Indonesia will temporarily relax rules that have slowed development of solar energy in the coal-dependent country, lifting one of the many regulatory and legal roadblocks to the archipelago’s pledge to reach net zero emissions by mid-century.
The government will remove the requirement that solar projects use a majority of domestically produced materials until 2025, when Indonesia’s first solar panel factory is expected to begin production. By conservative estimates, the equatorial country could generate more than 4,000 times its current solar output.
Speeding up the energy transition has been a signature priority for President Joko Widodo, and lifting the “local content” requirement for solar was one of more than a dozen policy reforms laid out in the draft investment plan for the $20 billion Just Energy Transition Partnership that Jokowi negotiated with US President Joe Biden and other wealthy countries.
Bloomberg reviewed a copy of the plan, which was written by the JETP Secretariat, the coordinating body for stakeholders hosted in Indonesia’s Ministry of Energy and Natural Resources and supported by the Asian Development Bank. Dadan Kusdiana, the energy ministry’s secretary general, confirmed that the government is in discussions to relax the rules for solar power projects.
The plan points to several significant challenges for the JETP, including not enough in grants or low-cost loans from wealthy countries, and the reluctance of private financial institutions to fund anything related to coal, including early retirements.
For Indonesia’s part, changing the solar requirements may be the easiest of the legal reforms that the plan calls for. The country currently generates less solar power than Norway, and much of what it does produce is shipped to neighboring Singapore. The government would like to increase its solar power capacity fivefold in the next five years, according to the investment plan, but will need nearly $2.4 billion to do so.
It will also have to tackle other polices and laws that effectively block significant efforts to replace coal with renewable energy. Among them: Indonesia currently subsidizes coal-based electricity; the state-owned utility is limited in its ability to raise money for investments in renewable energy; the use of “captive coal” — built-for-purpose plants that don’t supply the electrical grid — is widespread and growing.
Existing restrictions on the sale of state assets also limit the options for winding down coal plants. Specifically, it bars selling a state asset for below book value, and while the law was designed to prevent corruption and cronyism, it frustrates the kinds of deals that facilitate early-retirement of coal power. The investment plan recommends the legislature make clear that it wouldn’t be criminal under these specific circumstances.
--With assistance from Harry Suhartono and Eko Listiyorini.
