Despite starting from a low base, renewable energy is experiencing robust growth in APAC, with installed generation capacity increasing at a compound annual growth rate (CAGR) averaging 9 percent. By 2030, renewable energy is expected to account for 30-50 percent of the power generation mix across most APAC markets.

APAC’s vast potential and diverse market dynamics present significant opportunities and unique challenges for renewable energy developers, investors and operators. These complexities are examined in Boston Consulting Group (BCG)’s recent report, Asia Pacific is Ready for Renewables. Are Energy Players?

Navigating this complex landscape demands a nuanced understanding of each market's intricacies and a strategic approach tailored to local conditions. Achieving substantial renewable energy integration will require significant investment. According to the International Energy Agency's Announced Pledges Scenario, revised in August 2023, investments in APAC renewables from 2022 to 2030 are projected to reach US$286 billion.

RI’s complex energy equation

Indonesia has clear renewable energy targets, but the abundance of cheap, domestically produced coal means adoption of renewables has been slow to implement. National electricity production has more than tripled since 2000, highlighting the significant pressure for power capacity to meet surging demand.

Prospects

Every Monday

With exclusive interviews and in-depth coverage of the region's most pressing business issues, "Prospects" is the go-to source for staying ahead of the curve in Indonesia's rapidly evolving business landscape.

View More Newsletter

By registering, you agree with The Jakarta Post's Privacy Policy

Sign Up

Thank You

for signing up our newsletter!

Please check your email for your newsletter subscription.

View More Newsletter

National ambitions set an aim of achieving net-zero by 2060, with a more focused target to increase renewable energy to 23 percent of the energy mix by 2025, a target the country looks likely to miss.

International efforts have been applied to support Indonesia’s transition to renewables and away from coal.

The Asian Development Bank (ADB) recently announced the use of its Energy Transition Mechanism (ETM) to accelerate the closure of the 660-megawatt (MW) coal-fired Cirebon 1 power plant, with final negotiations between the ADB and other stakeholders targeted by end-2024. A $20 billion investment by the Just Energy Transition Partnership (JETP), first engaged in 2022, is also targeted at accelerating the transition from coal to renewables.

While the transition has been slow, Indonesia stands to unlock substantial benefits from enhanced renewable energy capacity. Its significant production potential and geographical location makes it a prime candidate for green energy sales to land-limited neighbor Singapore, while there is also evidence of strong demand for sustainable corporate power purchasing agreements (PPAs).

Essential strategies at play

Renewable energy development across the APAC region is driven by several key elements, each adding momentum toward a sustainable energy future. One significant driver is reduction in costs.

Advances in technology and economies of scale have made renewable energy increasingly competitive with traditional fossil fuel-based electricity generation. This cost parity, particularly in solar, has accelerated the adoption of renewables in APAC, driving investment and the deployment of clean energy infrastructure.

In navigating the renewable energy landscape across Indonesia and APAC, developers and investors must adapt to the diverse business environments in each market.

We have identified five key factors for both developers and investors to consider:

1. finding focus by concentrating efforts on specific markets and technologies;
2. establishing local partnerships to access land and navigate regulatory landscapes;
3. broadening financing options to address challenges of lower returns and increased competition;
4. navigating the supply chain by integrating with local players and meeting local content requirements (TKDN); and
5. leveraging offtake expertise to gain a competitive edge in tender processes.

Solar power offers a twin-track opportunity in Indonesia, with both distributed rooftop and utility-scale solar boasting solid potential for monetization.

Rooftop capacity is expected to expand by 3.5-4 gigawatts (GW) by 2030. Rooftop technology is prioritized over ground-based solar, as it sidesteps land acquisition costs, making it more cost competitive.

Retail tariffs for rooftop solar are expected to increase to above $100 per megawatt-hour (MWh) produced. There is also no TKDN for rooftop installation, as well as strong PPA demand from corporates seeking sustainable energy.

Utility-scale solar in Indonesia is also an interesting opportunity, with floating solar prioritized over ground-based solar due to the aforementioned land costs. It is expected that around 5 GW of additional floating solar capacity will be installed by 2030.

Floating solar also benefits from an average feed-in tariff of $69.5 to $172 per MWh, depending on the size and location of the facility. These projects are awarded through capacity auctions by state electricity company PLN.

While PPA tariffs have been competitive, recent tenders have seen tariffs fall below $50/MWh, a significant drop from the height of $250/MWh seen in the last decade. Floating solar also has a high TKDN of greater than 40 percent, as well as technological complexities in execution.

Indonesia also has the unique potential of having the world’s largest geothermal power reserves, although exploiting these remains costly and challenging. It is estimated the country will have around 1.3 GW of additional installed geothermal capacity by 2030.

The government is committed to easing development of geothermal power by expediting licensure and providing a geothermal fund to reduce up-front exploration risk for developers.

However, long development cycles hinder uptake, with previous projects taking 15 years from initiation to commercial operation. Regulations also call for a minimum TKDN of 35 percent in geothermal projects.

Operators in Indonesia do face some clear ecosystem challenges. High local content requirements create complexity for market entry, and specific concern around insurability, scheduling and cost about mandated use of local solar photovoltaic (PV) panels is a prominent issue. A local partnering requirement with state-owned utilities also adds a particular dimension to local operations.

In terms of stimulating growth, carbon taxes are planned but have faced delay. The relatively low cost of $2 per tonne of CO2 produced also limits effectiveness.

Demonstrated returns on completed projects also present some difficulties. Recent rooftop solar installation for commercial and industrial projects has delivered an internal rate of return (IRR) of less than 5 percent due to increasing construction costs and heightened competition.

Despite the challenges, Indonesia represents Southeast Asia’s largest market for renewable energy development with a significant overall energy demand. Partnership with local players is critical, particularly given local content requirements. Direct partnerships should be considered for solar projects, while consortiums are likely best for geothermal.

Expertise and technical know-how are critical, particularly given the technical nature of floating solar and geothermal power plants. Stakeholders also need to be strong and confident in navigating the complex local context and relationships with key market players.

While the complexity is clear, so is the opportunity to accelerate renewable energy investment in Southeast Asia’s largest economy.

***

Marko Lackovic is managing director and partner at Boston Consulting Group (BCG), where Suncica Zdunic is project leader.

Popular

Indonesia should think twice about joining BRICS and OECD

Businesses await Prabowo’s guidelines on the palm oil industry

Indonesia women's team reaches first-ever AFF Cup final