Indonesia's fresh 10-year energy acquisition strategy conveys optimistic signs for renewable energy expansion: as perceived by investors and the JETP administrative body
Indonesia Pushes for Policy Reforms to Boost Clean Energy Funding
Indonesia is gearing up for a significant shift in its energy sector, with the launch of its 10-year power procurement plan, the Electricity Supply Business Plan (RUPTL) 2025-2034. The RUPTL aims to expand renewable energy capacity, targeting 42.6 GW of new renewable capacity, and demonstrates that Indonesia is approaching an "inflection point" in its energy transition.
According to the RUPTL, solar power is expected to account for the largest share at 17.1 GW, followed by hydropower (11.7 GW), wind (7.2 GW), geothermal (5.2 GW), bioenergy (0.9 GW), and nuclear (0.5 GW). However, significant shortfalls in solar and wind deployment have been noted, with installed solar capacity remaining below 1 GW, far behind the target of 4 GW by 2024. The bigger concern is whether there are enough bankable projects ready for investment in renewable energy.
Industry experts suggest that Indonesia needs specific policy reforms to ensure funding flows to clean energy projects. These reforms primarily focus on creating a supportive regulatory environment to attract both public and private investment. Key reforms include:
- Implementing supportive regulations promptly to enable private sector participation, as current regulations are slow and insufficiently supportive, which deters private investors.
- Establishing financial mechanisms that blend public and private funds, especially through concessional loans, guarantees, or blended finance arrangements.
- Balancing investment incentives with domestic industry development to ensure clean energy projects are affordable and simultaneously foster local supply chains and manufacturing capabilities.
- Strengthening integration and modernization of the power system, including grid digitalization, battery storage, and interconnection enhancements.
- Enforcing clear local content (TKDN) requirements across renewable energy technologies to promote supply chain resilience and industrial growth.
Experts have cautioned that enabling policy reforms are urgently needed to implement the accelerated build-out of new renewable power plants. Meeting this demand sustainably will require significant renewable energy integration and infrastructure upgrades.
Moreover, Indonesia must pursue broader international financial collaborations beyond reliance on specific sources like Chinese investment, and push for ambitious, science-based climate targets aligned with the Paris Agreement to attract global climate finance. Addressing these aspects collectively will help unlock the estimated US$80 billion needed for renewable energy development, alongside transmission and distribution investments.
Providing reliable and affordable electricity to rural and remote communities should be a core component of Indonesia's just energy transition. However, Indonesia has historically been hesitant to embrace renewables, often reverting to coal when its prices fall, causing delays in renewable energy deployment and creating policy uncertainty. Between 2021 and 2024, fossil fuel capacity grew by 14 GW, compared to just 5 GW of renewables, in the 2021 version of the RUPTL.
Adhiguna, a policy advocate, expressed cautious optimism, noting that think tanks and policy advocates are continuing to push the government for the expansion of renewables. He stated that there is a widespread impression that financing is not available for renewable energy projects, but he has met with investor groups ready to deploy at least US$500 million.
In addition, the event "Unlocking capital for sustainability" will next be in Kuala Lumpur, Malaysia, held in partnership with UNEP Finance Initiative (UNEP FI) and Capital Markets Malaysia, on 28 July. This event aims to facilitate discussions on sustainable financing and investment opportunities in the region.
In conclusion, Indonesia's 10-year power procurement plan presents a significant opportunity for the country to transition towards a cleaner, more sustainable energy future. However, urgent policy reforms are needed to create a supportive regulatory environment, attract investment, and accelerate the build-out of renewable power plants. By addressing these challenges, Indonesia can unlock the potential for a just energy transition, providing reliable and affordable electricity to all its citizens while reducing its carbon footprint.
- Indonesia's energy transition, as outlined in the 10-year power procurement plan (RUPTL), aims to significantly increase the country's renewable energy capacity to 42.6 GW.
- The RUPTL anticipates solar power will account for the largest share of the new renewable capacity, followed by hydropower, wind, geothermal, bioenergy, and nuclear.
- However, the implementation of renewable energy projects in Indonesia has been lagging, with solar and wind deployment presenting significant shortfalls.
- To encourage funding for clean energy projects, industry experts suggest Indonesia implement policy reforms, such as prompt regulations to involve private sector, financial mechanisms, investment incentives, and power system integration enhancements.
- Meeting the demand for renewable energy sustainably will require significant investment, estimated at US$80 billion, which can be unlocked through international financial collaborations and ambitious, science-based climate targets.
- Providing reliable and affordable electricity to rural and remote communities is crucial for a just energy transition in Indonesia, but the country's historic reliance on coal has led to delays in renewable energy deployment and policy uncertainty.
