Indonesia is currently working towards its renewable energy goals. To achieve that, it needs a large amount of investments in the next few years. China, as one of the global leading investors in renewable energy, presents many opportunities for Indonesia. However, there is much homework that needs to be done by both Beijing and Jakarta to tap valuable potential in their ties in the renewable energy field.
The progress towards renewable energy is slow in Indonesia. In 2019, renewable energy comprised only 8.8 per cent of total energy supply, far below the national target of 23 per cent of the total energy mix by 2025. The number has only increased by 3 per cent since the target was enacted in the National Energy Plan in 2015. Currently, Indonesia’s power plants are predominantly coal-based, which accounts for over 60 per cent of power generation.
To achieve its renewable energy goal, Indonesia requires substantial investments in the sector. For instance, it needs US$39.65 billion in investment in the construction of power plants in the next five years, which far exceeds the total budget of Indonesia’s Ministry of Energy and Mineral Resources, at only US$500 million per year. Meanwhile, the electricity sector accounts for 75 per cent of Indonesia’s total renewable energy mix target. Without attracting substantial amounts of capital from abroad, the country’s overall renewable energy target will prove impossible to reach.
Indonesia has made some effort to solve the problems of underinvestment by issuing a number of regulations, such as in the rooftop solar photovoltaic (PV) sector, to increase the National Energy Plan’s 6.5 gigawatt (GW) target in 2025 from the current level of 0.135 GW. The government is currently drafting its renewable energy law and a more attractive Feed-in Tariff (FIT) scheme is also under discussion.
In the midst of such developments, China, as one of the world’s leading investors in renewable energy, could be one of Indonesia’s most important potential partners.
Opportunities from China
In the past few years China has significantly increased its renewable energy portfolio. China’s ambitious green energy plan has boosted renewable energy power plant capacity to double the 2013 figure of 380 GW to more than 750 GW in 2019.
China is now the global leader in the solar PV market, accounting for almost a third of global capacity, with a cumulative capacity of 204.7 GW. China’s solar PV installation in 2019 reached 30.1 GW, doubled the US installation in the same year.
Although Chinese investments in renewable energy overseas are just getting started, they are growing rapidly in some countries.
Indonesia is not an exception to becoming a recipient of Chinese growing investment in this sector. China’s footprint in Indonesia’s energy sector can be traced to some of Indonesia’s coal power plants, oil and gas productions, and smelters. Currently,China is trying to expand its investment portfolio to include renewable energy projects in Indonesia. This includes building the largest hydropower plant in Indonesia and setting up a solar cell manufacture industry. Local Indonesian manufacturers are increasingly becoming heavily dependent on China’s solar cell to produce solar PV panels as currently no local company produces the cells. Meanwhile, China is the largest export destination for Indonesia’s biodiesel.
China’s renewable energy expertise and its growing global investments in the field, combined with Indonesia’s vision for cleaner energy, provides a solid basis for partnership.
Indonesia’s ambitious clean energy plan provides space for China to step in with its green Belt and Road Initiative program. As an emerging economy, Indonesia’s high energy demand growth requires infrastructure development, including clean energy investments. China should take this opportunity by exploring Indonesia’s vast solar, geothermal, and hydro potential.
For China, Indonesia is a promising market for solar PV components, especially solar cells. Jakarta’s new regulation on rooftop solar PV opens up a solar PV market for residential and commercial consumers. There are almost 1000 new solar rooftop installations in the first year after the regulation was introduced in December 2018. Such opportunities will likely grow further as the government has encouraged solar PV installations on the government buildings.
At the same time, China’s involvement in green projects in Indonesia could help to change the widespread perception that China is not environmentally friendly given that its focus on high emission coal power plants.
For Indonesia, given the limited ability of local players in the field, Chinese investments in the renewable energy sector could not only help the archipelago to achieve its target, but also help Indonesia in making its local players stronger. The existence of local industry value-chains is crucial to achieving a more economical level for renewable energy such as solar PV.
This could be possible through the strengthening of partnership between China and Indonesia in the renewable energy sector, involving the transfer of knowledge and technology from China to Indonesia.
China’s experiences in developing renewable energy projects, especially solar PV and hydro, could be useful lessons for Indonesia to tap its potential.
Homework need to be done
To tap the valuable potential in China-Indonesia relations in the renewable energy sector, there is still much to be done by both countries.
On the one hand, China needs to address the widespread view that its projects are of low quality. For example, recent reports on the construction of China-led steam power plants (PLTU) suggest that there is a serious problem in terms of quality.
On the other hand, despite the enactment of regulations on renewable energy, there are still a significant number of unsupportive regulations in Indonesia. For instance, one of the current regulations sets an uncompetitive price for energy generated by renewable energy power plants.
The government in Jakarta should revise the current regulations and set attractive feed in tariff to make renewable energy power plants more competitive and profitable. Otherwise, investors would see the constructions of renewable energy power plans as not being commercially viable projects.