Investment Incentives for Renewable Energy: Case study of Indonesia

The report examines Indonesia's renewable energy landscape, focusing on the institutional and regulatory frameworks governing geothermal, hydro, biomass, and biofuels. It identifies a wide array of financial, fiscal, and market-based incentives, such as the Geothermal Fund Facility and feed-in tariffs, but notes that their impact is undermined by conflicting government policies, including heavy fossil fuel subsidies and inter-ministerial disagreements.

• Indonesia has a significant untapped potential for renewable energy, with geothermal resources estimated at 28 GW (about 40% of the world's known potential) and hydropower potential estimated at 75 GW.
• The government provides a variety of financial incentives to reduce risk, including the Geothermal Fund Facility (GFF) for exploration data and loans, and the Indonesia Infrastructure Guarantee Fund (IIGF) to guarantee contractual risks for large projects.
• Fiscal incentives for renewable energy investors include a net income reduction of 5% of investment value annually for six years, accelerated depreciation over 2–10 years, and import duty exemptions for capital goods and machinery not available domestically.
• To ensure price stability and attract investment, Indonesia introduced feed-in tariffs (FIT) for geothermal, mini/micro hydro, biomass, and city waste power plants, requiring the state electricity company (PLN) to purchase power at guaranteed prices.
• Biofuel development is supported by consumption mandates and price subsidies (Rp 3,000/litre for biodiesel and Rp 3,500/litre for bioethanol), though progress is slowed by a lack of political will and conflicts between food and energy security.
• Investment in renewable energy is actively hindered by the government's continued subsidization of gasoline and the under-pricing of electricity, which creates a market bias toward fossil fuels.
• Inter-institutional conflict and lack of coordination frequently stall projects; for example, geothermal projects have been delayed by disagreements between the Ministry of Forestry and the Ministry of Energy and Mineral Resources.
• Bidding processes for power projects have seen mixed success, with some winners lacking the financial or technical capacity to implement projects, and some bids being annulled for exceeding the central government's feed-in tariff ceilings.
• Micro- and mini-hydropower projects often struggle with bankability due to a lack of capacity among developers to prepare proposals and a lack of experience among banks in assessing renewable energy risks.

APA

Damuri, Y. R., & Atje, R. (2013). Investment Incentives for Renewable Energy: Case study of Indonesia. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/investment_incentives_indonesia.pdf

Chicago

Damuri, Yose Rizal, and Raymond Atje. Investment Incentives for Renewable Energy: Case study of Indonesia. International Institute for Sustainable Development, 2013. https://www.iisd.org/system/files/publications/investment_incentives_indonesia.pdf.

Wikipedia

{{cite report |last1=Damuri |first1=Yose Rizal |last2=Atje |first2=Raymond |title=Investment Incentives for Renewable Energy: Case study of Indonesia |publisher=International Institute for Sustainable Development |date=2013 |url=https://www.iisd.org/system/files/publications/investment_incentives_indonesia.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{damuri2013investment, author = {Damuri, Yose Rizal and Atje, Raymond}, title = {{Investment Incentives for Renewable Energy: Case study of Indonesia}}, institution = {International Institute for Sustainable Development}, year = {2013}, url = {https://www.iisd.org/system/files/publications/investment_incentives_indonesia.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }