The future is green: unlocking Indonesia’s renewable energy potential

Indonesia is rich in natural resources, including coal, which has been the traditional commodity used for energy generation. This blessing also makes transitioning to renewable energy more difficult than in countries without such resources. However, the global energy sector has shifted to green energy, and now is the time to unlock Indonesia’s renewable energy potential.

As climate change continues to fuel sudden and extreme weather changes, and there has been increasing global focus on reducing emissions, Indonesian leaders are pushing for a greater share of renewables in their energy mix. From the current level of a renewable mix of 10%, Indonesia has set targets to more than double and reach 23% of renewable energy in the total mix by 2025 and achieve net zero emissions by 2060.

We believe that in working towards this target, Indonesia’s abundant resources will set us apart from other industrializing economies in the energy transition. Indonesia boasts the largest geothermal and nickel reserves in the world, as well as ample hydro power and land for solar generation. Unlocking this potential can be a key economic growth driver in the coming years.

Types of potential renewable energy in Indonesia

Indonesia has abundant renewable energy potential, which includes the following: 

1. Geothermal 

Indonesia is surrounded by the Ring of Fire and boasts the largest geothermal reserves in the world at 23.7 Gigawatts (GW). The government aims to reach a capacity of 7.24 GW of geothermal power by 2025. 

2. Hydropower

Hydropower is Indonesia’s most significant contributor to renewable energy production, providing over 50% of the country’s renewable energy generation. Over 800 rivers in Indonesia have the potential to generate hydropower energy, with an estimated capacity of 75 GW.

Two types of hydropower plants can be built in Indonesia: large-scale plants that produce more than 10 MegaWatt (MW) of electricity and small-scale plants that utilize medium-sized rivers. Small and micro-scale hydropower plants can be an option for startups looking to explore or adopt hydropower generation, given Indonesia’s dispersed electricity distribution in the islands. 

3. Solar 

Located at the equator, Indonesia’s solar potential is the highest of all renewable sources, with an average generation potential of 4.8-5.1 kWh/m2/day, or 112,000 GWp/day. Solar energy is currently the lowest cost and most flexible option in Indonesia. Currently, solar has by far the lowest cost and highest flexibility in terms of set up.

East Ventures has invested in Xurya, a startup that offers users the unique advantage of transitioning to solar energy without the burden of initial investment. Xurya has a rapidly growing portfolio of over 60 operating rooftop solar power plants and an additional 38 under construction across different industries. With the current plans to push solar panel energy up to 6.6 GWh by 2030, there is a huge market potential for Xurya to capture.

4. Biomass

Indonesia has abundant forest resources, making it well-suited for biomass energy supply and production. With a large forestry industry, Indonesia is one of the world’s largest exporters of wood products, and a key palm oil producer and exporter of palm kernel shells for biomass feedstock use. As of 2019, the country has 1,890 MW of bioenergy power plants installed, with an estimated potential of 32 GW. Indonesia can increase its use of renewable energy by further developing its biomass sector.

5. Wind

Indonesia has the potential for wind energy due to strong winds in some regions throughout the year. Development is currently in the early stages, with a technical possibility of 60.6 GW but only 0.15 GW utilized by 2020. Nusa Tenggara Timur has the highest potential with 10.18 GW, followed by East Java and West Java. Despite challenges, there is growing interest in wind energy development, with the government providing policies and incentives to support growth.

Barriers ahead

Capital, policy, and infrastructure are critical to the development and adoption of renewable energy. The technology is often available, but developing new infrastructure for renewable energy generation often requires a significant initial investment, which itself needs a stable and predictable policy environment.

With regard to policy, we are waiting for the upcoming New Energy and Renewable Energy regulation (RUU EBT), which expects in the form of law, will provide legal certainty, improve governance, create a favorable investment environment, and increase the use of renewable energy sources for industrial development and the national economy. 

The bill’s main elements include energy transition and roadmap, renewable energy sources, business licensing, research and development, renewable energy pricing, government support, funding for renewable energy, localization requirements, division of responsibilities, development and oversight, and community involvement.

Aside from the policy, the existing power transmission infrastructure may not be fully compatible with decentralized solar and wind power generation models because it was built for traditional centralized power generation. Once the right infrastructure is in place, the generation of renewables such as solar is perfect for the remote and off-grid areas in Indonesia since it requires minimal maintenance and operational expenses. 

Therefore, the right investment and policy decisions will drive the development of renewables and open up opportunities in various sectors and industries.

Opportunities in going electric

A huge opportunity for Indonesia in positioning itself in the global drive to renewable energy and electrification transition is its abundant nickel resource, which at 21 million tonnes, is the largest in the world. Nickel is an essential component in electric vehicle (EV) battery development and in many solar panel deployments, and Indonesia has leveraged this along with other “green” minerals such as copper and bauxite to attract investment in manufacturing.

Developing a strong domestic battery manufacturing industry can also boost adjacent sectors, such as the automotive industry, and accelerate the transition to electrification. Furthermore, Indonesia has the potential to become a net exporter of renewable energy to countries like Singapore, where there is a growing demand for imported renewable energy.

Opportunities in energy-intensive industries

Renewable energy will also affect all energy-intensive industries, particularly manufacturing, automotive, and construction. The decarbonization trend opens up the opportunity for a privatized energy market, with the potential for virtual power plant (VPP) models to emerge. 

Industrial sectors such as steel and cement can switch to green construction materials with renewable energy. Electric cars can also achieve a 70% reduction in carbon footprint when the batteries are charged by renewable electricity, compared to a 10-20% reduction for coal-generated electricity.

There are unexplored needs in related software, such as energy management, energy trading, and asset management. The financial sector will also benefit if policymakers create a feasible and stable environment for green financing to take place.  

Opportunities in making renewable energy reliable

Indonesia consists of multiple islands with a highly fragmented national grid and off-grid infrastructure. This presents an opportunity for startups to offer efficient technologies for generation, storage, and transmission.

Generation, storage, and transmission are three critical components of functional electricity infrastructure.  Research shows that the average amount of solar power that Indonesia receives per square meter is almost double that of some countries in Europe. We see significant growth opportunities in solar as it is the most cost-effective and flexible option for power generation. 

With regard to storage, the need to find the most efficient way to store renewable energy is the highest it’s ever been. Transmission technology is also critical in the deployment of clean energy. The nature of solar and wind generation is decentralized, so startups can offer their solutions to develop a flexible and efficient grid to reduce power loss and allow for future business models.

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By Zhengyi Zhu, Senior Investment Associate at East Ventures & Allen Wijaya, Investment Associate at East Ventures