Introduction
According to statistics, Indonesia achieved renewable energy investments of $1.5 billion in 2023, the lowest level in recent years, and did not reach the annual target of $1.8 billion.
Additionally, the Indonesian government plans to reduce the renewable energy target in the country’s energy structure from 23% to 17%-19% by 2025.
It is evident that although the Indonesian government has been committed to achieving renewable energy targets in recent years, due to the lack of sufficient government support for the energy sector and the failure to effectively eliminate outdated capacity, this effort has always been stagnant.
This not only severely hinders the development of Indonesia’s green energy industry but also affects investors’ investment in Indonesian renewable energy projects.
The main reasons for the difficulty in developing green energy are as follows.
High Localization Rate
One of the obstacles to achieving renewable energy targets in Indonesia is its localization policy.
Although the Indonesian government reduced the localization requirement for the solar panel industry from 60% to 40%, by the end of 2023, the government plans to increase the localization rate back to the original figure to develop the local solar panel industry.
Most foreign investors have stated that this localization ratio is still too high.
In addition, some foreign companies have already established production bases in Indonesia to meet the localization requirements.
However, due to the ineffective launch of renewable energy projects, related products still lack a mature market.
Therefore, foreign investors hope that the Indonesian government can change the pricing policy for renewable energy to make it more attractive to investors.
Insufficient Incentive Measures
At the same time, insufficient incentive measures are also one of the reasons for the slow development of renewable energy.
Due to the substantial subsidies given to fossil fuel production in Indonesia, renewable energy finds it difficult to compete with traditional power plants, thereby failing to attract investment in renewable energy.
Therefore, foreign investors suggest that the government should increase subsidies for the green energy sector and implement it through a clear revision plan for the national long-term electricity procurement plan (RUPTL).
However, neither the Indonesian government nor PLN officials have responded to this issue.
Strict Regulatory Restrictions
Strict regulatory restrictions by the Indonesian government also hinder investment in renewable energy projects.
The regulations require the state-owned electricity company (PLN) to own at least 51% of the shares in Indonesian renewable energy projects.
Moreover, the current bidding procedures for renewable energy projects in Indonesia are not clear, and investors often need to wait a long time for approval.
Therefore, foreign investors hope that the Indonesian government will reduce restrictions in regulatory policies to provide more flexibility.
However, officials from the Indonesian Ministry of Energy and Mineral Resources have stated that investors should try to become independent power producers (IPPs), which would allow them to fully own the power plants they build in the country, without being limited to investing in PLN.
