Summary

A recent report released by the Organization for Economic Co-operation and Development (OECD) mentioned that Indonesia could become a world leader in clean energy development with further reforms to mobilize investment in renewables and energy efficiency. The OECD Clean Energy Finance and Investment Policy Review of Indonesia stated that Indonesia’s abundant and untapped financial and investment potential in renewables and energy efficiency. Indonesia’s key sectors are also important to accelerate the green energy transition and support sustainable recovery from the COVID-19 crisis.

The OECD stated that reforms to create a clear and consistent regulatory environment for renewables, such as competitive tenders to encourage healthy competition and cut costs, could fix the investment shortfall. The recent introduction of the country’s first energy performance standard should improve the further uptake of efficiency solutions.

“The clean energy sector will play a crucial role in supporting Indonesia’s green recovery,” OECD Secretary-General, Mathias Cormann, stated when presenting the report virtually on Monday (6/28). Cormann said that a sound, transparent, and predictable regulatory environment is key to attract hundreds of billions of dollars of private investment. Such an investment could drive Indonesia’s clean energy transition and broad green recovery.

Our View (DInsight)

Indonesia’s potential to produce geothermal and hydropower is among the largest in the world, thanks to its vast volcanic geography. Opportunities in the tidal and solar energy sectors in the country are also great. However, investments in renewables remain underwhelming, partly because of regulatory constraints. Up until now, Indonesia has only utilized 2.5 percent of 417.8 gigawatts of its total renewable energy potential (GW).

The sector needs around Rp 1,690 trillion worth of funds to build renewable power plants to reduce greenhouse gas emissions by 156.6 million tons of carbon dioxide (CO2) by 2030. Therefore, Indonesia is open to investments in renewables, especially those willing to transfer the technology and support the energy transition.

Many parties are interested in developing Indonesia’s energy sector. Saudi Arabia, for example, has declared its plan to invest in a 1,000-megawatt solar power plant (PLTS). UPC Renewables from Australia also wants to build a wind farm (PLTB) in Sukabumi Regency, West Java, worth Rp 500 billion. Besides, Indonesia Investment Authority (INA), the country’s sovereign wealth fund, also expects renewable energy development to be one of the potential investment targets.

According to the OECD, assistance from the international community can play a key role in speeding up the country’s clean energy transition. Moreover, international partners can help develop a strong network of energy efficiency and renewable energy projects, for example, by providing technical assistance for training and capacity building for certified investment-level energy audits. Capitalizing on mixed-finance mechanisms such as the SDG Indonesia One Fund can also help mobilize private capital for clean energy projects in Indonesia.

To create a supportive investment climate in Indonesia’s renewable sector, the government will soon issue many incentives through the Presidential Regulation (Perpres) on the Renewable Electricity Purchase by PT Perusahaan Listrik Negara (PLN). One of them is the implementation of the feed-in tariff (FiT) scheme, proposed by many business players. In this scheme, if there is a tariff difference in certain areas, the government will cover the deficit.

Additionally, the government is currently formulating a regulation on the joint use of the electric power network by private electricity providers or power wheeling to facilitate investors in the renewable energy sector. The government will also consider the possibility of an open-access scheme to the electricity transmission system to facilitate large-scale renewable investments.