The Growth of Renewable Energy in Indonesia 2022 – Current State, Opportunities and Challenges

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The Growth of Renewable Energy in Indonesia 2022 – Current State, Opportunities and Challenges

12 May 2022 – by Viktor Tachev

The demand and potential for renewable energy in Indonesia is soaring. This is in large part due to Indonesia’s energy consumption growing at one of the fastest rates globally. Unsurprisingly, this is due to robust economic development, steady population growth and increasing urbanisation over the last decade.

As Indonesia is the largest member in the Association of Southeast Asian Nations (ASEAN), it is also consequently the world’s fourth-largest producer and leading exporter of coal. Additionally, it is Southeast Asia’s primary gas supplier and makes up a significant portion of global biofuel supply. Together, this makes Indonesia’s energy policy a vital factor in renewable energy trends and transition within the region.

The Growth of Renewable Energy in Indonesia 2022

Indonesian energy demand can expect to see increases by 80%, while electricity demand triples between 2015 and 2030. While data suggests Indonesia has slightly increased it reliance on fossil fuels, its renewable energy trends are stirring. As a result, consistent renewable energy additions into Indonesia’s overall energy mix is a growing trend. This is surely positive development in the country’s shift toward green energy. In the short-term, it looks as though growth in renewables will exceed the demand for coal and oil.

Renewable energy power investment trends in Indonesia graph
Source: IEA

Solar Energy Potential and Renewables in Indonesia

Indonesia is in the top five countries found in the Asia-Pacific with significant renewable energy capacity. This is mainly sourced from hydropower and geothermal plants that make up 8% and 5%, respectively.

There are plans for expanding renewables across Indonesia. Currently, government policy intends to see 23% of its energy supplied by modern renewables like solar by 2025. And by 2050, at least 31% will come from modern renewable energy sources. However, the International Renewable Energy Agency (IRENA) estimates that the Indonesia could achieve its 2050 target two decades earlier.

The timing of of how fast Indonesia can decarbonise cannot be more important. Indonesia is currently amongst the world’s largest carbon emitters joining the likes of China, Japan, South Korea and India. Capitalising on its renewable energy potential is essential. IRENA estimates that the transition will require USD $16 billion in investments per year.

Renewable energy electricity generation Indonesia 1990-2019 graph
Source: IEA

The Advantages of Indonesia’s Renewable Energy Policy

The pros of Indonesia’s progressive national energy policy are evident from every angle. From its economics, the politics and from a collective well-being perspective. By 2030, replacing fossil fuels with renewables will see savings of up to USD $1.7 billion per year. If air pollution costs are factored in, this rises between USD $15 to 50 billion. Additionally, when compared to current policies, a larger share of renewables will see a major cuts in energy system costs.

As an indirect advantage, renewables will also contribute to creating more jobs and empowering technological transfers. IRENA sees the increase in renewable energy jobs to skyrocket from 100,000 to 1.3 million by 2030. The main drivers of this exponential boom are expected to be solar panel production and electric vehicle manufacturing.

Renewable sources will also help Indonesia become more self-sufficient. It will ultimately reduce the demand for fossil fuels by approximately 10%. In other words, Indonesia would be able to reduce imports of petroleum products and coal.  

If Indonesia wants to meet its goals, investments in renewable energy will need to accelerate rapidly. However, it is not only a question of more investment. First, it is essential to consider where these investments are routed. This raises several crucial challenges facing the power sector and the end-use of energy in various areas of the economy.

For the power sector, the challenges include the highly-fragmented nature of Indonesia’s grid with operational issues within off-grid areas. This also includes financing opportunities for new projects currently limited by local banks and land acquisition issues.

From an energy consumption perspective several issues arise. The lack of adequate design standards for thermal and water heating in industrial buildings, limited awareness of the renewable energy potential, space limitations and a focus on liquid biofuels.

Money spent in Indonesia on electricity and oil subsidies
Source: IEA

There is also the challenge of continuous fossil fuel subsidies. The International Energy Agency (IEA) states that to help support sustainable economic recovery, Indonesia must enhance its investment framework for renewables. This includes reforms that attract higher levels of private capital.

Another critical challenge is the relatively high costs. The average cost per megawatt of solar PV capacity in Indonesia is 65% higher than in India. It is also 10% higher than its Southeast Asian neighbour, Thailand. According to the IEA, public sources and SOEs are financing fossil fuels more extensively compared to renewables. Private sources account for around 50% of funds invested in renewable energy.

Collectively, this demonstrates the importance of a proactive national policy for Indonesia if it wants to achieve its goals. Fortunately, huge invests in renewable energy are already in the pipeline. The Indonesian government plans to build a new capital city relying on renewable energy for its electricity needs.

Indonesia average cost per megawatt of solar PV
Capital costs of wind in emerging economies. Source: IEA

How Renewable Energy Transition Affects the Coal Industry

Despite the shift towards renewable energy, coal will see growth in Indonesia – although at a much slower rate. By 2030, coal use will plateau, and shrink thereafter because of renewable uptake. However, in the short-term, the most affected industry will be oil. For Indonesia, if current renewable energy trends are anything to go by, the shift to cleaner energy sources are a huge step in the right direction. It is crucial that Indonesia rises to the occasion to meet the challenges of adverting climate change.

by Viktor Tachev

Viktor has years of experience in financial markets and energy finance, working as a marketing consultant and content creator for leading institutions, NGOs, and tech startups. He is a regular contributor to knowledge hubs and magazines, tackling the latest trends in sustainability and green energy.

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