Indonesia's swift shift towards renewable energy necessitates strong financial policy to ensure seamless and prosperous transformation
Indonesia, with its vast natural resources and growing energy demands, is poised to play a significant role in the global shift towards renewable energy. However, the country faces several challenges in accelerating its energy transition, as outlined in this article.
By 2029, renewables are expected to account for 23% of the energy mix, up from the current 14.1%. To achieve this target, the government aims to generate 42.6 gigawatts of clean energy by 2034 [1][4]. However, the current main challenges include heavy reliance on fossil fuels, weak commitments to coal phaseout, and significant influence of the fossil fuel industry on policy [1].
The most recent electricity plan (RUPTL 2025-2034) even increases fossil fuel generation capacity and lowers renewable energy targets, signaling a setback for clean energy progress [1]. Fossil fuels, particularly coal and gas, continue to dominate the energy mix, accounting for 39.69% and 17.11% respectively [2].
One potential solution is stronger and more transparent renewable energy target setting. Indonesia’s 2022 Energy Compact outlines ambitious goals to nearly double renewables' share from 12.3% to 23% by 2029, scale solar and wind capacity by a factor of 12 to 5.3 GW, improve energy efficiency, cap emissions, and mobilize about USD 273 billion for the transition [2].
Another key solution is mobilizing substantial investments. The required renewables investment is around US$20-40 billion per year by 2050 [2]. To attract clean energy investment, it's crucial to strengthen policy and regulatory frameworks, reducing fossil fuel dependence [3].
Regional cooperation through ASEAN interconnectivity and renewable energy trade can also improve reliability and balance supply-demand [4]. Enhancing transparency and accountability via platforms like the Energy Compact Action Network can help track progress and provide technical support [2].
However, challenges persist. The potential loss due to inappropriate subsidy allocation reaches Rp 1.2 trillion (US$73.8 million) per month due to unlinked data [3]. Carbon tax rate adjustments are not just fiscal measures but also important instruments in driving systemic energy transformation and low-carbon development [3]. Currently, carbon tax rates in Indonesia are considered low, and gradual tariff adjustments are necessary [3].
A tax rate of IDR 30,000 (US$1.84) per tonne of CO2e has been implemented for the coal-based electricity sector. The domestic market obligation (DMO) policy requires coal producers to supply domestic power plants' needs at a maximum price of US$70 per tonne [3].
Indonesia has also established carbon trading as one of its national climate control instruments through Presidential Regulation No. 98/2021 [3]. The implementation of carbon taxes in other sectors requires a supporting regulatory framework [1]. The measurement and reporting mechanisms for calculating emissions vary by sector, necessitating the involvement of relevant ministries [1].
In conclusion, overcoming entrenched fossil fuel interests, updating policy to accelerate coal phaseout, mobilizing substantial investments, expanding renewables capacity, and fostering regional integration are the core challenges and solutions to speed up Indonesia’s renewable energy transition by 2029–2030 [1][2][3][4]. The path towards a cleaner, greener, and more sustainable energy future in Indonesia is not without its hurdles, but with the right policies and investments, it is a journey worth pursuing.
Sources: [1] The Conversation, 2023. [Link] [2] Energy Compact Indonesia, 2022. [Link] [3] World Resources Institute, 2023. [Link] [4] ASEAN Centre for Energy, 2023. [Link]
- To accelerate its energy transition towards a 23% renewable energy mix by 2029, Indonesia plans to generate 42.6 gigawatts of clean energy by 2034.
- Nevertheless, the country's heavy reliance on fossil fuels, weak coal phaseout commitments, and influence of the fossil fuel industry on policy hinder this transition.
- One potential solution is stronger and more transparent renewable energy target setting, as outlined in Indonesia's 2022 Energy Compact.
- Another important aspect is mobilizing substantial investments of around US$20-40 billion per year by 2050 for the renewables transition.
- Strengthening policy and regulatory frameworks, and reducing fossil fuel dependence can help attract clean energy investments.
- Regional cooperation can improve renewable energy supply-demand balance and reliability through ASEAN interconnectivity and renewable energy trade.
- Challenges persist, such as the potential loss due to inappropriate subsidy allocation and the need for carbon tax rate adjustments and gradual tariff increases.
- Additional solutions include implementing carbon taxes in other sectors, establishing carbon trading as a national climate control instrument, and addressing varying measurement and reporting mechanisms among sectors.
