Indonesia Must Quadruple its Annual Renewable Investment Target to Reach its Climate Objectives
To meet its 23% renewable energy target by 2025, the government can use resources from its state budget and public funding institutions to attract private investment in renewable energy, and can incentivize state-owned enterprises to align their strategies with national climate goals.
February 25, 2022—Indonesia should quadruple its annual investment target for new and renewable energy to over USD 8 billion by 2025, according to a new brief by the International Institute for Sustainable Development (IISD). The country needs to take concrete measures to attract private investments in low-carbon energy and meet its net-zero climate goals, the report finds.
The country spent USD 1.51* billion on renewable energy in 2021, just 20% of what it needs to invest each year from 2021–2025 to reach 23% of new and renewable energy in the energy mix by 2025, the brief Using Public Funding to Attract Private Investment in Renewable Energy in Indonesia found.
IISD experts urge Indonesia to remove roadblocks to mobilize private investments in renewable energy, which will be crucial to meet its climate goals. With the Ministry of Energy and Mineral Resources projecting that USD 37 billion would be required by 2025 to reach the 23% target, the country now needs to invest over USD 8 billion each year. And yet, the government currently targets USD 2.1 billion average annual investments.
“Indonesia must act now to incentivize private investments and reverse the current trend, especially because supporting renewable energy development can significantly contribute to post-COVID-19 recovery and green transition,” says Theresia Betty Sumarno, lead author of the brief.
“The government’s annual renewable investment targets are at odds with its renewable capacity goals. At the current rate of investment, Indonesia risks missing 23% of new and renewable energy by 2025,” warns Sumarno.
To mobilize private investments in green energy, Indonesia must increase the clarity and traceability of current financial flows and allocation of public financing for renewable energy projects to boost private investor confidence and gain trust from international funders, findings suggest.
The government can effectively leverage national and international public funding in the energy sector through public funding institutions—such as Indonesia Infrastructure Guarantee Fund (PT IIGF), PT Sarana Multi Infrastructure (PT SMI), and PT Indonesia Infrastructure Finance (PT IIF). These institutions should be used further to accelerate renewable energy development in the country, the brief argues.
What’s more, the country needs to improve the certainty of policies to mobilize investments, such as by implementing renewable energy support mechanisms like feed-in tariffs, experts recommend.
The report also highlights the role that state-owned energy enterprises should play to accelerate Indonesia’s renewable energy development. By requiring certain investment conditions, the government should make sure that national energy firms—including the electricity company PT Perusahaan Listrik Negara (PLN) and the oil company PT Pertamina—more closely align their strategies with established national climate targets.
Experts assert that Indonesia should prioritize investments in solar and wind power which today account for just a fraction of renewable energy capacity and investments, currently dominated by geothermal energy.
With Indonesia holding the G20 Presidency this year, the government has an opportunity to put sustainable recovery and clean energy transition on the agenda.
“Indonesia should take advantage of its G20 Presidency to lead by example and mark a real shift towards clean energy that will benefit the local economy and help the country achieve its net-zero goals,” says Lourdes Sanchez of IISD.
*Source: Ministry of Energy and Mineral Resources
Theresia Betty Sumarno, Energy Policy Consultant, IISD: [email protected]
Lourdes Sanchez, Senior Policy Advisor and Lead Indonesia, IISD: [email protected]