Unlocking Indonesia’s Renewable Energy
Global concerns over climate change have led to a major shift from fossil fuels to renewable energy sources. More money was invested in renewables than fossil fuels for electricity production for the first time in 2015.3 Renewable capacity additions increased by almost 50% to nearly 510 gigawatts (GW) in 2023, the fastest growth rate in the past two decades.4 While the rest of the world has made clear strides towards more renewable energy development, Indonesia appears to be lagging. Investment in renewable energy has stagnated over the past seven years. The latest data shows that Indonesia could only attract around US$1.5bn in 2023, translating into a mere 574MW of additional renewable energy capacity. Meanwhile, Indonesia’s neighboring countries have installed significant solar and wind capacity. Vietnam, for example, has a solar capacity of 13,035MW and 6,466MW of wind generation, recording an increase of 1,115MW capacity in solar and wind power in 2023 alone.
Figure 1: Investment Realization in the Energy and Mineral Resources Sector
The chart above shows that Indonesian investment focused on the oil and gas, and mineral and coal sectors. The amount of investment translated directly into energy capacity. From 2018 to 2023, while Indonesia increased its electricity capacity by 21GW, 18.4GW of additional capacity came from fossil fuels, while only 3.2GW was from renewable energy.
Figure 2: Total Installed Capacity (left) and Additional Capacity (right), 2018 – 2023
In 2023, the share of renewable energy in the electricity mix was 13.1%, well below the government’s target of 17.9%, with a capacity of 13.2GW comprising 94.5% of hydroelectric, biomass, and geothermal. As an equatorial archipelago of more than 17,000 islands, Indonesia should utilize the country’s vast solar and wind resources for electricity, especially in remote areas. However, Indonesia has added only 574MW of solar power out of a possible 3,293GW, just 0.017% of its potential and one of the lowest rates in the Asia-Pacific region.
Figure 3: Operating Solar and Wind Power in Southeast Asia
Due to the slow progress in Indonesia’s renewable energy development, especially in solar and wind power, the attraction of investing in renewable energy is declining. This is exacerbated by Indonesia’s plans to reduce its renewable energy target from 23% to 17% – 19% in 2025 and from 26% to 19% – 21% in 2030.
The Renewable Energy Country Attractiveness Index (RECAI), issued in November 2023 by Ernst & Young, ranks the world’s top 40 markets on the attractiveness of renewable energy investment. Indonesia is not featured on this Index, lagging behind the Philippines (ranked 32nd), Vietnam (ranked 33rd), and Thailand (ranked 38th).
As a signatory to the Paris Agreement, Indonesia has committed to a 29% reduction in GHG emissions by 2030 through its independent efforts or a 41% reduction with international support. In the long term, Indonesia has pledged to reach net-zero emissions (NZE) by 2060 or earlier. Indonesia stated that it needs more than US$1 trillion (tn) of investment to achieve its NZE target in 2060. This investment cannot be fulfilled solely through the national budget; therefore, the Government of Indonesia must attract private investment to develop renewable energy projects and invite private funding through the public-private partnership scheme. Improvements in the investment environment are needed to attract more renewable energy financing to help Indonesia achieve its climate targets.
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