The state of Indonesia's renewable energy

Jul 22, 2015

Indonesia's government recently revised its renewable energy target to 23 percent by 2025. Is this target large enough to drive Indonesia in its transition to a green economy? What are the most pressing issues facing Indonesia in achieving its renewable energy target? We spoke to Verania Andria, Programme Manager on Renewable Energy initiatives, to help shed light on this issue.

The Indonesian government has recently announced a new target to increase the share of renewable energy in the total energy mix to 23 percent by 2025. Do you think this is a realistic target? Why?

As a long-term guideline, the Government of Indonesia’s National Energy Policy targets a 23 percent renewable contribution in primary energy in 2025 from the baseline of 4 percent in 2014.

The current government translates the National Energy Policy by targeting 10 to 16 percent of the renewable energy contribution in primary energy mix by 2019. So the government’s new target is to increase the share of renewable energy to 6 to 12 percent by 2019 (baseline 4 percent) and to have an additional 35,000 Megawatt (MW) installed capacity for power generation.

The target to increase the renewable energy share to 6 to 12% in the primary energy mix means having 2,100 to 4,200 MW of renewable-based power plants. A hydro and wind power plant usually has a capacity of 100 MW. So to achieve the target the government needs to have 42 x 100 MW of renewableenergy power plants in five years. It is a realistic target but definitely need enabling conditions to attract private investment in the sector because thegovernment has limited fiscal capacity to build on its own.

Is enough being done to develop the renewable energy sector in Indonesia?

Not yet. More efforts need to be made in terms of removing barriers in regulation and financing, and to improve the institutional and technical capacity to promote sustainable renewable energy investments.

What are some of the obstacles the renewable energysector in Indonesia is facing?

I think the main obstacles in the renewable energy sector in Indonesia are the high initial costs due to imported technology and operations/maintenance costs and financing institutions consider renewable energy investment to be high risk so loan interest rates are high. Additionally, there is a lengthy investment permit process, land availability issues due to the conflicting status of land use, and lack of a reliable data system on renewable energy potential resources and feasible projects so very common it leads to cost overrun.

What kind of policies needed to spur the development of the renewable energy sector in Indonesia?

Among others, the conditions that the government needs to put in place are:

a) Ensuring clean and clear land for renewable energy development.

b) Issue attractive tariff regulations for purchasing of renewable energy-based power generation by the State-owned Electricity Company (PLN) and for non-commercial micro and mini scale of RE to attract private investment.

c) Establish innovative renewable energy financing mechanisms that involve concessional, mixed grant-loan mechanisms to reducefinancing risks.

d) Streamline the permit process for renewableenergy investment.

e) Speed up the procurement process for renewable energy developers by applying direct contracting.

f) Provide incentives for local renewable energy technology manufacturers and R&D institutions to lower technology costs in the future.

g) Build capacity and certification of renewable energy development, operations and maintenance service providers to ensure the quality of project feasibility and sustainability.

h) Build reliable data and information systems on the potential of renewable energy resources and feasible projects.

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