis of the green recovery framework in this report. The other five Out of the six spending trackers, Global spending trackers will not be discussed in this Recovery Observatory (GRO), led by the report due to their specific use and scope (for University of Oxford, provides the most example, specific focus on European Union comprehensive analysis of COVID-19-related (EU) countries) rather than being a general fiscal rescue and recovery efforts. The tracker framework. covers 50 leading economies, consisted of 24 11 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) Table 1. Global fiscal stimulus COVID-19 recovery spending tracker Tracker Led by Scope/Coverage 50 largest economies (24 AEs + Global Recovery Observatory University of Oxford 26 EMDEs) Sustainable Recovery Tracker IEA >50 countries 44 countries + the EU: 38 OECD OECD Green Recovery OECD member countries + 5 key partner Database countries + Russia + the EU 31 major economies + 8 MDBs— Energy Policy Tracker IISD originally only in G20 countries G20 and ten other emerging Greenness of Stimulus Index Vivid Economics economies Green Recovery Tracker Wuppertal Institute & E3G EU (18/27 countries) Source: IESR analysis 2.2.1. Fiscal stimulus spending taxonomy based on the Global Recovery Observatory The Global Recovery Observatory has of how recovery spending is categorized so developed a fiscal spending taxonomy in order that it can assist policymakers when designing to categorize and assess the effectiveness options for green recovery. (For a complete or impact of a particular type of spending detail regarding the methodology, one can (O’Callaghan et al., 2021). While it is not in the refer to the methodology developed by the interest of this report to discuss the taxonomy GRO). in much detail, it is still useful to paint a picture 12 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) A Liquidity support for subnational public entities B Liquidity support for large businesses Rescue: Temporary liquidity C Liquidity support for start-ups and SMEs measures D Liquidity support for not for profit organisations E Temporary waiver of interest payments for businesses F Direct provision of basic needs G Targete welfare cash transfers Job continuation support Rescue: Temporary life and H livelihood measures Temporary waiver of interest payments for individuals I Healthcare services support K Emergency services (disaster management) J support L Income tax cuts M VAT and other goods and services tax cuts N Business tax cuts Rescue: Temporary tax and payment relief measures O Business tax deferrals P Reduced prices for centrally-controlled products and services Q Other tax cuts and deferrals R Targeted recovery cash transfers S Tourism and leisure industry incentives T Electric vehicle incentives Recovery: Incentive Measures U Electronic appliance and efficiency incentives V Green market creation W Other incentive measures X Worker retraining and job creation Y Education investment (non-infrastructure) Z Healthcare investment (non-infrastructure) Social and cultural investment (non-infrastructure) Communications infrastructure investment Traditional transport infrastructure investment Clean transport infrastructure investment Traditional energy infrastructure investment Recovery: Investment measures Clean energy infrastructure investment Local (project-based) infrastructure investment Buildings upgrades and energy efficiency infrastructure investment Natural infrastructure and green spaces investment Other large-scale infrastructure investments Armed forces investment Disaster preparedness and capacity building investment General research and development investment Clean research and development investment Indiscriminate Source: O’Callaghan et al., 2021 Figure 3. Fiscal stimulus spending taxonomy developed by GRO. 13 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) The taxonomy developed by GRO covers It is important to note that when calculating three levels; typologies (5), archetypes (40), the percentage of green recovery spending and sub-archetypes (158) (see Figure 3). The relative to total spending, some trackers typologies function to distinguish between divide green recovery spending with the total rescue-type (short-term measures designed spending (including rescue-type), leading to a for emergency support to keep people and lower percentage of green recovery spending businesses alive) and recovery-type (long- over the total spending. In this case, GRO uses term measures to boost economic growth) recovery-type spending as the denominator spending. Recovery-type spending is further rather than the total