Jakarta, December 12, 2024 – Energy transition is an important step that Indonesia must take to reduce carbon emissions. In fact, Indonesia has a target to achieve a renewable energy mix of 23% by 2025. However, in reality, until 2023, Indonesia’s renewable energy mix had only reached 13.1% based on data from the National Energy Board and investment in the sector continues to face various obstacles. This was revealed by Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa at the Conference on Indonesia Foreign Policy (CIFP) 2024 on Saturday (30/11/2024).
“The key to a successful energy transition is the availability of adequate funding. However, large-scale fundraising for renewable energy in Indonesia is hampered by three fundamental problems that are interrelated with the financing aspect. First, inconsistent policies and overlapping regulations are a major barrier for renewable energy investors. For example, the Domestic Content Level (TKDN) policy. Although it aims to encourage the growth of local industries, this policy is a challenge because supporting infrastructure such as the solar module industry and specialty glass are not yet available in the country,” Fabby said.
According to Fabby, without adequate supply chain support, it is difficult for Indonesia to meet the high TKDN standards required to secure low-cost funding from international financial institutions such as the ADB and World Bank. For this reason, the government needs to create more harmonized policies that support the gradual growth of local industries, while still opening up opportunities for foreign investment.
“Second, Indonesia’s power sector is heavily regulated and monopolistic, with PT Perusahaan Listrik Negara (PLN) as the sole off-taker. This creates huge risks for investors. An example is PLN’s overcapacity of 5 GW during the COVID-19 pandemic, where PLN still has to pay an annual contract despite declining electricity demand,” Fabby said.
Fabby mentioned such risks make investors reluctant to invest in renewable energy projects. Reflecting on these conditions, according to Fabby, the government needs to reduce this risk by providing guarantees for investors and creating a more competitive electricity market.
“Third, the ability of local players to offer renewable energy projects that are financially feasible (bankable) is still low. For example, banks often require a minimum equity level of 30-35% and collateral of up to 120% of the loan value, which is difficult for local developers to fulfill. Therefore, more flexible access to funding is needed,” said Fabby.
On the other hand, Fabby underlines that switching from dirty fossil energy to clean renewable energy is not just about reducing carbon emissions, but also about stopping the injustice experienced by communities around fossil fuel plants. For example, when coal-fired power plants are replaced by renewable energy plants such as solar, the surrounding communities no longer have to be victims of pollution. Also, in the transportation sector, burning low-quality fuel oil has caused air pollution that is also a “silent killer” for urban residents.
“The just energy transition also means providing wider opportunities for people to get involved and benefit from it. Renewable energy, such as solar power plants, has simpler technical requirements than fossil-based plants. This translates into greater employment and training opportunities for local people, as there is no longer a need for overly complex technical qualifications. This can pave the way for many people, including in remote areas, to participate and obtain economic benefits from clean energy development,” Fabby explained.
Not only that, Fabby highlighted that electricity supply in the 3T (underdeveloped, outermost, frontier) areas is often limited and the quality is far below urban standards. Replacing diesel power plants (PLTD) with renewable energy will increase electricity reliability to 24 hours. Thus, people will not only get better electricity supply, but also the opportunity to improve their overall quality of life.
“Ultimately, the energy transition is not just about replacing energy resources, but also ensuring that every layer of society can enjoy clean air, reliable electricity, and wider economic opportunities. This is the essence of the just energy transition that we want to realize,” said Fabby.
