Power policy

Indonesia aims to generate 23% of its total electricity from new and renewable energy sources by 2025. Such sources, however, also include technologies like nuclear, hydrogen, coal bed methane, gasified coal, and liquefied coal. Nevertheless, this target is ambitious given the low levels of finance committed to renewables in the recent past. Indonesia’s existing renewable energy capacity is comprised mostly of geothermal and hydro plants. Solar and wind accounted for less than 1% of installed capacity as of 2021.

The 2021 electricity supply plan (RUPTL) indicates a gradual shift from coal toward renewables. The plan cut 50% of coal and 40% of gas power capacity additions proposed under the previous plan. The draft also raised the solar target to 4.7 gigawatts of new capacity by 2030, up from 907 megawatts in the 2019 plan. Wind received less attention with only 597 megawatts of planned capacity additions.

Power prices and costs

Indonesia has one of the lowest power prices in the region at $75-85 per megawatt-hour for commercial and industrial users in 2021 and $68 per megawatt-hour for households. The government subsidizes retail electricity tariffs. A subsidy is given directly to national utility PLN to cover its electricity supply costs.

Power market

Fossil fuels dominate Indonesia’s current power mix, accounting for 78% of installed capacity in 2021. Coal generation capacity has more than doubled from 2011 and makes up 50% of installed capacity at 7 gigawatts. The availability of cheap, domestic coal resources made it the technology of choice for new capacity additions over the last decade.

Doing business and barriers

Renewable energy development is hindered by a challenging regulatory environment. The current framework requires new solar and wind projects be awarded through a limited tender process with a minimum of two bidders. Under this process, only pre-qualified bidders included in the ‘list of selected providers’ (locally known as the Daftar Penyedia Terseleksi, or DPT) are invited to participate. It is unclear if all pre-selected bidders are invited to participate. The frequency of when a pre-qualification round will be issued is also unclear, creating additional uncertainties.

Renewable energy tariffs are restricted to 85% of the regional generation cost if it exceeds the national average. If the regional cost is less than the national average, tariffs can be negotiated between PLN and the developer. This forces renewables to compete with subsidized coal generation. The process to participate in the tender is not clear, and there is little clarity on the template of the power purchase agreement. These policies have increased risks and have rendered renewable energy projects less attractive to investors.

Over the last year, the government made several changes benefiting renewable energy developments such as awarding all RE projects with “must-run” status. The government also lifted foreign ownership restrictions on power projects above 1 megawatt.

On September 15, 2022, Indonesia issued the long-awaited presidential regulation on the acceleration of the development of renewable energy for electricity supply (Perpres 112 of 2022). The regulation called for the formulation of a roadmap to accelerate coal plant retirement, and introduced revised benchmark ceiling price incentives for renewables.

Consistently overly optimistic demand projections under previous RUPTLs resulted in a substantial overbuild of new coal-fired power plants. This resulted in an overcapacity issue, with reserve margins exceeding 30% on many of its power grids. If the overcapacity situation is left unaddressed, renewables will face significant grid integration challenges

EV market

Electric vehicle (EV) adoption in Indonesia is still insignificant due to the lack of limited policy support to boost local demand thus far. While the Indonesian government offers a reduction in luxury sales tax and registration fees for EVs, there is no purchase grant. In 2021, Indonesia’s vehicle fleet had just 835 passenger EVs and 9,738 electric two-wheelers, less than 0.01% of the total fleet.

EV policy

Indonesia targets annual battery electric passenger vehicle, commercial vehicle and bus production to be 600,000 units in 2030 and 1 million units in 2035. For electric two- and three-wheelers, the government targets 6 million, 9 million and 12 million vehicles to be manufactured in 2025, 2030 and 2035, respectively. The government aims to build up its domestic EV and battery manufacturing industry. Indonesia has about a quarter of the world’s nickel reserves which the government wants to leverage for a strategic position in the global EV supply chain. In August 2019, Indonesia announced Presidential Regulation 55/2019, an umbrella policy that lays out the guidelines for electric vehicle policies and rules. In March 2022, the government revised the local content requirements for the domestic content of battery electric vehicles. The revision lowered the battery size threshold to qualify for incentives, opening doors for more models and manufacturers to enter the market.

In February 2022, the government also exempted import duties for incompletely knocked-down units for local assembly of battery electric vehicles in a move to encourage local EV production over the import of completely assembled vehicles.

However, several challenges stand in the way of Indonesia’s EV ambitions including a lack of domestic and regional demand and a highly carbon-intensive electricity grid.

Buildings market

Indonesia issued a government regulation in 2009 on energy conservation. The National Master Plan for Energy Conservation calls for a 1% reduction in energy intensity annually until 2025. In 2015, The Ministry of Public Works and Housing issued a regulation on green building requirements to reduce the environmental impact of the construction sector. Several provinces such as Jakarta also issued their respective governor regulations on Green Buildings regulating energy efficiency, water efficiency, indoor air quality and land and waste management.

Buildings policy

Indonesia issued a government regulation in 2009 on energy conservation. The National Master Plan for Energy Conservation calls for a 1% reduction in energy intensity annually until 2025. In 2015, The Ministry of Public Works and Housing issued a regulation on green building requirements to reduce the environmental impact of the construction sector. Several provinces such as Jakarta also issued their respective governor regulations on Green Buildings regulating energy efficiency, water efficiency, indoor air quality and land and waste management.