Wind Turbine illustration (Photo: Pixabay)

JAKARTA (TheInsiderStories) – Indonesia’s government has set an ambitious target to expedite renewable energy capacity by 2025, yet the level of investment from both public and private sector is still far from expectation.

By 2017, Indonesia only recorded Rp11.7 trillion (US$850 million) investment in renewable energy sector, according Ministry of Energy and Mineral Resources (MEMR). Indonesia actually has a potential to generate 200 giga-watts from new and renewable energy.

Meanwhile, President Joko Widodo’s administration has set a target to have hydro-power and geothermal power to account for 25 percent of the nation’s power supply, meaning that renewable power generation should represent at least 25 per cent of the fuel mix by 2025. Many views the goal as overly ambitious given the pace of renewable energy development.

In an attempt to attract private investment in Indonesia’s renewable energy sector, the government issued a ministerial regulation on the initial survey procedure and exploration and simplified procedures for obtaining exploration licenses through a one-stop integrated service center at the Investment Coordinating Board.

In 2014, the government tried to spur investment in renewable energy by setting higher feed-in-tariffs. Although this decision made renewable energy projects more attractive for both foreign and domestic investors, it led to disagreements between state utility PT Perusahan Listrik Negara (PLN) and stakeholders in certain projects over pricing.

Its estimated that 25 to 27 million of Indonesians still do not have access to electricity. Furthermore, Indonesia is far behind its peers in South East Asia region in terms of electricity ratio and level of electricity consumption.

Currently Indonesia heavily relies on fossil fuels, oil, coal and gas, to supply its energy Nationally, renewable energy sources make up less twenty six percent of Indonesia’s primary energy supply.

However, this number is even less than five percent if traditional biomass, which is used for cooking and heating in rural areas, is excluded from the data. In power sector alone, renewable power accounts only eleven percent, mostly aging hydro power and geothermal, while remaining supply come from fossil-fuel based power plants.

Without sufficient power supply, investor will reconsider their investment in the country. Furthermore, productive use of electricity of households and community will be limited thus limit the activity of small and micro-enterprises that is backbone of country’s economy.

Institute for Essential Services Reform (IESR) estimates that to build additional renewable capacity requires $118 to 130 billion of investment until 2025 or roughly about 15 billion per annum. While government budget for building renewable is only around $100 to 150 million annually, big chunk of this investment should come from state owned enterprises such as PLN and other state energy firm PT Pertamina, and private investors.

The meeting this ambitious target requires both public and private investment. Investors may consider Indonesia’s growing demand for energy and the abundant of renewable resources as a significant reason to invest in the nation’s renewable energy sector.

Low capacity to attract investment renewable energy projects should become a warning for policy makers in Indonesia. It requires a significant effort to improve enabling condition and policy framework that could lure public and private investment in renewable energy.

Last year, MEMR officially removed feed in tariff through Minister’s Regulation No. 12/2017. Under this new regulation, some renewable power purchasing prices should be referring to audited regional electricity production price of PLN or based on business negotiation.

Minister Ignasius Jonan argues that renewable needs to be competitive, including with fossil fuels, and government do not want to subsidizing renewable.

The lack of financial incentive such as feed in tariff makes renewable project become less appealing financially for investor and increase uncertainty for financial institution to finance renewable projects as the risk is just elevated.

But for sure, it seems that Indonesia is not fast enough to build renewable to meet its own national policy target. Unless government take a drastic measure to improve conditions that enable to draw more public and private investments in renewable energy project.

Written by: Elisa Valenta, email: elisa.valenta@theinsiderstories.com

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