Indonesia’s energy transition is less hampered by a lack of funding than the difficulty of getting clean energy projects greenlit, a leading energy finance executive said, as the country grapples with the exit of the United States from a major climate finance deal.
Speaking at the Hong Kong Climate Forum on Monday, Elrika Hamdi, deputy head of Indonesia’s Just Energy Transition Partnership (JETP) secretariat, said that the country has had no problem in accessing transition finance. However, the limited procurement of clean energy by Perusahaan Listrik Negara (PLN), Indonesia’s national electricity monopoly, has held the renewables market back.
“The only offtaker [of renewable energy in Indonesia] is PLN – and they have not been procuring,” she said. “The problem is not a lack of financing. It’s the viability of projects.”
An electricity oversupply resulting from the rapid addition of coal plants over the last decade has meant that PLN has been slow to procure clean energy, even though it has pledged to gradually phase-down fossil fuel use to meet Indonesia’s 2060 net zero target.
Elrika Hamdi (centre), JETP’s deputy director, speaking at Hong Kong Climate Forum. She said investors should consider funding captive power in Indonesia. Image: Robin Hicks / Eco-Business
Around 40 priority renewable energy projects are listed under the JETP programme, which launched in 2022 to speed up Indonesia’s transition with an initial US$20 billion financing promised by rich countries, including the US.
JETP projects include the Muara Laboh geothermal project in West Sumatra, which is targeted to start operations in 2027, and a solar farm in Saguling, West Java.
Although Indonesia’s climate and energy envoy Hashim Djojohadikusumo called JETP a failure last month, blasting the United States for not contributing to the fund, some US$230 million has already been disbursed through JETP in grants and technical assistance, as well as US$1 billion in equity investments and loans for approved projects.
The withdrawal of the US from all JETP programmes this month has made no difference to the US$20 billion funding pool, as Germany has stepped up its contribution to the fund, Hamdi said.
Speaking on a panel about how Hong Kong can contribute to the energy transition in developing countries, Hamdi said that financiers should consider investing in captive power – that is, localised energy sources that power industrial or commercial facilities – rather than grid-based projects.
JETP is currently studying the potential for renewables to replace coal in captive power facilities such as nickel and aluminium smelters.
“Indonesia allows industrial zones to have their own power systems, where most are Chinese-owned smelters. These industries want more green energy. This is something we can work on,” Hamdi said.
Indonesia currently has close to 12-gigawatts (GW) of captive power, most of which is coal-based, and a pipeline of 30GW by 2030, according to projections by Institute for Essential Services Reform (IESR), a think tank.
Hamdi said one issue with acquiring funding for renewables in Indonesia is that most projects tend to be widely spread out across the archipelago and are relatively small, which can deter investors. Therefore, JETP is working on ways to bundle projects.
To do this, Indonesia needs skilled aggregators and project managers, which is where Hong Kong can help to build capacity, she said.
Indonesia’s renewables stagnation
Though Indonesia has ample renewable energy potential and a target for 23 per cent of the country’s grid to be clean by the end of this year, Southeast Asia’s largest economy has been one of the slowest in the region to transition to renewables.
As of 2024, Indonesia’s renewables penetration is still only around 15 per cent.
A financing shortfall is still a reason for the stagnation, said Fabby Tumiwa, executive director of IESR, who noted that only 20 per cent of the finance needed to meet Indonesia’s 23 per cent target – a total of US$37 billion between 2019 and 2025 – had been raised.
This is partly because the margins on PLN projects, which dominate the market, are low and investors tend to get low returns, Tumiwa said.
“That makes projects unbankable, so investors go elsewhere,” said Tumiwa, who noted that other Southeast Asian countries such as the Philiippines, Vietnam and Thailand had outperformed Indonesia’s renewables acquisition rate.
JETP projects also face a funding shortfall, Tumiwa noted. The total investment required for all JETP projects is US$97.6 billion, which leaves a US$76 billion funding gap, he said, adding that most JETP projects fall under PLN’s remit.
While cleaning up captive power holds potential for investors, Tumiwa said that this type of project presents different risks. For instance, finding the right captive facility owners and piping clean energy into industrial or commercial parks can be challenging, as housing the facility on-site may not be technically feasible due to space constraints.
The Indonesian government has recently made, then backtracked on more ambitious climate policies. Although president Prabowo Subianto at the G20 summit in November that Indonesia aims to phase out all fossil fuel power plants and develop over 75 GW of renewable energy capacity within the next 15 years, the country’s special envoy for energy and climate Hashim Djojohadikusumo, who is also Prabowo’s brother, has said such a move would be “economic suicide”.
