This Is Why Investment in Renewables Going Nowhere in Indonesia

Wind Turbine illustration (Photo: Pixabay)

JAKARTA (TheInsiderStories)— Indonesia, the world’s fourth most populous nation, needs to boost investment in renewable sector, as the country is racing with higher energy demand, while fossil-based energy reserves continue to decline.

However, investment in renewable sector in Southeast Asia’s largest economy seems going no where, as investors question its profitability, especially during the low oil price’s era. Various data shows that Indonesia has little choices, but to turn to renewable sector.

According to the National Energy Council data, Indonesia’s energy demand will increase to 238.8 million tonnes of oil equivalent (TOE). It will significantly increase to 682.3 million TOE in 2050 with the annual average assumption energy demand of 4.9 per cent in 2015-2050.

Sadly, the governments have not been seriously pushed the renewable sector. The governments have not seen the renewable sector as a savior to the future economic growth. The government only see the renewable sector as an innovation to reduce environmental damage.

Indonesia has so far been moving at a snail’s growth in the development of renewable energy although the country has an ambitious goal to increase the share of renewable energy in the country’s energy mix to 23 per cent by 2025. It plans to have 30,000 megawatts of power generated from geothermal, hydro, wave, and solar energy.

Meanwhile, fossil fuel estimated to be only available until 2030 for petroleum, another 50 years for the natural gas, and 84 years of coal.

The target actually in line with the country’s renewable energy potentials. According to the Energy and Mineral Resources Ministry, Indonesia has renewable energy potentials of 443 GW.

The country apparently will highly unlikely to achieve the goal since the energy mix currently only reached 11-12%. As of end 2016 only 8.8 GW has been tapped, mostly hydro-power plant and geothermal, equal to 7 per cent of the country’s energy mix.

Last year, Indonesia only recorded Rp11.7 trillion (US$850 million) investment in renewable energy sector, according to Ministry of Energy and Mineral Resources (MEMR).

Some obstacles are faced by the investor to boost the renewable sector. The main obstacles are the high initial cost due to imported technology and the difficult financing. The financial institution sets high-interest rates for the renewable energy investment due to the high risk.

Furthermore, the renewable energy investment needs lengthy investment permit process, land acquisition issues, and lack of a reliable data system on renewable potential resources and feasible projects that leads to cost overrun.

It also faced the technical problem where the renewable energy is inconsistent. The solar only produced in the daylight and the wind has an unstable power that difficult to integrate into the main electricity system.

To solve the problems, some first world countries such as Denmark and Ireland already have technologies for the transmission and the weather forecast, but its technology price is still high.

The low oil price that only reached overage of US$51 per barrel also discourages the renewables investment. The investors prefer to choose the fossil fuel that cheaper and have proven as an energy source.

Not only for energy security, the European Union, Western Europe, Asia, Latin America, and Africa experiences, revealed that renewable energy brings positive impact to the GDP in the long run.

Research on the European countries found that in the long-run a 1 per cent increase in the share of the renewable energy to the total energy mix will increase GDP by 4.4 per cent. In Turkey, a decomposition exercise concludes that waste, hydraulic power, and wood consumption explain approximately 31.5 per cent of the variation in real GDP.

To secure the energy security that will impact to the sustainable economic growth, Indonesia must have political will that reflected in policies and regulations for supporting renewable energy development. In short term, the investment in renewable energy seem to be not profitable, but in the long run, as experienced by many countries, it will boost economic growth.

Furthermore, others country already moved forward to the green economy. If Indonesia does not immediately catch up, the country will lose behind.

Email: fauzulmuna@theinsiderstories.