rescue-type, to reflect categorized into two: incentive measures how much of the recovery-type is green. and investment measures, which will form the basis of green recovery options discussed in Chapter 4 of this report. Green recovery spending taxonomy based on the Global Recovery Observatory The GRO also classified the spending falls into this category) will be discussed. taxonomy associated with green recovery Spending on green transportation, natural spending. The classification includes spending capital, and green R&D will not be discussed on five sectors: green energy (electricity), in this report. green transportation, green buildings and energy efficiency, natural capital, and green GRO classified recovery spending in green R&D. Due to the scope of this report, energy to include clean energy infrastructure however, only spending in green energy investment, which are further broken down (electricity) and green buildings & energy into eight sub-archetypes: efficiency (as rooftop solar PV support : Clean energy infrastructure investment: :1 New or refurbished renewable energy generation facilities :3 New biofuel and other renewable fuel infrastructure :4 Upgraded (or new) transmission infrastructure :5 Upgraded (or new) distribution infrastructure including smart grids :6 Hydrogen infrastructure :7 Battery and storage infrastructure :8 Carbon capture and storage/utilization :9 Other initiatives to clean existing dirty energy assets Figure 4. Archetype and sub-archetypes on green energy spending 14 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) All green energy spending that cannot be (clean) spending, and not categorized as categorized into one of the above sub- green spending in the framework. archetypes is categorized as “unclear spending”. Spending in new or refurbished The GRO also categorized the following for nuclear energy generation facilities ( 2) is recovery spending on green buildings and categorized separately under zero carbon energy efficiency: : Buildings upgrades and energy efficiency infrastructure investment :1 Green retrofitting programs (including daylighting, electricity and electrification, insulation) :2 Rooftop solar PV support Figure 5. Archetypes and sub-archetypes on green buildings and energy efficiency spending 15 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
3 Indonesia’s COVID-19 handling and recovery spending The global pandemic hit Indonesia not any differently than other countries, pushing the Indonesian economy into a recession for the first time since the 1998 Monetary Crisis in 2020. Since then, Indonesia has been struggling to contain the spread of the virus with the Delta variant outbreak in mid-2021 and the Omicron variant in early 2022. This section will discuss Indonesia’s COVID-19 pandemic situation and its impact on the Indonesian economy. In particular, this section will explore how the Indonesian government is responding to the crisis by means of government fiscal policies, especially under the national economy recovery program. A particular interest will be given to the “greenness” element (or lack thereof) of the recovery spending that is the climate aspects (i.e. emissions reduction potential and environmental benefits) that are aligned with long-term development goals in order to see whether Indonesia is building forward better toward climate progress in its economic recovery. 16 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia)
3.1 Indonesia’s COVID-19 situation overview
Indonesia detected its very first case on March COVID-19 cases to date. The government
2, 2020, just a week before the WHO declared then imposed a stricter “emergency” social
COVID-19 as a global pandemic (The Jakarta restriction and was, fortunately, able to quickly
Post, 2020; WHO, n.d.). The government contain the spread of the virus. As of December
reacted quickly at the time and imposed a 31, 2021, daily cases have been dropping to
series of large-scale social restrictions to about 200 new cases, albeit there is concern
contain the spread of the virus, although that that Indonesia has not done enough testing
did not last long. At the end of January 2021, and tracing. Moreover, fears of the new,
Indonesia saw a steep rise in positive cases, more transmissible variant such as Omicron
reaching about 12,000 of daily new cases. looms. As of December 31, 2021, Indonesia
The situation worsened with the Delta variant had tested 42.49 million cumulative tests,
outbreak in July–August 2021 that resulted confirmed 4.26 million cases, and confirmed
in 40,000 to 50,000 daily new confirmed 144,094 deaths (Our World in Data, n.d.).
