Using Public Funding to Attract Private Investment in Renewable Energy in Indonesia

The document assesses Indonesia's progress toward its 23% renewable energy target by 2025, identifying a significant investment gap of approximately USD 29 billion. It analyzes roadblocks such as non-cost-reflective pricing, fragmented regulations, and the dominance of state-owned enterprises (SOEs) in the electricity sector. The brief evaluates existing support mechanisms, including Green Sukuk, tax incentives, and the roles of Public Financial Institutions (PFIs) like PT SMI and the Indonesia Investment Authority (INA). It recommends reforming fossil-fuel subsidies, implementing renewable energy auctions, and mandating SOEs like PT PLN and PT Pertamina to prioritize clean energy to mobilize the private capital necessary for a fossil-free recovery.

• Indonesia's renewable energy deployment is lagging, with an installed capacity of 10.5 GW (11.2%) in 2020, which is roughly half of the 23% target set for 2025.
• There is a substantial investment gap to meet the 2025 target; while USD 37 billion in additional investment is required, the current annual trajectory of USD 2 billion would leave a shortfall of USD 29 billion over four years.
• Investment in the energy sector remains heavily skewed toward fossil fuels, which attracted approximately 65% of investment in 2020, compared to renewable power which represented only 7.8%.
• A primary roadblock to private investment is a pricing structure where renewable energy IPPs are often capped at 85% of the local cost of generating electricity (BPP), which does not reflect real costs and hinders profitability.
• The national electricity company, PT PLN, maintains a de facto monopoly over the sector and owns the majority of fossil fuel-based generation, creating a potential conflict of interest in the transition to renewables.
• The Government of Indonesia has utilized Green Sukuk to fund climate projects, raising IDR 43.71 trillion (USD 3.24 billion) up to 2020, though only 5% of these funds were assigned to renewable energy development.
• Public Financial Institutions (PFIs) such as PT SMI and PT IIF are used to de-risk projects; PT SMI has financed at least 10 renewable energy projects representing over 500 MW of capacity and USD 225 million in commitments.
• The Indonesia Investment Authority (INA), launched in February 2021 with an initial capital commitment of IDR 77.8 trillion (USD 5.4 billion), aims to narrow the infrastructure financing gap and attract foreign investors.
• International partnerships established at COP 26, such as the Energy Transition Mechanism (ETM) with the ADB, aim to retire at least 10 coal plants or 50% of coal assets in Indonesia over 10 to 15 years.
• The document recommends that the government reform fossil-fuel subsidies and implement renewable energy auctions for large-scale projects to better capture market prices.

APA

Hendriwardani, M., Geddes, A., Sumarno, T. B., & Hohenberger, L. (2022). Using Public Funding to Attract Private Investment in Renewable Energy in Indonesia. International Institute for Sustainable Development. https://www.iisd.org/system/files/2022-02/indonesia-private-investment-renewable-energy.pdf

Chicago

Hendriwardani, Murtiani, Anna Geddes, Theresia Betty Sumarno, and Laura Hohenberger. Using Public Funding to Attract Private Investment in Renewable Energy in Indonesia. International Institute for Sustainable Development, 2022. https://www.iisd.org/system/files/2022-02/indonesia-private-investment-renewable-energy.pdf.

Wikipedia

{{cite report |last1=Hendriwardani |first1=Murtiani |last2=Geddes |first2=Anna |last3=Sumarno |first3=Theresia Betty |last4=Hohenberger |first4=Laura |title=Using Public Funding to Attract Private Investment in Renewable Energy in Indonesia |publisher=International Institute for Sustainable Development |date=February 2022 |url=https://www.iisd.org/system/files/2022-02/indonesia-private-investment-renewable-energy.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{hendriwardani2022using, author = {Hendriwardani, Murtiani and Geddes, Anna and Sumarno, Theresia Betty and Hohenberger, Laura}, title = {{Using Public Funding to Attract Private Investment in Renewable Energy in Indonesia}}, institution = {International Institute for Sustainable Development}, year = {2022}, month = feb, url = {https://www.iisd.org/system/files/2022-02/indonesia-private-investment-renewable-energy.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }