Is Indonesia’s 100 GW Solar Plan Realistic?

Por James Guild — The Diplomat

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Whether or not the goal is achievable, it sends a strong signal that Jakarta is serious about putting more resources toward clean energy.

An aerial view of a solar power station in Bali, Indonesia.

Indonesian President Prabowo Subianto has set an extremely ambitious target of building 100 GW of solar capacity by 2029. Naturally, many people are wondering if this a realistic goal. I’ll spare you the suspense. The answer is no. But it does send a strong signal that the government is serious about putting more resources toward cleaner energy.

People often look at Indonesia’s energy sector, dominated by coal and other fossil fuels, and the extremely slow progress on renewables to date, and conclude that clean energy is a non-starter. I don’t agree. The government has been signaling for some time that it is willing to pivot toward clean energy. The catch is that it wants to do so on its own terms, without simply opening Indonesia up as a market for private developers and investors where the state-owned utility PLN ends up on the hook for expensive purchase agreements. This, in my estimation, was the major flaw with how Indonesia’s Just Energy Transition Partnership was originally designed.

The actually important question is not whether Indonesia can build 100 GW of solar power – obviously, it cannot do so in three years. The question is whether we are getting closer to an approach that can actually be implemented and scaled given the peculiarities of Indonesia’s political economy. I think the answer is a tentative yes. Prabowo recently unveiled the first stage of the 100 GW plan, announcing 5.3 GW of solar power projects under development or which will soon be opened for bidding.

The first thing we need to do is unpack the headline figure. 5.3 GW of new solar capacity would be a very significant step forward in Indonesia’s clean energy ambitions, but only eight of these projects are actually in an advanced stage of development. The bulk of the announced capacity, some 4.5 GW worth of projects, are still in the early stages without financing or confirmed project developers. However the eight projects that are further along tell us a lot about how to build clean energy in Indonesia.

Two of the announced projects are small off-grid solar facilities, designed to replace diesel generators in remoter areas. One of these is being developed by a subsidiary of state-owned oil and gas giant Pertamina, and the other by PLN itself. Together they account for under 2 MW of capacity. The other six projects are larger utility-scale solar and battery storage facilities mainly using floating arrays built on top of reservoirs. They range in size from 46 MW to around 133 MW and, once completed, will add almost 670 MW of solar generating capacity to the grid.

These six projects are in various stages of development, with some quite far along or nearly operational. They feature a range of financial backers including state-owned infrastructure fund PT Sarana Multi Infrastruktur, development banks as well as European lenders. Private sector developers include local firm TBS Energi, as well as Saudi Arabia’s ACWA Renewables, China’s GCL, and Singapore-based Vena Energy. The 92 MW Saguling facility in West Java is one of the few projects to be developed under the JETP framework.

The really important observation is that in all of these projects, state-owned electric utility PLN is not just the off-taker. They are an active equity partner, in most cases holding 51 percent ownership of the project. This is the same model, and equity split, we saw in the Cirata floating solar project in West Java, the first really successful large-scale solar power plant in Indonesia that went into operation in 2023. The new wave of solar power projects is clearly using the Cirata model.

The big puzzle has always been: how do you get PLN to buy-in to a national solar project? PLN operates a large fleet of Indonesia’s coal-fired power plants, and has been reluctant to simply act as a market-maker and off-taker for private renewable energy developers. Involving PLN in these projects as an equity partner provides the utility with an incentive to actually support them. Is it the most efficient design, or the one private developers and financers would ideally want? Probably not. But it is a model that can scale in Indonesia. We are seeing proof of that now.

As projects get bigger, and as more solar power is added and more investment is required, can state-owned energy firms like PLN and Pertamina continue to dominate the clean energy landscape in this way? That we don’t know. The state-directed model may very well need to change as the scale and pace of investment changes. But for now, after many years of false starts, it appears clean energy is actually gaining some traction in Indonesia. The key is that policy efforts stop viewing Indonesia simply as a market to be opened up to private investment, and start giving serious though to the interests and incentives of powerful local stakeholder like PLN.

