Investing in the Energy Transition in Indonesia: Bridging the Gap Between Policy and Practice

Date : 25 August 2023

Location : Kintamani 3
Investing in the Energy Transition in Indonesia: Bridging the Gap Between Policy and Practice

Southeast Asia, a developing region, made up 3.5% of the world economy in 2019, coming in fifth place after the US, China, Japan, and Germany. This diverse collective of emerging economies has demonstrated an impressive track record of growth, consistently outpacing the global average with an average annual growth rate of 5.3% since 2006, surging to 5.5% in 2022. The region's economic expansion is accompanied by escalating energy consumption, predominantly of oil, which accounts for over 80% of its energy supply, and coal. Against this backdrop, Indonesia's ASEAN Chairmanship in 2023 has rightly prioritized sustainable energy security, acknowledging the pivotal role of clean energy in propelling economic advancement.

ASEAN has set an ambitious target of achieving 23% renewable energy in its primary energy supply by 2025, mirroring Indonesia's own aspirations. The International Renewable Energy Agency (IRENA) estimates that aligning ASEAN's energy trajectory with the Paris Agreement would require an annual investment of approximately USD 27 billion to develop renewable energy. Indonesia alone is estimated to require annual investment ranging from USD 20 billion to USD 25 billion to achieve the full deployment of renewable energy by 2050.

To expedite the transition away from fossil fuels and galvanize the adoption of renewables, Indonesia has created two financial mechanisms—the Energy Transition Mechanism (ETM) and the Just Energy Transition Partnership (JETP). While public funding remains dominant in the realm of green infrastructure, a judicious balance must be struck by involving the private sector in financing large-scale projects.

Despite the declining costs associated with wind and solar power, the capital-intensive nature of renewable energy investments continues to present challenges for businesses. The gaps in policy, or lack of consistent policy implementation compounds these obstacles, and creates uncertainty for some investors and private entities who are keen on entering the renewable energy market in Indonesia. Hence, expediting the deployment of renewable energy and facilitating a rapid transition to a low-carbon economy necessitates a concerted effort among relevant stakeholders, including policymakers, international financial institutions, and business entities.

Global clean energy investment witnessed a staggering 19% surge in 2022 compared to the previous year, reaching a substantial sum of USD 1.3 trillion (IRENA, 2023a). However, this figure falls short of the total investment required to effectively support the global energy transition. As the fastest-growing region, ASEAN requires a total investment of approximately USD 119.3 billion for the development of renewable energy power plants from 2021 to 2025 (ACE, 2022).

Upscaling green finance will require heightened support from the private sector, to channel their financial resources into clean energy initiatives within the region. Further, diversification of green finance sources and the implementation of robust schemes are vital for success. Equally crucial is the implementation of risk mitigation measures associated with clean energy projects. Only through clear and harmonized coordination and collaboration among stakeholders in ASEAN Member States, including the public and private sectors, financial institutions and technology providers, can the upscaling of green finance be effectively achieved.

Indonesia serves as a valuable case study, offering insights into the challenges, opportunities, and practical barriers involved in financing the energy transition. Despite possessing substantial energy resources, Indonesia grapples with challenges surrounding energy accessibility, affordability, and security. Barriers such as complex investment procedures, power purchase agreements (PPAs), land acquisition, and the prevalence of heavily subsidised inexpensive fossil-based fuels for electricity generation impede the scale up of renewables.

The upcoming ASEAN Energy Business Forum (AEBF) stands as an ideal platform to unite all relevant stakeholders to address critical gaps in policy and practices pertaining to renewable energy financing. The Energy Transition Policy Forum (www.etpforum.com), spearheaded by the Centre for Policy Development (CPD), Climateworks Centre (CWC), Institute for Essential Services Reform (IESR), Indonesia Research Institute for Decarbonization (IRID), Purnomo Yusgiantoro Center (PYC), and International Institute for Sustainable Development (IISD) are organizing a side event during the AEBF in August 2023. The event will discuss how to minimize the gap between policy-level decisions and actual investment practices, thus ensuring the effectiveness of energy transition investments in Indonesia

Time

Agenda

14:00 - 14:05

Opening Master of Ceremonies Sicha A Makahekum Institute for Essential Services Reform Jobit Parapat International Institute for Sustainable Development

14:05 – 14:10

Singing Indonesia’s National Anthem

  • Conductor
  • Junita Silalahi

14:10 – 14:25

Welcoming Remarks

  • Andrew Hudson CEO, Centre for Policy Development (CPD)
  • Anna Skarbek CEO, Climateworks Centre

14:25 – 15:00

Keynote Speech

  • H.E. Bahlil Lahadalia Investment Minister/Head of Indonesia Investment Coordinating Board
    “Existing policy frameworks and regulatory landscape to support investment in energy transition in Indonesia”
  • H.E. Mahendra Siregar Chairman Indonesia Financial Service Authority
    “Enhancing Financial Institutions' Appetite for Financing the Energy Transition: The Indonesian Case and the Role of Innovative Regulatory Frameworks”

15:00 - 15:05

Photo Session

15:05 – 15:55

PANEL SESSION 1:
The Investor’s Voices: Bridging the Gap Between Policy-Level Decisions And Actual Investment Practices

  • Moderator
    Caitlin McCaffrie, International Director, Centre for Policy Development (CPD)
  • Panellists
    Arthur Simatupang Chairman, Indonesia Independent Power Producer Association/ APLSI
    “Enabled Rapid Deployment: A Private Sector Perspective”
  • Azis Armand Deputy President Director and Group CEO, PT Indika Energy Tbk
    “How Indika Energy Diversifies Business Portfolio Towards Clean Energy: Overcoming Barriers and Mitigating Risks”
  • Annisa Chairani Marketing and Business Development Manager, PT TML Energy
    “Implications for the Energy Transition in Indonesia to TML Energy Business Direction”
  • Paulus Tjakrawan Chairman, Indonesia Biofuel Producers Association
    “Lessons Learned from What Works What Doesn’t: Case of Indonesian Biofuel”"

15:55 - 16:00

Photo Session

16:00 – 16:10

Short Break

16:10 - 17:00

PANEL SESSION 2:
Policy-Level Decisions: Aligning Strategies with Investment Practices

  • Moderator
    Moekti H Soejachmoen, Executive Director, Indonesia Research Institute for Decarbonization (IRID)
  • Panellists
    H.E. Ganjar Pranowo Governor of Central Java Provinces
    “How Local Government Support Investment in Energy Transitions”
  • H.E. Suahasil Nazara Vice Minister of Finance of the Republic of Indonesia
    “Identifying Gaps Between Policy Objectives and Investment Practices”
  • Yudo Dwinanda Priaadi Director General of New Renewable Energy and Energy Conservation, Ministry of Energy and Mineral Resources
    “The Landscape of Clean Energy Investment in Indonesia”
  • Rachmat Kaimuddin Deputy Coordinating Minister for Maritime and Investment
    “Role of Private Sector Investments in Scaling Up Renewable Energy Projects”
  • Darmawan Prasodjo President Director of PLN
    “PLN Role in Power Sector Transition”

17:00 - 17:10

Closing Remarks

  • Fabby Tumiwa, Executive Director, the Institute for Essential Services Reform (IESR)
    “Recommendations for Improving Policy Coherence and Effectiveness”

17:10 - 17:15

Photo Session