Indonesia is currently a very attractive investment place to develop clean energy based on new and renewable energy, because it has abundant natural resources including: Geothermal Power, Solar Energy, Bio-Energy, Wind Power, Electric Hydro Power which are spread almost all over Indonesia.

In 2021 MEMR has recorded the realization of investment in the new and renewable energy sector (NRE) with a value of US $ 1.51 billion or about 74% of the total green energy investment target of US $ 2.04 billion.

The holistic solution involves both short-term and mid-term goals. According to the IRENA (The International Renewable Energy Agency), current pace and scale of renewable energy is insufficient to replace fossil fuels entirely.  The governments of Indonesia are facing the problem of energy security, economic recovery, and affordability of energy bills for households and commercial businesses, particularly SME's all at the same time.

OPEC also states that 80% of people live in countries which are net importers, but most could develop renewable energy generation in some capacity. Renewable energy development offers a way out of the import dependency on fossil fuels, reducing costs and creating economic growth and new jobs.

Hence, government has committed to reducing emissions through the ratification of the Paris Agreement (COP 21) which is reflected in law number 16 of 2016. In the Paris agreement, Indonesia is required to describe and communicate actions in climate resilience or Nationally Determined Contribution (NDC).

Indonesia is committed to reducing greenhouse gas emissions by 29% with its own efforts or 41% with international assistance by 2030. In addition to the commitments in the NDC, the government is also committed to achieving Net Zero Emissions (NZE) by 2060.

Energy transition is a transition by changing consumption patterns from fossil energy to low-carbon energy which is carried out by gradually limiting the use of fossil energy. Even though it is recognized that until now Indonesia is still very dependent on fossil energy (Liquids fuel, Natural Gas and coal).

Further, Indonesia has a dream to realize a reliable energy transition in the transportation sector, because it has a significant contribution of between 27% - 30% of carbon emissions (CO2). This effort emerged after the inauguration of the Indonesia Battery Corporation (IBC) in March 2021, which is expected to produce batteries for electric vehicles and is targeted to start production in 2024/2025.

It is targeted that by 2030 Indonesia will have a population of battery-based electric motorized vehicles of around two million four-wheeled vehicles and about thirteen million two-wheeled vehicles.

IBC is a STATE company formed in collaboration among four (4) State-Owned Enterprises (BUMN) including: ANTAM, INALUM, PERTAMINA and PLN with each have 25% share. Herewith, Indonesia is known as a country producing mining materials which are the main components in the manufacture of electric vehicle batteries such as: Nickel, Aluminium, Manganese and cobalt. 

The government program has a production target of 600 thousand units for two-wheeled vehicles (1,680 units/year) and a production target of 2.45 million units for four-wheeled vehicles (1.04 million units/year).

For example, the Cobalt, Nickel, Manganese, and Lithium needed for electric vehicles and battery storage are sourced from particular mines in particular geographic regions. These mined resources have an upstream and downstream refining process that needs to be diversified, improving the emissions and environmentally damaging methods.

Renewable energy would have to scale up from 14% of the total energy supply today to 40% in 2030 to be a viable alternative to oil & gas.

The Indonesian government, seriously and optimistically, will provide clean energy-based electricity, so that by 2030 it is targeted that the total installed electricity from new and renewable energy will reach 31.4 GW. Based on PLN's RUPTL for the period 2021-2030 (Greene RUPTL) a 20.9 GW NRE plant will be built.

 

Impact of Russian Invasion on Ukraine

The current situation involving the invasion of Ukraine by Russia and the sanctions imposed, as a result, have shown how interconnected national economies are. It has also highlighted how unstable energy supplies impact every aspect of those economies. 

Higher oil prices across Western Europe have led to higher energy costs for business, which consumers then pay for as prices rise for goods and services.

Russia and Ukraine have relatively little impact on trade routes with Indonesia. However, the systematic impact on Europe will be generally affect Indonesia's trade and the increase in Indonesia's inflation rate in the future. The bigger impact that needs to be anticipated is the weakening of the Chinese economy going forward.

Impact on commodities exportation and importation aspect, Indonesia imports a lot of iron and steel and fertilizers from Russia and the biggest export to Russia is CPO. Meanwhile Indonesia imports from Ukraine a lot of Cereal and Wheat. Supply disruptions can affect the price of processed food in Indonesia.

However, impact of multi-channel from rising commodity prices to growth Indonesian economy. Such as commodity price increase boosts Indonesia’s investment and export activities. This improves income in general, thus improving private consumption and government revenue also increases, giving a fiscal space for higher government spending.

Otherwise, inflation discourages people to spend, which will decrease consumption Moreover, Indonesia’s government will increase subsidy budget for energy and fuel, lowering allocation for public investment. Hence, invasion Russia to Ukraine has the potential to increase energy commodity prices and pushes gold price back above USD 1,900/oz.

 

Impact of COVID-19

The COVID-19 pandemic in 2020 can significantly increase the risks in line with the increasing uncertainty of future global economic conditions.

Throughout Q-1, 2022 the performance of the national economy is influenced by domestic and global factors. The Russian-Ukrainian conflict resulted in an increase in the price of Indonesia's leading commodities in the international market and became a export value lever.

Domestically, the success of handling the Covid-19 pandemic has become a lever for increasing economic activity and strengthening people's purchasing power.️

Employment conditions have not fully recovered as before the Covid 19 pandemic due to the age population. The number of jobs affected by the Covid-19 pandemic is still quite large.

The direct impact of pandemic C-19, most likely related with transportation risks, construction risks and operation risks. So, many projects were delayed due to the commercial operation date (COD).

 

Investment Opportunity

For energy security, the oil & gas companies are most suited to facilitating transition by establishing new departments focusing on clean technology and renewables and establishing joint ventures and partnerships with renewable energy companies.

Investing in the energy transition will bring social, economic and welfare benefits and add a staggering 85 million jobs globally. These jobs would be in energy transition and other related technologies from 2022-to 2030. The job gains far outweigh the 12 million job losses from the conventional fossil fuel industry.

Technology is an essential component of the sector, and geopolitics should be used to enable the development of clean energy, increase production, storage, and effective distribution in developed and emerging markets.  Electrification and efficiency are the critical drivers for the energy transition, enabled by renewables, hydrogen, and biomass.

The Indonesian Government has done a lot effort to enhance the quality of the business environment for the private sector or under inter government agreement.

 

RE Development Strategy

• GOI is actively and aggressively promote and set up the RE strategy development.
• Push demand creation by creating REBID (Renewable Energy Base Industrial Development) and REBED (Renewable Energy Base Economic Development)
• Some effort has been done such as:

•    Improving policy and regulation
•    Creating the market
•    Reducing subsidy
•    Incentives and Facilities
•    Funding and Financial support
•    Developing cooperation with other countries and international institutions

 

Challenges of RE

• Competitiveness of RE energy price
• Continuing & reducing fossil fuel subsidy
• Political will to intensity RE utilization
• Shortage of competence HR (especially at remote areas)
• Lack of Technology and R&D support
• Committment of RE incentives
• Integrated energy planning
• Regulations and permits
• Environment and Social issues
• Need of huge funding and encourage domestic Banks participation

 

Investment Opportunities

• High potency in several regions (with several of natural resources) but not optimized yet
• High interest from both local and foreign investors to develop Renewable Energy.
• Government’s ambition to reach 23% Renewable Energy in energy mix
• Strong grid capacity (Java island) to absorb Renewable Energy.

 

Investment Challenges

• Technology for Renewable Energy generally still imported.
• Production cost for Renewable Energy relatively more expensive
• Limited ability of grid system to absorb electricity from Renewable Energy (intermittently) with big capacity
• Less-competitive tariff regime (low and flat tariff)
• Dynamic legal frame work (in the short period)
• Difficult acces / logistic (industrial harbor, road / bridge capacity)
• Lengthy administration/permitting process (sometime over lapping between local and central government)
• Limited project finance framework by Indonesia Financial Institutions / banks

 

This article was contributed by our expert Bawa Santosa

 

Frequently Asked Questions Answered by Bawa Santosa

Q1. What renewable energy resources are used in Indonesia?

All RE resources : Geothermal (indirect used), Solar PV (Rooftop, land montage, Floating Solar Farm), Bio-Energy (Biomass, Bio Gas and Bio-Fuel), Wind Power (on-shore wind farm), Hydro Electric Power (Mini Hydro, Micro Hydro, Hydro storage).

Q2. What percentage of Indonesia's energy is renewable? 

Presently about 11.8% RE contribution in energy mix.

Q3. Which renewable energy is best for Indonesia?

The biggest contribution is Hydro Electric Power, the fastest delivery is Solar PV, and the most Challenge is Geothermal Power.

Q4. How much energy does Indonesia import?

Less than 1% electricity import from Malaysia.

Q5. How did covid and Russian-Ukraine war impacted in Indonesia’s clean energy investment?

Impact of C-19 and invasion Russian to Ukraine, I have mentioned in my article.