cases, an all-time high period in Indonesia’s
Source: Official data collated by Our World in Data - Last updated 11 January 2022, 17:10 (London time). Johns Hopkins
University CSSE COVID-19 Data - Last
updated 12
January,
09:05
(London time)
Figure 6. Indonesia’s tests and new confirmed COVID-19 cases per day. Source: Our World in Data
The pandemic-led social restrictions has outbreak in July–August 2021. The primary
caused the Indonesian economy to contract cause of the contraction was the decline in
since its early onset in 2020, even pushing mobility and consumption as a result of the
it into a technical recession at the end of large-scale social restrictions, which was
the third quarter of 2020 (see Figure 7). apparent during the onset of the outbreak
According to Statistics Indonesia (2021), the in 2020. In 2021, the restrictions have been
Indonesian economy has recovered slowly more relaxed compared to 2020, in part due to
by the second quarter of 2021, hitting 7.07% increased vaccination rates and government
(yoy). By the third quarter, the Indonesian policies to slowly open the economy. This
economy experienced a slowdown to 3.51% has helped recover manufacturing output for
(yoy) as a consequence of the emergency product exports, which in turn led to higher
social restrictions to contain the Delta variant economic output (Statistics Indonesia, 2021).
17
Supporting National Economic Recovery through Power Sector Initiatives:
Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recoveryClean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia)
Source: Statistics Indonesia
Figure 7. Indonesia’s year-on-year (quarterly) economic growth, 2018–2021.
While Statistics Indonesia has not released its while the Indonesian economy has slowly
annual economic growth for 2021 at the time recovered from a rescue phase into a post-
of writing, cumulative economic growth has pandemic recovery phase, concerns over the
grown by 3.24% by Q3 2021 (compared to Q3 newer and more transmissible variants such as
2020). This is somewhat consistent with what Omicron remain a challenge. The government
the IMF had projected in their World Economic is, therefore, expected to work prudently to
Outlook in October 2021 that the Indonesian avoid another outbreak of the virus, increase
economy is expected to bounce back to vaccine distribution and vaccination rates,
3.2% in 2021 (IMF, 2021b). Bank Indonesia and recover its economy toward a more
similarly projected that the economy will grow sustainable, more just, and cleaner one.
at 3.5~4.3% in 2021 (Kompas, 2021). In 2022,
3.2 Regulatory framework for COVID-19 handling and economic
recovery
Indonesia’s response to the COVID-19 (COVID-19) Pandemic and/or Facing Threats
pandemic was first outlined under the That Endanger the National Economy and/
Government Regulation in Lieu of Law2 or Financial System Stability and Rescue
No. 1/2020 regarding State Financial Policy the National Economy, often shortened into
and Financial System Stability for Handling “COVID-19 pandemic handling and the
Corona Virus Disease (“Covid-19”) and/or in national economic recovery” (pemulihan
Order to Face Threats to Harm the National COVID-19 dan pemulihan ekonomi nasional,
Economy and/or Financial System Stability. or “PC-PEN”), which was later revised by
Originally released in March 2020, the the Government Regulation No. 43/2020
regulation was soon legislated into Law No. (“GR 43/2020”) regarding Amendments to
2/2020. The law was further implemented Government Regulation No. 23 of 2020
in May 11, 2020, through the release of concerning the same.
Government Regulation No. 23/2020 (“GR
23/2020”) regarding the Implementation of Under GR 23/2020 jo. GR 43/2020, there
the National Economic Recovery Program are at least five ways the national economic
in Order to Support State Financial Policy recovery (PEN) could be implemented, or
for Handling the Corona Virus Disease 2019 rather funded, (Article 4 and 5):
2
Peraturan Pemerintah Pengganti Undang-Undang, or “Perppu”
18
Supporting National Economic Recovery through Power Sector Initiatives:
Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recoveryClean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia)
1. State equity participation (penyertaan 4. Guarantee (penjaminan);
modal negara, “PMN”); 5. Government spending (belanja negara).
2. Fund placement (penempatan dana);
3. Government investment (investasi
pemerintah);
Figure 8. Scope of Indonesia’s national economic recovery (PEN) program under GR 23/2020 jo.
GR 43/2020
In addition to the government regulations of the central bank interest rates, accompanied
outlined above, there are also other by pumping liquidity or quantitative easing
extraordinary steps in saving the public measures, as well as relaxing regulations in the
health crisis and the economy, such as the financial sector, which includes extraordinary
implementation of fiscal expansion policies, changes in the state budget posture and fiscal
the loosening of monetary policy, the lowering stimulus policy as a countercyclical instrument.
