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China’s Belt and Road Initiative Opportunities in Accelerating the Energy Transition in Indonesia

Beijing, March 27, 2023 – The Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, highlighted that the Belt and Road Initiative (BRI) allowed China to play a role in accelerating the energy transition in Indonesia. He mentioned this as a guest speaker promoting green and low carbon transition in BRI participating countries and CCICED particular policy study on green BRI workshop on Monday (27/3/2023).

“Indonesia must increase its ambition to make emission reductions compatible with the Paris Agreement. Under the current plan, Indonesia will achieve the energy sector’s net zero emission (NZE) after 2060, but the electricity sector will reach zero in 2050. For this reason, we need more efforts to decarbonize the transportation and industrial sectors,” explained Fabby.

He also underlined that Indonesia needs a cumulative investment of around USD 1.3 trillion spread across various technologies in the push for decarbonization. Under these conditions, Fabby said, China could play a role in supporting the energy transition in Indonesia through technology, manufacturing, and investment cooperation, considering that there is market potential in increasing demand for renewable energy in Indonesia.

“Solar power will play an important role in Indonesia’s energy transition. Based on the 2021-2030 Electricity Supply Business Plan (RUPTL), PLN plans to add 3.9 GW of solar energy in 2025. For this reason, BRI’s investment in 2023 needs to be focused on financially feasible projects, such as scalable solar and wind power plants, said Fabby Tumiwa.

On the other hand, the existence of BRI can enable investment in the renewable energy component industry. This can be done by considering the complexity of the supply chain. Fabby emphasized that industrialization in Southeast Asia accompanied the push for the energy transition, such as energy storage, electric vehicles, and solar panels.

“Currently, Indonesia has started to develop the battery and electric vehicle industry because of its great nickel content. Low production costs and availability of resources are several opportunities to develop the local solar module industry in Indonesia,” said Fabby.

On the same occasion, Deon Arinaldo, Energy Transformation Program Manager, Institute for Essential Services Reform (IESR), explained various power system plans and projections expected to accelerate the spread of renewable energy in Indonesia. For example, the latest power system energy planning stipulates around 20.9 GW of renewables to be built in 2030. This number will increase by at least 5-6 GW if Indonesia considers the Just Energy Transition Partnership (JETP) target of 34% renewable energy mix in 2030.

Deon Arinaldo, Manajer Program Transformasi Energi, Institute for Essential Services Reform (IESR) — Deon Arinaldo, Energy Transformation Program Manager

“To achieve the national policy target in 2025, the IEA projects an additional solar energy capacity of 17.7 GW above that planned in the RUPTL. Meanwhile, based on the IESR scenario, the power generation capacity based on renewable energy must be boosted to 140 GW to limit global warming to 1.5°C,” Deon explained.

However, said Deon, historically, the installed capacity of renewable energy has only grown around 500 MW per year. This happened because there were several main challenges, including excess capacity at the Java-Bali power plant. Moreover, the domination of coal power plant capacity with a take-or-pay mechanism needs to make room for the integration of renewable energy. Another challenge is the renewable energy procurement process and the requirements for using local content, which places unnecessary risks in developing renewable energy.

Total support from the Government is required for a promising solar energy

“Solar cells will be the new promising commodity in the future, just like oil now,” said Fabby Tumiwa during his explanation in the REinvest Indonesia – China forum.

The forum aims to bridge the two countries in renewables investment collaboration. Indonesia is actively seeking a way to provide cleaner, cheaper, and more reliable energy sources in order to revitalize its current energy system that heavily relies on fossils. Meanwhile, China faces global force as well to reduce its carbon emission due, and pledge to be carbon neutral by 2060. As the two countries have things in common to reduce carbon emission, dialogue to bridge the needs is set-up.

