Observer: Sluggsish green investment leads energy transition to a dead-end

Jakarta—Renewable energy sector researchers observed that the Indonesian government’s efforts to accelerate the energy transition to the renewable sector face serious obstacles. According to them, international financing institutions are reluctant to channel investments, doubting the country’s commitment to climate change.

“The direction of government policies that have not been able to convince investors has made the energy transition in Indonesia feel stagnant,” said Executive Director of the Center of Economic and Law Studies (Celios), Bhima Yudhistira, Wednesday, May 8.

According to him, government policies that still allow the construction of steam power plants (PLTU) in industrial areas are one cause of investor doubts. In fact, the use of renewable energy can be a solution, given the excess electricity from the existing PLTU.

However, investors’ concerns are not only focused on government policies. Other factors, such as high renewable energy tariffs, competition with subsidized fossil fuels, and high start-up capital requirements, also act as barriers.

A McKinsey and Company report published at the end of 2024 stated that Indonesia’s annual average investment in the renewable energy sector is far from sufficient. Only 20.2 per cent of spending is required to achieve the country’s 2025 renewable energy mix target of 17 per cent to 19 per cent.

This shows that efforts towards the renewable energy transition still face major challenges.

Addressing the green investment deficit

McKinsey advises governments to develop innovative new financing mechanisms to address the investment deficit in the green finance sector. One way is to expand the use of financial instruments with higher leverage ratios, such as insurance, guarantees and currency hedging schemes.

In addition, collaboration between the public and private sectors is also considered important to bring in more international capital.

In addition, the Comprehensive Investment and Policy Plan (CIPP) document’s draft describes Indonesia’s projected energy transition. However, these plans are still in draft status and do not yet have binding legal force.

Nonetheless, the estimation that Indonesia needs an investment of up to US$1.3 billion until 2030 to prepare for the early retirement and phasing out of coal-fired power plants shows that the energy transition challenge requires great commitment and support from various parties. (Hartatik)

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