3.3 Fiscal stimulus package allocation to COVID-19 handling and
economic recovery
Budgetary management of the COVID-19 In 2020, the Indonesian government allocated
handling and national economic recovery a total of Rp695.2 trillion ($47.7 billion)
program, officially dubbed as the PC3-PEN for the PC-PEN program. However, its
program, was first outlined under the Minister realization only reached 82.8% (or Rp575.8
of Finance Regulation No. 185/PMK.02/2020 trillion) (Ministry of Finance, 2021). In 2020’s
(“MoF 185/2020”) regarding Budget allocation, the government allocated the
Management in the context of Handling the largest share (35.1%) to MSMEs and business
Corona Virus Disease 2019 (COVID-19) support, with the aim to retain MSMEs’
Pandemic and/or National Economic productivity and their economic contribution.
Recovery Program. The stimulus package To protect or safeguard poor and vulnerable
covers six priority sectors, namely: 1) health, groups, the government also allocated 29.3%
2) social protection, 3) sectoral support for of the budget to supporting social protection
ministries/agencies and regional government, and consumption. The health sector had
4) business incentives, 5) support for small, only received 12.6% (Rp87.55 trillion) of the
micro, and medium enterprises (MSMEs), allocated budget in 2020, but in 2021 saw a
and 6) corporate financing, of which the last significant increase due to a huge increase
two is later merged into one sector in 2021’s in cases. The remaining budget goes into
allocation. support for the sectoral line ministry group
and regional government and state-owned
enterprises (see Figure 9).
3
PC: Penanganan Covid (English: Covid Handling)
19
Supporting National Economic Recovery through Power Sector Initiatives:
Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recoveryClean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia)
Source:
Ministry
of Finance,
IESR analysis. Note: Allocation is rounded for visual clarity. Realization is based on the full
year
of that
year. Breakdown
on 2022
allocation
is still
unpublished
per January
17, 2022 (shownis allocation
from the
allocation draft).
Figure 9. PEN Program stimulus package allocation and realization, 2020–2022
In 2021, the PEN program allocation increased As the number of cases decline to around
by 7.1% to Rp744.77 trillion ($51.3 billion). 200 daily cases as of December 2021, the
Similar to 2020, its realization only reached allocation for 2022 is set to be reduced to
88%. PEN program budget allocation in Rp451 trillion ($31.1 billion). Further, the
2021 was actually revised upwards from an allocation for 2022 now only targets three
earlier allocation in March 2021 at Rp699.4 sectors: health, social protection, and several
trillion due to the Delta variant outbreak in fiscal facilities for MSMEs and businesses
July–August 2021. In 2021’s allocation, the (Cabinet Secretariat of the Republic of
government increased the health sector Indonesia, 2022). While the details of the
allocation to Rp214.9 trillion (or 28% out of the allocation have not been released at the time
total allocation in 2021) due to the significant of writing, the government did mention three
jump in the number of positive cases. main strategies on the fiscal facilities support.
Allocation for social protection, MSMEs, and These include the government-borne value
business incentives remain strong, with a total added tax incentives (Pajak Pertambahan
allocation of Rp186.6 trillion (25% out of total Nilai Ditanggung Pemerintah) for the property
stimulus allocation), Rp162.4 trillion (21.8%), sector, luxury sales tax (Pajak Penjualan
and Rp62.8 trillion (8.4%), respectively. Barang Mewah) in the automotive sector,
as well as front loading social assistance for
street vendors and fishermen.
