Full report
Published: 28 June 2023

Fostering Effective Energy Transition 2023

Indonesia

Country analysis

Key progress on ETI

Indonesia, as the largest energy consumer in South-East Asia84 and a source of rising energy demand, holds the key to effective energy transition in the region and ranks 55 out of 120 countries on the ETI 2023. The country has improved its ETI score by almost 14% since 2014, with the biggest improvement in transition readiness (55%), supported by infrastructure and regulation and political commitment, which remain critical enablers of the energy transition. Within system performance, Indonesia’s scores on the equitable dimension have shown the most improvement, with the biggest push coming from access to electricity. Though Indonesia is still one of the largest producers of coal and the fifth-largest GHG emitter,85 the country has been shifting actively towards scaling up renewable energy in recent years and, with continued momentum, is well positioned to set priorities to limit global warming to 1.5°C.

Key imperatives and policies in place

Sustainable energy transition was one of the main themes of Indonesia’s G-20 presidency in 2022, including the recognition that without energy access it would be impossible to achieve an economywide energy transition. Indonesia championed a new target for a modern energy minimum that aims to better capture the link between energy consumption and economic growth. The new threshold raises the bar for minimal energy to 1,000 kilowatt/hour (kWh) per person per year, with at least 300 kWh at home and 700 kWh consumed in the wider economy, ensuring that international efforts to end energy poverty ultimately result in meaningful development outcomes.86 In addition, a JETP for Indonesia was launched to mobilize $20 billion in public- and private-sector financing over a three- to five-year period to facilitate the country’s transition from coal to renewable energy, reduce power-sector emissions and achieve net zero by 2050. It lays out a strategy for the country based on the expansion of renewables in the energy mix (34% by 2030), the reduction of on- and off-grid coal-fired electricity generation, and additional commitments to regulatory reforms and energy efficiency while implementing tangible actions to attain an equitable energy transition for workers and communities.87

Quickening the deployment of renewable energy capacity will be an important step for Indonesia to boost its energy security and reduce its reliance on fossil fuel imports. Presidential decree no.112/2022 of September 2022 highlights measures to promote renewable energy, including establishing a competent pricing regime for renewable energy sources, tax incentives for renewable energy projects and changing the negotiation process to reach a pricing agreement.88 Based on the success of its G-20 presidency and as chair of the Association of Southeast Asian Nations (ASEAN) in 2023, Indonesia aims to implement several energy sector measures, including strengthening the ASEAN power grid to support the energy transition and ensure energy security in the region; developing an ASEAN energy security roadmap; stimulating sustainable energy financing; building regional ecosystems for electric vehicles; exploring the potential of emerging clean energy innovations to improve energy access in islands and remote grids, as well as emissions trading schemes and carbon offset platforms; assessing bioenergy potential; and promoting smart and integrated digital energy management in industrial, commercial and building sectors.89

What’s next?

Though Indonesia has taken significant steps internationally and regionally to accelerate the energy transition, achieving its raised ambitions will not be easy. In the absence of direct subsidies, the current tariff mechanism does not allow renewable energy projects to compete fairly with fossil fuel-based infrastructure, limiting their financial viability. Furthermore, discrepancies in planning and policy considerations and a lack of transparency, add a layer of complexity for investors. The World Economic Forum policy paper, “Policy Opportunities to Advance Clean Energy Investment in Indonesia”, outlines recommendations that could help unlock Indonesia’s clean energy future. These include creating a renewable energy tariff regime; removing regulatory barriers and implementing stable frameworks to facilitate the uptake of corporate renewable electricity sourcing; working with utilities or electricity suppliers to accelerate the growth of renewable energy infrastructure; implementing legislative and incentive mechanisms; and enhancing the transparency, sustainability and additionality of renewable energy certificates to finance new renewable energy capacity.90

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