Today, renewable energy accounts for a small but growing portion of Indonesia’s electricity
portfolio. Most renewable energy comes from the hydropower and geothermal industries, but
growth in other sectors is likely. Presidential Decree No. 5 mandates an increase in renewable energy production from 7 percent to 15 percent of generating capacity by 2025. To accomplish that goal, 6.7 GW of new renewable energy capacity must be installed in the next 15 years based on current growth projections.7 Geothermal and biomass have been lated for the most growth, but opportunities exist in every renewable energy technology (see Figure 1).
Surprisingly, Indonesia continues to import fossil fuels to cover production deficiencies instead of fully utilizing its already installed renewable energy capacity (see Figure 2). Expanding the production of existing resources (that is, already operating geothermal plants or hydropower dams) could displace some fossil fuel imports, by lowering the cost of energy subsidies and creating additional demand for renewable energy technology and expertise.
Since 2008, the government has offered tax incentives for foreign investment, including investors in renewable energy. Incentives include a 30 percent net income tax reduction for six years, free repatriation of investments and profits, and dispute settlement.8 Geothermal companies are afforded additional incentives. The 2003 Geothermal Law established long-term licenses for land use (more than 30 years) and a regulated price for geothermal energy. However, PLN’s status as the sole legal provider of electricity through Indonesia’s power grid complicates the incentive for foreign developers and often limits the profitability of projects.
In addition, Indonesia’s National Energy Policy of 2006 amended several policies and regulations to support renewable energy deployment. The law codified the targets for renewable energy production by 2025 set by Presidential Decree No. 5 and strengthened the position of cooperatives, private companies, and community organizations in PPA negotiations.