20
Supporting National Economic Recovery through Power Sector Initiatives:
Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recoveryClean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) 3.4 Indonesia’s green recovery stimulus How “green” is Indonesia’s national economic recovery program? Green recovery, as a target, has never been Rp18.4 trillion was allocated to four ministries explicitly mentioned in the PEN program. That to create labor-intensive programs to provide said, the Climate Policy Initiative (CPI) and temporary work for COVID-19-affected daily Seoul National University (SNU) (2021) did workers. Another allocation was through state find several specific allocations related to the budget allocation to state-owned infrastructure energy transition-related program in 2020’s financing PT SMI to create concessional PEN allocation. Out of the total Rp695.2 trillion loans to regional governments for economic in the 2020 PEN budget allocation, only ~1% recovery programs in affected regions. The of that was allocated toward green recovery details and implementation of the programs, initiatives (CPI & SNU, 2021). Most of the however, were not specified by the Ministry of allocations are directed towards state capital Finance (CPI & SNU, 2021). injection, or state equity participation, to state- owned utility and energy companies that are In a 2021 green recovery roadmap formulated PLN and Pertamina. by the National Development Planning Agency (Badan Perencanaan Pembangunan CPI & SNU (2021) recorded a total of Rp5 Nasional, “Bappenas”) and Low Carbon trillion state capital injection to PLN that Development Indonesia (2021b), Bappenas was formalized in Government Regulation further stressed that green recovery has not 37/2020. A trillion of the capital was aimed been prioritized in the PEN program, and even toward renewable energy development in less so in the national budgeting process (state Aceh (87 MW), Papua (5.8 MW), and East budget). The roadmap found that out of the Nusa Tenggara (5.3 MW). A total of Rp200 total Rp747.7 trillion allocated in 2021 PEN, billion was directed toward village electricity only Rp7.03 trillion (0.94%) was allocated to distribution in Kalimantan. It is unclear how the low-carbon development initiatives—all were remaining Rp3.8 trillion of the capital is used made through budget allocation for ministries/ for. Similarly, Pertamina was allocated Rp2.78 agencies’ priority program (program prioritas trillion from the state budget subsidy for the K/L). The priority program allocation was B30 biodiesel blending program. further divided into two categories: 1) restoring the public and business purchasing power, and CPI & SNU (2021) also recorded allocations 2) economic diversification, which includes to other energy transition-related government low-carbon development, as presented in programs for economic recovery through state Figure 10. budget transfer to line ministries. A total of 21 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia)
Source: Bappenas
and LCDI
(2021). Note: Graph is taken from the source because the raw data is unpublished.
Figure 10. PEN budget allocation for ministries/agencies by priority program in 2021
Fiscal stimulus package specific to the energy sector
The International Institute for Sustainable The largest share of the fiscal stimulus
Development (IISD) (2021) analyzed the package directed toward the energy sector
PEN program fiscal stimulus package with was given to SOEs directly associated with
a specific focus toward Indonesia’s energy the fossil fuel sector, namely: Pertamina, PLN,
sector (including more broadly energy Garuda Indonesia, and Kereta Api Indonesia,
subsidies). Consistent with that presented in amounting to Rp95.3 trillion ($6.6 billion).
Figure 9, IISD found that in 2020 the highest Whereas, the social protection scheme
fiscal support was directed toward the social was allocated as much as Rp13.1 trillion for
protection scheme, which includes energy energy subsidies, mainly in the form of free
subsidies (mostly electricity subsidies) to and discounted electricity tariffs for subsidized
poor households, followed by support to tariff groups (i.e. the 450 VA and subsidized
MSMEs and corporate financing, of which the 900 VA user groups). Table 2 presents the
latter includes support for the state-owned summary of quantified subsidies and PEN
enterprises (SOEs). The two target sectors program allocations in 2020 that are specific
collectively represented 15.6% (Rp108.5 to Indonesia’s energy sector.
trillion) of the total PEN program budget
allocation in 2020.
