At an event held in Jakarta on March 28, 2018, at the Tugu Kunstkring Paleis, on behalf of the International Institute for Sustainable Development’s Global Subsidies Initiative (GSI), I launched a report analyzing the perceptions that energy sector stakeholders hold about progress towards this objective. 

The report details the GSI’s political economy assessment of the Indonesian electricity sector, outlining the interest, influence and engagement of electricity sector stakeholders. The research was based on 26 interviews with energy experts, including representatives from the presidency, government ministries, independent power producers, the state utility PLN, the fossil fuel industry, international development partners and civil society.

The findings highlight the uphill struggle faced by renewable energy in Indonesia. There is pressure to keep consumer electricity tariffs low, and energy subsidies to fossil fuel energy undermine the ability of to meet renewable targets. The share of renewable energy in the electricity mix has been stuck at roughly 12 per cent for the past decade.

Key roadblocks to greater renewable adoption include:

• An effective cap on renewable power prices paid to renewable generators imposed by Regulation 12/2017
• Frequent changes to policy and regulation creating uncertainty and policy risk
• Competition between a coal industry that receives subsidies and support and unsubsidized renewable energy
• Underpricing of environmental externalities
• A preference for diesel generators in remote areas where renewables may be a cheaper option.

A positive factor is the decline in renewable energy costs noted at the global level, indicating that “learning by doing” has the potential to reduce renewable costs considerably as the industry scales up. Another opportunity for change is the potential to reform fossil fuel subsidies and other financial supports, creating savings, some of which could be used to fund the renewable energy transition, without increasing subsidy expenditure.  

Meeting the renewables targets will require strong political commitment. To date, key stakeholders have not thrown their full support behind renewables and the renewable industry’s champions— including renewable developers, investors and civil society groups—do not have the clout to push through a transition to sustainable energy on their own.

Speaking at the launch event, Rasmus Abildgaard Kristensen, Danish Ambassador to Indonesia said: “In recent years, the speed at which renewable energy has become cost competitive is staggering. In Denmark, for example, wind power is already the cheapest fuel source available. Indonesia—with ample resources of wind, solar, biomass, hydro and geothermal—has a fantastic opportunity to take advantage of the technological innovation and the falling cost of renewables to transform the energy system. But as the report from GSI shows, policy-makers and investors need to confront the economic opportunities, as well as challenges, arising from a scale-up of renewable energy in Indonesia.”

Paul Westin, Embassy of Sweden & Swedish Energy Agency added: “More optimism towards renewables in Indonesia is needed among key decision makers. Renewables are ever more competitive globally, whereas ‘new’ energies, such as nuclear power, are becoming more expensive. Indonesia can steer clear from entering the nuclear path, which actually has been proposed by some stakeholders in order to achieve the new & renewables target.”

This report was launched March 28 in Jakarta. Support for the study was provided by the Embassy of Denmark and the Swedish Energy Agency.

Read the report here.