Indonesia Races to Meet Renewable Energy Target

The clock is ticking.

Time is running out for the Indonesian government to fulfill its promise to the renewable energy target by 2025.  

By Diana M, Indonesia correspondent, Maritime Fairtrade

Although the government has expressed its utmost commitment, academics and industry players continue to predict Indonesia will struggle to meet its target of using 23 percent of renewable energy (RE) by 2025. A lack of supporting regulations to encourage investment and private sectors to take part in the ambitious project has been cited as the main reason behind the pessimism.

It is a race against time for Indonesia as there is only less than four years to realize the dream of being a greener country. As of April 2021, the Ministry of Energy and Mineral Resource confirmed that only 13.55 percent of the country’s energy comes from renewable sources, mainly hydro and geothermal. And as the deadline approaches, many are not so sure that the government will be able to close the 10 percent deficit in a considerably short time – not until the current policies change.

Current climate not conducive for public-private partnership

Speaking to Maritime Fairtrade, Deputy Chancellor for Research, Innovation and Partnership at Pakuan University Prof. Dr. rer. pol. Ir. H. Didik Notosudjono, Msc. explained that the current climate in Indonesia is not inviting enough for private sectors and investors to join in the development of RE projects.  RE tariffs, for example, is still deemed not attractive enough from a business’ point of view.

“There has yet to be an attractive green tariff which can immensely speed up RE development in Indonesia. Such tariff can help businesses generate good returns, hence, private investment will become attractive too,” Notosudjono said. 

He also mentioned the ongoing monopoly by state-owned electricity company PLN as another reason behind the stagnancy. With PLN being the only power supplier for hundreds of millions of Indonesians, Notosudjono said RE development is very affected by and dependent on the firm’s policy. He suggested that provinces be given autonomy to decide their tariffs, particularly if certain region has massive RE potential. If managed well, such autonomy will inevitably induce private sectors to participate.

No incentives, high soft cost

In addition to unattractive tariff, potential investors and developers are not offered any incentives. According to RE technical specialist Maryam M Karimah, the government does not offer schemes that are actually common in other countries, such as tax credits and renewable portfolio standard (RPS).  She added that new entrants face quite a bureaucratic process in getting approval as well.

“Getting a license remains difficult, even in regions where access to electricity is still limited. It’s unfortunate because this is actually where RE can step in and help,” Karimah explained.

For example, to build solar power plants, developers are responsible to acquire the land.  This practice is actually risky for the business because with land politics, acquiring a plot is almost like a “gamble” which adds in an element of unpredictability to the business. Instead of passing on the risk to the private sector, it makes more economic sense if the government, through the state-owned PLN, acquires the land and designates them for the use of building renewable energy plants.

For incentives, Karimah mentioned the 30 percent RE tax credits in the U.S. as a feasible example to be implemented in Indonesia. Another option is implementing the RPS which requires countries to have a specified percentage of electricity coming from renewable sources. Such a regulation will drive investment and accelerate the proliferation of RE.

“There is lack of incentives, complicated bureaucracy, high soft cost and unattractive tariff,” Karimah summed up the situation. “Indonesia has set the target but it is not accompanied by aggressive derivative regulations.”

The clock is ticking

As one of the backbones in the effort to reach the 2025 target, solar power is an area where Notosudjono said there is a huge potential for the government to tap not only to boost the take-up rate of renewable energy but can contribute to the overall economic growth of the country as well.  

He expanded that there is an opportunity for the government to encourage the development of the manufacturing of components for use in solar plants as currently, Indonesia only has companies assembling the components but no company is involved in producing the parts.  By both manufacturing the parts and assembling the solar plants within the country, companies can shorten the supply chain, cut cost and bring the end products to the market faster.

“For example, rooftop solar plants have huge potential but we don’t have the capability to manufacture the parts.  The government can look into this area for development,” he said. 

Karimah expressed similar sentiment, adding that that if Indonesia is able to develop the components manufacturing industry, and couple with a streamlined licensing and approval process, and the right policy and regulation to foster a conducive climate for a public-private partnership, the country will be able meet the 2025 renewable energy target and foster economic growth concurrently.

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