Fabby Tumiwa, in his capacity as the chairman of Indonesia Solar Association and Executive Director of IESR, said that Indonesia needs to accelerate the renewables deployment to seize the target of RUEN i.e 23% renewables in national energy mix and further to be zero emission in 2050. Even though the government of Indonesia set the target to be net zero emission in 2070.

Solar PV can be the prime mover and key to achieving the decarbonization target. This is in line with the global urgency to have deep decarbonization. Mentioned by IEA in the latest report that solar and wind will dominate the energy system in the future up to 78% of power generation in 2050, in which solar should increase from 160 GW now to 650 GW in 2030. On the same occasion, IEA emphasizes the urgency to scale up renewables in this decade to achieve zero-emission in 2050. In terms of a strategic point of view, solar is a bit more privileged as it is able to be installed modularly. In the future solar energy is a popular commodity just like oil in the present day.

However, the promising future is not coming without any flaws. There are a bunch of situations that hold back the acceleration of the solar PV industry in Indonesia.

PLN’s oversupply condition is one of the most significant barriers to solar deployment. The situation makes it hard for both the government and private sector to penetrate renewables into the electricity system.

Meanwhile, Eka Satria, CEO Medco Power Indonesia, highlighted some points including the preference of the government and Indonesian market to choose short-term low-cost energy sources, the uncertainty of policy and regulation, BPP vs local content requirements, and also land acquisition issue.

As the chairman of the Indonesian Solar Panel Producers Association (APAMSI) Linus Sijabat shares things that should be prepared by the foreign investor in this occasion China, before penetrating the Indonesian market. Supply chain management, especially related to the local content requirement becomes his key point.

“Foreign and domestic cooperation is required for products of more than 60% whose prices are competitive, the quality is internationally certified, and the market is sustainable,”

The willingness of the government must be shown in the regulation such as RUPTL (general planning of electricity compliance) so private investors will be able to see the potential market for renewables in Indonesia. Moreover, in Indonesia PLN stands as the single buyer for electricity. Besides the chance that should be visible in the planning document, another enabling environment for renewables investment must be ensured as well.

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Indonesia Solar Potential Report

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Bringing Indonesia to The Gigawatt Club: Unleashing Indonesia’s Solar Potential

With energy transition becoming a global trend following action to mitigate climate crisis, many countries have integrated low-carbon energy systems into their national development agenda. Indonesia has the highest energy demand among ASEAN members, and fossil fuel resources still dominate Indonesia’s energy and electricity mix: less than 12% primary energy supply was from renewable sources, and the renewables only provided ~14.9% of Indonesia’s electricity generation in 2020 (IESR, 2021). Although Indonesia has established its renewable energy targets, i.e., 23% of primary energy mix by 2025, renewables growth in the country is slow, even stagnant over the years.

Indonesia is often called a frontier market for renewable energy, and that includes solar energy. While the technical potential is high, up to 207 GW according to Ministry of Energy and Mineral Resources, solar generation in the country is less than 1% – this slow growth is a combination of several inhibiting factors: lack of consistent and supportive policies, the absence of attractive tariff and incentives, as well as concerns on grid readiness. Solar energy will be key to open the doors for other renewables in Indonesia; along with the current government’s plan to issue presidential regulations on renewable energy pricing and deployment.

To support accelerated solar deployment in Indonesia, in March 2020, the Institute for Essential Services Reform (IESR) signed an MoU with the Global Environmental Institute (GEI) to collaborate on renewable energy development. To this end, we conducted two training sessions and technical exchanges on technical potential analysis of renewable energy resources by applying the Renewable Energy Implementation (REI) toolkit.

To date, with the supports from GEI, IESR has completed a GIS-based nationwide solar PV technical potential assessment in Indonesia. The assessment report is produced to provide detailed information for related stakeholders in identifying prospective locations for solar power plants at any scale, feeding energy planners and driving more ambitious solar development in Indonesia. The interests and growth need to be nurtured, yet the big question remains: what more Indonesia can do to enter the gigawatt solar installations?

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