Indonesia has abundant natural resources and has the potential to become a regional green energy powerhouse.
Indonesia has a technical potential of around 400 gigawatts (GW) for generating electricity from renewable energy sources. Solar energy accounts for half of this, while hydropower and geothermal energy can account for 75 GW and 29 GW, respectively. When fully developed, it will be enough to meet Indonesia's future needs, but the pace of energy transfer must be carefully managed to ensure a fair transition.
This promising outlook shows Indonesia's significant green energy potential, with renewable energy potentially accounting for two-thirds of the country's total energy balance by 2050, up from just 14% today.
Indonesia also has significant potential as a carbon capture and storage (CCS) platform, with the possibility of storing around four to eight gigatons of carbon dioxide (CO2) using oil and gas reservoirs. Exploiting Indonesia's saline aquifers could increase CO2 storage potential by an additional 600 billion tonnes. This CCS capacity can significantly accelerate the process of reducing national carbon emissions.
Indonesia is also considered one of the leading producers of green molecules in the region. As an emerging economy with a growing industrial sector, there is growing demand for industries such as steel, cement and chemicals to switch to green hydrogen to accelerate decarbonization. Demand for green hydrogen in Asia is expected to exceed 300 million tons per year by 2050.
A potential regional powerhouse
With its significant renewable energy and CCS potential, Indonesia can go beyond meeting its own green energy needs and act as a regional hub for broader decarbonization in South Asia and the East. Its strategic geographical location allows it to connect with neighboring countries through existing and new energy connections, supported by the government's commitment to renewable energy development. This means Indonesia can provide a platform to accelerate the decarbonization of neighboring Southeast Asian countries.
Indonesia's commitment to increasing the share of renewable energy sources in the national energy balance, supported by policy interventions and incentives for renewable energy technologies, is in line with this potential. This could make Indonesia a major green energy player in Southeast Asia.
To realize Indonesia's potential as a regional green energy hub, it is necessary to ensure the rapid deployment of renewable energy, implementation of appropriate policies, development of infrastructure and strengthening of supply chain capacity to accelerate the development of renewable energy and CCS technologies.
Singapore's import of 2 GW of green electronics from Indonesia is a significant milestone. The energy export agreements signed in January 2022 and March 2023 confirm both countries' commitment to increasing investment in electricity development and renewable energy production, as well as promoting cross-border electricity trade and connectivity. Exporting green electrons offers the opportunity to revitalize the country's renewable energy value chain and offset short-term declines in green electricity demand. Expanding renewable energy generation capacity can also ensure long-term security of supply.
Despite the significant potential, achieving this goal of becoming a regional green energy hub requires bold steps and policy interventions on the demand and supply sides, as well as infrastructure development and stakeholder collaboration. There are several strategic imperatives for successful export of green electrons.
Accelerate the deployment of renewable energy technologies
The first need is to develop policies for renewable energy adoption and demand. These include tax incentives and subsidies to reduce the cost of purchasing and installing renewable energy systems. These incentives make green energy more financially affordable for a wider range of consumers and businesses.
Other countries have introduced incentives and subsidies to accelerate the adoption of renewable energy technologies. For example, the US Investment Tax Credit (ITC) is an incentive that reduces federal income tax paid on a portion of the cost of solar energy systems installed during the year. The ITC allows homeowners and businesses to deduct a percentage of the cost of installing a solar system from their federal taxes. In addition, solar systems that meet the local retention threshold are entitled to a 10 percentage point increase in the ITC value.
In India, the government provides numerous subsidies and incentives for the installation of solar panels under the National Solar Mission. These include capital grants and exemptions as well as residential and commercial property tax credits.
In addition to various subsidies and incentives, the introduction of clean energy standards or renewable energy portfolio standards, which require companies to obtain a certain proportion of their energy from renewable sources, will also accelerate the adoption of renewable energy in the medium term. technology in the country. go
Providing green energy investments to developers and investors
It is important to create an attractive economic environment for investors and operators. Government support in the form of tax incentives for producers and developers, grants and support for research and development (R&D) play an important role in promoting renewable energy sources.
There are several potential policy levers that can be used to stimulate investment. Commercial tariffs or above-market tariffs for feeding renewable energy into the national grid can be seen as an attractive return on investment for electricity producers and encourage participation.
It is also important to ensure transparent markets and stable policies. A clear and unambiguous renewable energy development plan, supported by a coherent national energy policy that ensures long-term stability, is crucial for investor confidence. Market information should be transparent and accessible to help investors make informed decisions and reduce perceived risk.
Capacity, infrastructure and regional cooperation must be strengthened to accelerate Indonesia's development as a green energy hub.
Building adequate energy infrastructure requires several initiatives. First, it is important to strengthen and modernize the national electricity grid to accommodate the increasing share of renewable energy sources. This includes investing in smart grid technologies to address the changing nature of renewable energy sources such as solar and wind, increase grid stability and improve energy storage capabilities.
It is also important to expand capacities for green technologies, especially for new options such as green hydrogen and CCS. Governments can fund research programs to support this transition. This is facilitated by government support for research institutes, collaboration with universities and promotion of private sector research and development through tax incentives or direct financing. To accelerate the efficiency development of green value chains, coherent demand, supply and infrastructure policies are required.
In addition, accelerating the development of Indonesia's carbon market and introducing an appropriate carbon tax are important to accelerate the development of the green ecosystem and unlock significant financing potential.
Finally, regional cooperation is critical to creating opportunities in Southeast Asia. The partnership is the basis for developing commercial power contracts, building infrastructure and meeting other licensing requirements. For example, the ASEAN Power Grid is an important initiative to build a regional energy connection between Southeast Asian countries, which would then enable cross-border trade in green electrons.
With the right interventions in demand, supply and supporting ecosystems, Indonesia is well on its way to becoming a green energy hub in Southeast Asia. Instead, Indonesia's new position as a regional green power will bring significant economic and social benefits to the country.
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Marko Latskovic is Managing Director, Partner and Principal of Fakri Frisandi Boston Consulting Group.
