By 2025, Indonesia is expected to achieve the use of renewable energy by up to 23 percent as the national energy source. Here’s why investing in Indonesia’s green energy sector offers a promising opportunity.
There is no doubt that energy demands will increase along with economic development and population growth. As a rapidly developing nation and ASEAN’s largest country, Indonesia accounts for 40 percent of the region’s energy consumption. Furthermore, the demand is predicted to increase by 80 percent while the need for electricity could rise by three folds between 2015 and 2030.
The energy sector has been identified as the second main contributor of emissions after agriculture, forestry and other land uses. With 8.5 million motor vehicles added to Indonesia’s roads every year, massive energy demands from large industries and heavy reliance on domestic coal, as well as imported petroleum products, Indonesia fully realizes it must step up its renewable energy transitions. Especially, considering its goal to achieve 23 percent of renewable energy use by 2025.
Currently, Indonesia’s renewable energy contribution is holding at twelve percent. Eighty eight percent of the national power capacity is still sourced from fossil fuels. However, it is only by shifting energy investment toward renewable resources can Indonesia reach its target.
Ernst and Young’s recently published report, Green recovery opportunities in Southeast Asia, Japan, South Korea and Taiwan stated the pandemic gives a unique opportunity to reframe the region’s economic recovery in a sustainable manner. There is no better time than now to shift away from fossil fuels and head onto the low-carbon path.
Moreover, the report also reveals that renewable energy is a truly attractive sector for investment. There are 97 renewable energy projects in the pipeline with the following highlights: US$12 billion investment potential; 34,000 job creation opportunities; 4 gigawatt capacity; and 19 metric ton CO2 equivalent (MTCO2e) of emission reduction potential in Indonesia.
The current annual investment in clean energy capacity is approximately Rp131.5 trillion between 2015 and 2030. It is expected to grow to Rp226.6 trillion as demands for energy continues to soar.
Due to its geography, Indonesia is naturally blessed with a massive potential to generate geothermal, hydropower, tidal and solar energy. The country also controls 40 percent of the globe’s geothermal reserves. It doesn’t come as a surprise that geothermal energy investment sector has the most projects in the pipeline; and the only way to reduce the country’s reliance on fossil fuels is by tapping into clean and renewable energy sources.
What can be done to improve renewable energy investment? An alignment between ministries, authorities and PT PLN as the sole provider of electricity is vital in providing potential investors with opportunities.
As part of the Paris Agreement, Indonesia has pledged to reduce its national emission by 29 percent within the next decade. In line with the Paris Agreement, in COP26, Indonesia committed in a new ‘Global Coal to Clean Power Transition Statement’ to phasing out coal power, scaling up clean power, and ensuring transition away from coal. To accelerate the transitions, Indonesia also announced a partnership with the Climate Investment Funds and a pioneering partnership with the Asian Development Bank.
PT PLN will also participate in Indonesia’s efforts to minimize temperature rises by gradually retiring steam power plants to renewable energy from 2030 to 2056. In 2030, PLN will enter the first phase to retire an old fossil fuel power plant of 1 gigawatt (GW), followed by the shutting down 9 GW of subcritical plants in 2035. The electricity firm will then proceed to the 10 GW of supercritical plants in 2040. The gradual retirement of ultra-supercritical plants of 24 GW will kick off in 2045. The last retirement of the 5 GW ultra-supercritical plants is to take place in 2055.
The government also needs to initiate a clear guidance and transparent procurement processes on renewable energy projects, introduce an optimal tariff of renewable energy generation, facilitate stimulus packages and, last but not least, encourage green energy initiatives. By getting these strategies in place and cutting down the regulatory bottleneck, Indonesia can become the world’s leader in clean energy.