Incentives for Renewable Energy in Southeast Asia: Case Study of Indonesia

Energy markets around the world face many challenges. Conventional supplies of fossil fuel reserves are becoming increasingly scarce, leading to rising prices and the development of unconventional sources.

At the same time, concerns over climate change are growing, increasing the urgency for countries to decouple greenhouse gas emissions from economic growth. All of these pressures have greatly raised the profile of renewable energy technologies (RETs), with governments now commonly providing a range of support frameworks and incentives to attract investment.

In developing countries, the support of renewable energy is complicated by the need to simultaneously expand access to energy more generally, as a cornerstone of poverty eradication and improvement of living standards. Frameworks and incentives must attract finance and maximize benefits from natural resources, while expanding energy access and keeping energy affordable for consumers and industry. In order to achieve this difficult balancing act, policy-makers must know what kind of investment incentives are most effective at raising capital for renewable energy projects? And what size of support is affordable and reasonable?

This report assesses investment incentives for renewable energy in Indonesia. It focuses on four types of renewable energy: geothermal power, hydropower, biomass power and biofuels. Through an analysis of the incentives available for these technologies, and drawing on insights from representatives from governments and industry, it suggests some initial findings on the extent to which Indonesia's investment incentives for renewable energy are effective and affordable, and identifies further research that could usefully be conducted in this area.