Using Public Funding to Attract Private Investment in Renewable Energy in Indonesia
Achieving a Fossil-Free Recovery in Indonesia | Brief 3
Indonesia is holding the G20 Presidency in 2022, and sustainable recovery and clean energy transitions will be part of the agenda. Indonesia has an opportunity to accelerate its energy transition by supporting renewable energy development in the country. The private sector will be critical to this transition. However, the right mechanisms and policies have to be put in place to incentivize private actors to invest in the sector.
This brief analyzes how public funding can be used to leverage much-needed private funding in renewable energy development in Indonesia.
As the next G20 Presidency, Indonesia has an important role to play in ensuring that the objectives of a sustainable recovery and clean energy transition are achieved. The country can use this opportunity to showcase its efforts to transition away from fossil fuels to renewable energy. In 2020, Indonesia spent IDR 20 trillion (USD 1.4 billion) on its renewable energy sector, representing 7.8% of its total investment in the energy sector. The rest of its investment (IDR 237 trillion, or USD 16.5 billion) went to fossil fuels.
Indonesia can accelerate its energy transition by supporting renewable energy development in the country. The current realization of renewable energy investment is far below the amount required to achieve the nationally determined contribution (NDC) target of 23% share of new and renewable energy in the national energy mix by 2025. Private investment will be needed to meet this target. There are different mechanisms the GoI can put in place to accelerate private funding of renewables. Public financial institutions (PFIs) can help Indonesia to achieve this target. The government can leverage these PFIs to incentivize private investment in renewable energy. By leveraging public funding in the form of fiscal incentives, budget transfers, and capital injections to attract private investment in new and renewable energy, Indonesia can also send positive signals to the international community and showcase its efforts in the G20 Presidency.
In addition to this, Indonesia can increase the clarity and traceability of the financial flows directed to specific projects to increase the trust of international funders as well as to unlock the potential to further increase private investment and boost investor confidence. The GoI can also mandate PT PLN, PT Pertamina, and other energy SOEs to adapt their strategies to align with the established NDC targets more closely. In terms of renewable energy projects in the country, the GoI should also increase investment targets for solar photovoltaic and wind power in addition to its current investment in geothermal energy and increase policy stability to boost investors’ confidence.
Participating experts
You might also be interested in
Switching Fossil Fuel Subsidies in Indonesia to Support a Green Recovery
This brief looks at how Indonesia can start actively promoting renewable energy by removing the existing hurdles to its deployment—such as unattractive renewable energy feed-in tariffs and land and infrastructures barriers—and switching public support from fossil fuels to renewables to meet the country’s clean energy targets.
COP27 diary (November 16): '$100 billion in climate finance more of gesture from rich countries'
The 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change in Sharm El-Sheikh, Egypt, began November 7, 2022. Here’s a look at what happened on day 10 of COP27 climate talks. The draft text for a cover decision is yet to be produced by the COP27 Presidency as of 7.30 am November 17, leading many to wonder how long discussions will continue to arrive at a consensus on the document once released. Just two days of the summit remain.
Can a $20 billion bet wean Indonesia off coal?
Less than a year after it was announced, a $20-billion bet to wean Indonesia off coal is mired in controversies over financing and the construction of new plants to power industry. The Just Energy Transition Partnership for Indonesia was unveiled last November and follows a model first trialed in South Africa, with rich countries pledging funds for the developing world's energy transition.
Indonesia's JETP Deal Will Only Succeed if Coupled with Radical Measures to Unblock Renewable Energy Pipeline
At the G20 Summit in Bali, a group of developed countries—led by the United States of America and Japan—pledged to mobilize US$20 billion (around Rp300 trillion) over the next 3-5 years to accelerate Indonesia’s energy transition through early retirement of coal power plants and deployment of renewable energy. The flood of new finance for renewable energy under the so-called Just Energy Transition Partnership agreement (JETP) is certainly welcome—but unless the critical barriers to renewable energy deployment in Indonesia are addressed, the deal will fail to deliver.