Last November, Indonesian President Joko "Jokowi" Widodo officially opened the Serat Solar Park in West Java. Built on a reservoir using thousands of floating photovoltaic panels, the Serata facility has a generating capacity of 145 MW, making it the largest floating solar power plant in Southeast Asia.
It is also important proof that Indonesia is capable of building new large-scale solar power plants whenever it wants. Despite years of efforts to encourage investment in solar energy, adoption has been very slow. Could Serrata herald a breakthrough and, if so, how?
Built at a cost of around 1.7 trillion Indonesian rupiah (just over $100 million), Cirata is a joint venture between Indonesia's state-owned power company PLN and UAE renewable energy company Masdar. Masdar is a minority shareholder and owns 49% of the shares. The remaining 51 are owned by PLN through a subsidiary.
Masdar is well capitalized. The company ended 2022 with more than $800 million in cash and has a strong following in the UAE. Masdar shareholders include Abu Dhabi National Oil Company, Mubadala Investment Company, Abu Dhabi Sovereign Wealth Fund and Abu Dhabi National Energy Company.
Together with Serata, Masdar is very active in Indonesia's rapidly growing renewable energy sector. It acquired a 47.5% stake in Solar Radiance, a joint venture with Indonesian coal company PT Mitrabara Adiperdana to manufacture solar panels. Indonesian state-owned oil and gas giant Pertamina partially floated its geothermal subsidiary on the Indonesian stock exchange last year, with Masdar taking a 15 percent stake.
Masdar understands that the acceleration and completion of projects in Indonesia depends largely on finding the right local partners. For example, by partnering with PLN to develop the Serat solar park, Masdar ensured that the most powerful player in Indonesia's electricity sector is interested in completing the project. This gives Serrata more leverage to overcome political and economic obstacles that have often hindered renewable energy projects in the past.
Free market advocates would probably find this objectionable, since partnering with a subsidiary of a state-owned electric company to build a power plant that would then sell the power to them is the antithesis of the public service we have come to know. . The markets will work. However, Indonesian markets often operate according to their own logic. Understanding and adapting to this logic and the incentive structures it creates, rather than trying to impose free market logic, is the key to achieving the goal.
Masdar's approach can be compared to the Just Energy Transition Partnership (JETP), a $20 billion clean energy fund managed by the United States and its allies. When JETP published its investment roadmap in November 2023, the same month Serata officially opened, the plan included several regulatory reforms that would allow market mechanisms, such as price signals, to trigger a huge energy investment boom. solar.
One reform specifically requires private developers to take stakes in joint ventures that depreciate the zloty. The argument here is that electricity companies like PLN should play a role in the market as intermediaries and reduce the risks of private capital, and that they create distortions when they enter the market as direct participants.
In the abstract, this may be true. But it is also true that the PLN has less incentive to facilitate private investment and reduce risks if it cannot make a profit. If JETP wants to wait until Indonesia's energy sector becomes an efficient market that responds to price signals and the PLN plays the role of facilitator rather than participant, the wait could be long.
Meanwhile, instead of trying to make Indonesia the efficient market it never was, Masdar is already working on building a commercial-scale solar power plant and manufacturing solar panels in the country. It does this through joint ventures and investment partnerships with Indonesian players such as Pertamina and PLN, where things can happen quickly.
This is the best or the correct option to accelerate the development of renewable energies in all cases. I don't know. But I do know that if Indonesia wants to meet its ambitious emissions reduction targets, we must keep an open mind and consider all options. This includes counter-agreements that may go against the dominant economic logic, such as involving the PLN as a partner in a solar park or forming a joint venture with a coal company to produce solar panels.
