IEEFA urges policy reforms to attract more RE investments in Indonesia

Planning, procurement, and investment processes should be reevaluated.

To help Indonesia achieve its 2030 renewable energy target, it needs to secure $146b worth of investments from the private sector. This requirement needs urgent policy reformation to attract and increase investor confidence in the country, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

In its latest report “Unlocking Indonesia’s Renewable Energy Investment Potential,” IEEFA said the country only attracted $1.5b worth of investments, which is equal to 574 megawatts (MW) of additional renewable energy capacity. It lags far behind its Southeast Asian neighbours, such as Vietnam that has a solar capacity of 13,035 MW and wind generation of 6,466 MW.

Whilst the government has implemented measures to promote renewable energy investment, specifically from the independent power producers, these have not been enough due to unfavourable policies and weak regulatory implementation, IEEFA pointed out. 

“Demanding contractual requirements regarding solar and wind power raises costs and discourages private investment,” it added.

IEEFA noted some of the hurdles that affect investors’ willingness to enter Indonesia’s renewable energy market which include mandatory partner system, restrictions on the transfer of ownership rights, an unfavourable deliver-or-pay scheme, unattractive ceiling tariffs, stringent local content requirements (LCRs), a lack of carbon credits incentives, and complicated procurement procedures.

To address these, IEEFA recommended that authorities review and amend their current planning, procurement, and investment processes to invite more investors.

“Private investors would be encouraged to enter the Indonesian renewable energy market if there were clear and concise procurement procedures, along with consistent and reliable implementation of current regulations,” said Mutya Yustika, the report’s author and an Energy Finance Specialist at IEEFA.