22
Supporting National Economic Recovery through Power Sector Initiatives:
Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recoveryClean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) Table 2. Energy sector subsidies from PEN program and state budget allocations in 2020 2020 Energy Subsidies Rp (trillion) $ (billion) eq. COVID recovery packages 108.5 7.5 Fossil fuel SOEs 95.3 6.6 PT PLN 45.5 3.2 PT Pertamina 37.8 2.6 PT Garuda Indonesia 8.5 0.6 PT Kereta Api Indonesia 3.5 0.2 Poor households 13.1 0.9 Electricity subscription tariff 1.7 0.1 Annual Subsidy 97.4 6.8 Electricity subsidy 49.7 3.4 LPG subsidy 32.8 2.3 Fuel subsidy 32.8 2.3 Total 205.8 14.3 Source: IISD (2021) Specific allocations toward renewable energy that between March 2020 and January 2022, were mostly unquantifiable because most Indonesia committed to at least Rp97.5 measures were in the form of non-financial trillion ($6.78 billion) to supporting different fiscal incentives. To that point, the Energy energy types, where 94% (Rp91.65 trillion) Policy Tracker (n.d.) analyzed public money were aimed toward fossil fuels support and allocation (including from outside the PEN only about 3.5% (Rp3.4 trillion) were directed program) that were aimed toward different toward clean energy support (Energy Policy energy types (fossil fuel and clean energy) Tracker, n.d.). through new or amended policies. It found 23 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) Why has green recovery initiatives not been prioritized? As previous findings suggest, Indonesia faces 2. Developing countries face longer several challenges to enable green recovery pandemic containment initiatives prioritization in its national economic Retrospectively, developing countries recovery package. There are two primary were also expected to face higher reasons for this: infection rates and longer containment period driven by its vaccination progress 1. Limited fiscal space of developing that continued to lack far behind that of countries advanced economies (OECD, 2021). As Unlike in developed countries, developing a consequence, developing countries countries are often faced with restricted will therefore prioritize efforts aimed at fiscal space when it comes to funding dampening the impact of the pandemic, recovery interventions (Marquardt & characterized by policy responses Fearnehough, 2021). This is also coupled that provide basic provision for social with the fact that limited government protection and for healthcare measures, budgets are further stressed in times as evidenced by the allocation in the of crisis. Bappenas and LCDI (2021b) PEN in 2020 and 2021 (Figure 6). have also noted that tax revenue has shrunk while public debt has increased On top of the two primary situations described during the pandemic. This means above, Bappenas (2021b) has also pointed prioritization of budgeting will likely out weak inter- and intra-sectoral synergies, go to the more immediate measures, where actions and priorities are often siloed, such as for dampening the impact to and limited political pressure on Indonesia’s the health and economy sector, rather legislative body on green recovery initiatives. than for measures that do not reveal However, now that Indonesia has transitioned immediate impact on the economy. into a recovery-phase, Indonesia must be able to shift its focus toward recovering the economy for the longer term so that it can benefit from the long-term environmental and social benefits. How Indonesia could do so will be discussed in more detail in Chapter 4 and 5. 24 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
4 Methodology and green recovery context in Indonesia This chapter discusses the methodology in designing the proposed measures laid out in Chapter 5. This chapter also provides a wider context of green recovery in Indonesia, in the power sector, and also briefly discusses the rationale behind why rooftop solar PV was chosen as a priority in the study. 25 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia) 4.1 Methodology In considering and designing green recovery other organizations supporting the energy measures for Indonesia, this report took transition and greener economic recovery. It is into account the green spending taxonomy important to note that the proposed measures developed by the Global Recovery Observatory in Chapter 5 are, in some cases, derived or discussed in Section 2.2.1. Generally, the reiterated directly from existing literature proposed recovery measures come in the form rather than made entirely custom, although of either incentive or investment measures (see slight customization exists to fit the broader Figure 3 in Chapter 2). As has been noted in green recovery and decarbonization context. Section 2.2.1, however, green recovery focus It is also important to note that the proposed areas4 have been predetermined to clean measures in Chapter 5 are meant to act more energy infrastructure and green buildings & as a proposal or a suggestion rather than a energy efficiency (primarily because rooftop complete program design, and therefore, solar PV support falls into this category in the might still require further, more technical study, spending taxonomy). and analysis upon possible program uptake and implementation. The proposed measures in Chapter 5 are synthesized by reviewing existing initiatives in Before diving into the specific proposed the literature that comes from the government measures in Chapter 5, it is useful to look at the agencies itself, development agencies, or any broad context of green recovery in Indonesia. 