By Irdina Batrisyia and Indira Pradnyaswari  

Just Energy Transition Partnership (JETP) is acknowledged as a global initiative in mobilising climate finance as well as stimulating the just transition in achieving low-carbon economy. JETP works as a multilateral financing mechanism that aims to facilitate energy transition of the developing countries by optimising renewable energy utilisation that is align with the net zero target. By 2025, ASEAN would require a total annual investment of $180 billion to achieve a 23% share of renewable energy in primary energy supply and a 35% share in installed capacity. Through public and private investments, the JETP is specifically aimed to resource countries away from coal dependencies  

JETP is focusing on ‘just and equitable’ energy transition, aiming to ensure the economic livelihood within the energy transition.  JETP is essential to accommodate energy transition, due to the growing population and forecasted rise in energy demand. Indonesia and Vietnam are two ASEAN countries that has been participating under the JETP scheme. To-date, Indonesia has secured USD 20 billion, and Vietnam received financial assistance of USD 15.5 billion to support the development of energy transition in the nations.    

Prior to the JETP partnership, several negotiations have been initiated at the national level to address the ideal borrowing mechanism in supporting the transition pathway. Thus, different mechanisms and interests are applied in both countries. Table 1 provides a comparison on JETP scheme in Indonesia and Vietnam.   

Table 1. Comparison of Indonesia and Vietnam JETP scheme.

Based on Table 1, Indonesia and Vietnam JETP scheme shows significant similarities in key areas and financing share. It is pointed out that the JETP scheme applied is only responsible for 3-4% share of grant and is dominated by debts (96-97%). In fact, JETP has been up and running for almost two years and yet, the progress is still nascent. Moving on, this situation is leading to a bigger question; Is JETP works best in transitioning energy in ASEAN with the current scheme?   

• The Disproportionate Financing Shares in JETP  

The financial structure of JETP is predominantly based on debt rather than grants (see Table 1). Both Indonesia and Vietnam face similar risks regarding their ability to repay these debts and the subsequent effects on their debt-to-income ratios and national fiscal health. Detailed risk assessments are necessary to support state-owned companies in securing official development assistance (ODA). In Indonesia, commercial and private financial institutions have limitations in offering long-term financing, with 70% of bonds issued having tenures between 3 and 5 years, and only 8% extending beyond 10 years, such as financing large-scale hydropower. The short-term nature of JETP financing could hinder investments in energy projects that take more than a decade to complete. In Vietnam, MDB financing only constitutes 3% due to government policies limiting public debt, which in turn makes it difficult for state-owned enterprises to secure loans. Non-sovereign loans are also less appealing due to high international commercial rates and the limited recognition of Electricity Vietnam (EVN), compounded by the regulated nature of the sector. The regulation of the energy sector in most ASEAN member states caps the profitability of state-owned enterprises to maintain energy affordability.  The energy affordability that ASEAN has been enjoying from coal will be taken away as the levelised cost of energy (LCOE) of renewable energy remains less competitive than coal. Although the LCOE of renewable energy has declined over the years, undeniable the capital to initiate the RE project coupling with enabler technologies such as storage system and grid investment. Consequently, developing countries must evaluate energy affordability to protect vulnerable groups, necessitating mechanisms like targeted incentives or subsidies. Therefore, each AMS may require further assessment prior pursuing to tapped into JETP financial scheme, as the nation need to ensure the policy and governance will enable the financing.   

• Uncertainties in Monitoring and Evaluation of JETP  

To-date, the dilemma on JETP mechanism remains. As most of the projects financed by the JETP scheme is costly and require long-term financial support, such as grid enforcement. The project should be segmented into several phases and executed concurrently with RE adoption. Nevertheless, the monitoring and evaluation of projects under JETP is not clearly stated by the nation. In Indonesia, the meta-monitoring approach is proposed to be adopted but the BAU process is not explained in-depth. Meanwhile in Vietnam, the monitoring and evaluation process will be conducted annually and followed by the biennial review on the Technology and Energy WG besides continuous forum and engagement session. Still, Vietnam does not outline the key assessment areas and matrix that may be consider under the JETP, either looking into the capital expenditure utilized or GHG reduction etc. The lack of monitoring and evaluation may backtrack the energy transitions projects and lead to financial distress due to cumulative interest.   

Additionally, JETP should establish clear criteria for nations to join the fund, allowing more ASEAN member states (AMS) to benefit from the financial scheme. Effective planning is essential for AMS to avoid falling into the middle-income trap while transitioning to cleaner energy. Aligning the expectations of investors and governments is therefore vital to ensure that governments can repay JETP loans, and that monetary and fiscal policies align with national objectives within the JETP framework. Moving forward, it is necessary to realign policies and set standards for monitoring and evaluation before implementing the JETP scheme. This realignment should involve coordination across ministries to address national priorities and ensure mutual benefits for both donors and recipients. If the scheme leads to increased debt for developing countries and slow progress, a reassessment of project financing should be conducted before continuing the agreement. Otherwise, this could be an initial warning for ASEAN to seek a better and beneficial energy transition scheme.   

Irdina Batrisiya is a Research Assistant at the ASEAN Climate Change and Energy Project (ACCEPT) and Indira Pradnyaswari is an Associate Research Analyst at the ASEAN Climate Change and Energy Project (ACCEPT).  

The views, opinions, and information expressed in this article were compiled from sources believed to be reliable for information and sharing purposes only, and are solely those of the writer/s. They do not necessarily reflect the views and opinions of the ASEAN Centre for Energy (ACE) or the ASEAN Member States. Any use of this article’s content should be by ACE’s permission.