IEA: IEA and OECD team up to review clean energy investment climate in Indonesia

The IEA is working with the Organisation for Economic Co-operation and Development (OECD) to review Indonesia’s clean energy investment climate to identify barriers to financing its energy transition and provide policy recommendations for reducing or removing them.

Indonesia is already the world’s fourth most populous country, and its population and income are expected to grow considerably over the next decade. By 2045, Indonesia is predicted to be the world’s fifth largest economy, and as a result its energy consumption, and in particular electricity demand, are set to grow.

Several international organisations, NGOs and bilateral efforts are supporting the government’s efforts to meet much of this increase in demand through renewables, and it is important in this context to seek synergies between overlapping projects. Through the IEA’s Clean Energy Transitions in Emerging Economies programme, Randi Kristiansen joined the OECD’s review as a power sector expert and was one of the lead authors of the resulting report, Clean Energy Finance and Investment Policy Review of Indonesia. Ms Kristiansen’s contribution to the project was funded by the European Union’s Horizon 2020 research and innovation programme under grant agreement No. 952363.

Currently, coal dominates Indonesia’s electricity production, accounting for 59% of total generation in 2019. By 2030, Indonesia aims for 48% of its electricity generation to come from renewables, up from just 14% in 2020. In order to reach these Nationally Determined Contribution targets, the country needs to scale up investment in both renewables and in energy efficiency.

The review looks at the regulatory and procedural barriers in Indonesia that make it difficult for corporations to source renewables, as well as the lack of transparency that investors identify as a major barrier for investment. Indonesia’s upcoming Presidential Regulation for renewables will address some of these transparency issues, but it is important that it be followed up by clear implementation of regulations to make power purchasing agreement (PPA) contracts more transparent and bankable, according to the policy review. Increased investor confidence will reduce the required return on investment in Indonesia and thereby make the clean energy transitions faster and more affordable.