4.2 Broad context of green economic recovery in Indonesia Green recovery measures can help recover under social restriction measures for longer, at Indonesia’s economy and social development least retrospectively, as vaccination progress back on track, all the while setting Indonesia’s in most developing countries was lagging. climate action onto a track toward a sustainable In such a case, countries will remain in the and climate-compatible pathway. In the short- pandemic containment and relief phase, often run, green recovery measures should be able characterized by rescue-type policy responses to timely kickstart and stimulate the economy aimed at cushioning the impact of COVID-19, through job creation and increased aggregate providing safety nets, as well as preserving demand. But in the long-run, green recovery healthcare and other basic services (see measures must be able to drive green Figure 11). It is important to note that during transformational change by accumulating this phase, it remains crucial to follow a “do productive assets and labor productivity no harm” approach on relief (or rescue) gains that creates a lock-in of the economy spending so as to avoid supporting carbon onto a pathway toward a full decarbonization intensive industries such as with unconditional (Marquardt & Fearnehough, 2021). bailout or unconditional support. Once social restrictions ease, governments must then Marquardt & Fearnehough (2021) further focus on recovery measures on kickstarting argued that progress on recovery in developing economies while also balancing secondary countries will be different than in developed objectives such as social impact and long- countries. This is not only due to developing term environmental/economic sustainability countries’ limited fiscal space, but also due objectives (Figure 11). to the fact that economic activities remained 4 Policy focus areas can also be determined using a green recovery screening tool (SCREEN) developed by NewClimate Institute. The tool, which also takes into account the same green spending taxonomy developed by the Global Recovery Framework, can assist policymakers and analysts in selecting policy focus areas given a particular country’s context and development priorities. The tool also allows users to evaluate user-defined and pre-defined recovery measures within each policy focus area with its qualitative and quantitative assessment capability. However, this was not performed in this report due to having a predetermined policy focus area and proposed measures that are highly customized, making it difficult to be input. 26 Supporting National Economic Recovery through Power Sector Initiatives: Accelerating rooftop solar photovoltaics deployment for Indonesia’s green recovery
Clean, Affordable and Secure Energy for Southeast Asia (CASE Indonesia)
With that regard, the Indonesian government recently put forward net-zero emissions target
can tap into existing policy modeling initiatives as well as Indonesia’s G20 presidency) to build
(such as the Low Carbon Development the case for implementing green economic
Initiative) and current momentum (e.g., the recovery.
Source: Marquardt & Fearnehough, 2021.
Figure 11. Phases of recovery and the objectives of green recovery measures.
• First, Bappenas has noted in its green • Secondly, Indonesia has recently put
recovery roadmap that the Low Carbon forward a net-zero emissions target (by
Development Initiative (LCDI), at least 2060 or sooner) in 2021, although it has
one of the scenarios, can be the most yet to be legislated. Against that backdrop,
realistic response to the current downturn several ministries including Bappenas
that is also aligned with structural and the Ministry of Energy and Mineral
transformation towards green economy, Resources (MEMR) have formulated a
as a part of the government’s longer- net-zero scenario modeling, in which
term structural economic transformation most scenarios require a rapid uptake
strategies (Bappenas & LCDI, 2021b). of renewable energy, and phasing down
While the current short-term response the use of fossil fuels, to cut emissions
has not been supporting green economic from the energy sector. This means that
recovery per se, now that Indonesia green recovery measures are well aligned
has slowly transitioned from a rescue- with a net-zero vision. In the shorter-
phase, the timing could not be better for term, Indonesia also needs to achieve
Indonesia to start preparing for a greener its 23% renewable energy target (in
economic recovery. In other words, the primary energy mix) by 2025, as laid out
Indonesian government can tap into in the National Energy Policy. Meaning,
the green economy structural economic Indonesia can benefit from both the short-
transformation pillar and the LCDI term and long-term objectives that are not
modeling as a basis of its green economic only related to economic development but
recovery plan for the longer term. also climate targets.
27
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