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Indonesian President Prabowo Subianto has set an extremely ambitious target of building 100 GW of solar capacity by 2029. Naturally, many people are wondering if this a realistic goal. I’ll spare you the suspense. The answer is no. But it does send a strong signal that the government is serious about putting more resources toward cleaner energy.

People often look at Indonesia’s energy sector, dominated by coal and other fossil fuels, and the extremely slow progress on renewables to date, and conclude that clean energy is a non-starter. I don’t agree. The government has been signaling for some time that it is willing to pivot toward clean energy. The catch is that it wants to do so on its own terms, without simply opening Indonesia up as a market for private developers and investors where the state-owned utility PLN ends up on the hook for expensive purchase agreements. This, in my estimation, was the major flaw with how Indonesia’s Just Energy Transition Partnership was originally designed.

The actually important question is not whether Indonesia can build 100 GW of solar power – obviously, it cannot do so in three years. The question is whether we are getting closer to an approach that can actually be implemented and scaled given the peculiarities of Indonesia’s political economy. I think the answer is a tentative yes. Prabowo recently unveiled the first stage of the 100 GW plan, announcing 5.3 GW of solar power projects under development or which will soon be opened for bidding.

The first thing we need to do is unpack the headline figure. 5.3 GW of new solar capacity would be a very significant step forward in Indonesia’s clean energy ambitions, but only eight of these projects are actually in an advanced stage of development. The bulk of the announced capacity, some 4.5 GW worth of projects, are still in the early stages without financing or confirmed project developers. However the eight projects that are further along tell us a lot about how to build clean energy in Indonesia.

Two of the announced projects are small off-grid solar facilities, designed to replace diesel generators in remoter areas. One of these is being developed by a subsidiary of state-owned oil and gas giant Pertamina, and the other by PLN itself. Together they account for under 2 MW of capacity. The other six projects are larger utility-scale solar and battery storage facilities mainly using floating arrays built on top of reservoirs. They range in size from 46 MW to around 133 MW and, once completed, will add almost 670 MW of solar generating capacity to the grid.

These six projects are in various stages of development, with some quite far along or nearly operational. They feature a range of financial backers including state-owned infrastructure fund PT Sarana Multi Infrastruktur, development banks as well as European lenders. Private sector developers include local firm TBS Energi, as well as Saudi Arabia’s ACWA Renewables, China’s GCL, and Singapore-based Vena Energy. The 92 MW Saguling facility in West Java is one of the few projects to be developed under the JETP framework.

The really important observation is that in all of these projects, state-owned electric utility PLN is not just the off-taker. They are an active equity partner, in most cases holding 51 percent ownership of the project. This is the same model, and equity split, we saw in the Cirata floating solar project in West Java, the first really successful large-scale solar power plant in Indonesia that went into operation in 2023. The new wave of solar power projects is clearly using the Cirata model.

The big puzzle has always been: how do you get PLN to buy-in to a national solar project? PLN operates a large fleet of Indonesia’s coal-fired power plants, and has been reluctant to simply act as a market-maker and off-taker for private renewable energy developers. Involving PLN in these projects as an equity partner provides the utility with an incentive to actually support them. Is it the most efficient design, or the one private developers and financers would ideally want? Probably not. But it is a model that can scale in Indonesia. We are seeing proof of that now.

As projects get bigger, and as more solar power is added and more investment is required, can state-owned energy firms like PLN and Pertamina continue to dominate the clean energy landscape in this way? That we don’t know. The state-directed model may very well need to change as the scale and pace of investment changes. But for now, after many years of false starts, it appears clean energy is actually gaining some traction in Indonesia. The key is that policy efforts stop viewing Indonesia simply as a market to be opened up to private investment, and start giving serious though to the interests and incentives of powerful local stakeholder like PLN.

James Guild is an expert in trade, finance, and economic development in Southeast Asia.

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Fonte: The Diplomat