Indonesiaʼs energy transition: Dependency, subsidies and renewables

Abstract

Indonesiaʼs economy is highly dependent on the fossil fuel industry as evidenced in measures of non-taxable revenue, energy subsidy, energy mix and regulatory flexibility. To cut carbon emissions by 41% in 2030, the energy system needs to transition faster than anticipated through progressive reforms and investment. Policy makers understandably are fearful of the shocks and unrests resulted from fossil fuel subsidy reform. However, the fears were shown to be an over-reaction, especially if poorer households were supported. The state-owned enterprise, Perusahaan Listrik Negara, is the central player in the tug of war between the fossil fuel and renewable sectors. The government should signal unwavering support for international investment in the renewables, and update the regulation on rooftop solar that boosts return on investment for domestic households. International investors will need modelling of cost competitiveness of wind farms against coal-fired plants in more remote areas.