Unlocking Indonesia’s Renewable Energy Potential: A Path to Mutual Prosperity

Indonesia’s energy future hinges on policy transparency and regulatory certainty, a need underscored by a joint report from RE100, the Institute for Essential Services Reform (IESR), and the Institute for Energy Economics and Financial Analysis (IEEFA). The report advocates for the shared use of Indonesia’s electricity transmission network, a proposition that promises to benefit not only the national utility, PT Perusahaan Listrik Negara (PLN), but also private power producers and the environment.

Accelerating Renewable Energy Development

The shared transmission network could unlock barriers that currently impede private investments in renewable energy. According to Mutya Yustika, an Energy Finance Specialist at IEEFA, previous analyses indicate that implementing a scheme for shared network access can generate new revenue streams for PLN. This revenue could be crucial for funding ongoing grid modernization and expansions—essential activities to ensure that Indonesia meets its renewable energy targets.

The investment required for enhancing Indonesia’s power generation is staggering. The country needs approximately USD 5 billion annually, alongside a USD 146 billion investment gap to fulfill its climate targets by 2030. This is where the shared network utility concept becomes increasingly appealing. It not only promises improvements in infrastructure but also creates a more attractive environment for both domestic and foreign investors.

A Strategic Investment Destination

The report highlights that neighboring Southeast Asian nations, like Vietnam and Malaysia, are pioneering the shared use of transmission networks. For Indonesia, this model signifies a crucial step toward not only enhancing the efficiency of electricity distribution but also fostering private investments that align with the goals of RE100 members—leading global companies committed to achieving 100% renewable energy in their supply chains by 2050.

Grant Hauber, IEEFA’s Strategic Energy Finance Advisor for Asia, notes, “For industries, especially RE100 members, sharing access to the grid can accelerate progress toward achieving renewable energy goals.” By establishing a more interconnected and transparent energy market, Indonesia can empower its industries while contributing to overarching climate initiatives.

Framework for Success

The authors of the report outline several prerequisites essential for the successful implementation of a shared transmission network. These include:

1. Transmission Access: Renewable energy developers must have reliable and equitable access to transmission lines.
2. Transparent Tariffs: Ideally, tariff structures should be set by an independent regulator to ensure fairness.
3. Reliable Interconnections: A robust framework ensuring seamless interconnections between various grid components is crucial.
4. Clear Contracts: Contracts must be straightforward, delineating responsibilities and expectations for all parties involved.

A pivotal aspect of this framework is ensuring that renewable projects remain interconnected to the national grid while minimizing instances of curtailment. This means developing measures that prevent grid overload and ensuring that generation companies adhere to grid codes and balancing costs.

Financial Sustainability through Innovations

To bolster transparency and efficiency, the report suggests a dedicated PLN subsidiary focused solely on transmission. This could simplify financial exchanges and establish clearer pricing structures for electricity utilization. Additionally, introducing an upfront fee for developers using the grid, along with an annual quota system, could bolster the sustainability of this model, ensuring that all players contribute fairly to the shared infrastructure.

Learning from Regional Comparisons

A comparative analysis among Indonesia, Vietnam, and Malaysia unveils critical insights into the benefits of de-verticalized electricity market structures. Unlike Indonesia’s current system, where production, transmission, and distribution are tightly coupled within state-owned utility structures, Vietnam and Malaysia benefit from separate entities overseeing these functions. This separation allows for direct negotiations between developers and buyers, fostering a more dynamic energy market.

Hauber emphasizes that such arrangements promote competitive pricing and streamlined processes for integrating renewable energy into the grid—a crucial capability that Indonesia currently lacks. Utilizing spot market mechanisms could also drive innovation and efficiency for renewable projects in Indonesia.

Harnessing Indonesia’s Potential

As highlighted by Fabby Tumiwa, Executive Director of IESR, Indonesia holds enormous technical potential, boasting over 3.7 terawatts (TW) of potential renewable energy generation and about 333 gigawatts (GW) of economically viable projects. “We can supply the electricity demand with carbon-free sources,” he asserts.

Emphasizing the long-term benefits of a joint transmission network, Tumiwa believes that establishing regulatory frameworks that provide certainty is essential for attracting more private sector investment. With proactive policies, Indonesia can unlock its renewable energy capabilities.

The Demand for Renewable Energy

Ollie Wilson, Head of RE100 at the Climate Group, shares optimism regarding the shared use of the transmission network as a catalyst for private investment. With 130+ RE100 members operating in Indonesia, the demand for renewable electricity exists.

Wilson asserts that “what’s now needed is an energy market that can help Indonesia keep pace with neighboring countries.” With a commitment to collaborating with PLN, the private sector stands ready to expand the grid and create a mutually beneficial environment where both business and government can thrive.

Exploring Further

This comprehensive report sheds light on the transformative potential of shared electricity networks in Indonesia, offering actionable insights and strategies that can pave the way for a cleaner, greener energy future. Whether it’s through engaging private investments, establishing clear regulations, or modernizing existing infrastructures, a clearer path lies ahead for Indonesia’s renewable energy landscape.