Abundant solar energy in Indonesia remains unexploited, venture firms say


(Photo: iStock)

Indonesia is geographically located at the equator and boasts abundant solar resources with its average Global Horizontal Irradiance (GHI) surpasses China and Singapore. However, solar power generation in Indonesia accounts for less than 1% of the nation's total electricity production. Some venture capital firms believe that Indonesia's photovoltaic potential is underdeveloped and estimate annual demand could reach as high as 36 GW, which is seven times the total investment from 2018 to 2021.

Currently, Indonesia relies primarily on fossil fuels for electricity, with coal-fired power plants making up about 60% of the energy mix. The local government is working to retire these high-carbon-emission power plants ahead of schedule, which will create a significant energy gap. Helen Wong, a managing partner at AC Ventures in Indonesia, stated that excessive investment in coal mines has resulted in an oversupply of cheap electricity.

After evaluating the geographical environment and land use conditions, she believes the technical potential for renewable energy in Southeast Asia could reach 17 TW, more than 20 times what is needed to achieve the net-zero target by 2050. Currently, installed capacity stands at only 99 GW.

Generally, 1 GW of power generation is sufficient to supply electricity to 750,000 households, and 1 TW equals 1,000 GW. 17 TW is nearly equivalent to the current global energy consumption scale.

PLTU Indramayu in Indonesia. (Photo: Wikimedia Commons)

However, Helen Wong also pointed out that, apart from Java, approximately 40% of Indonesia consists of remote areas scattered across various islands. These areas are not expected to connect to the national grid in the short term, posing challenges for the effective utilization of renewable energy. Additionally, PLN (Perusahaan Listrik Negara), Indonesia's state-owned electricity company, monopolizes the grid market and is currently the sole buyer of solar power but is reluctant to increase its purchase.

Former Indonesian Trade Minister Mari Pangestu shares this view. She bluntly stated that utility is "not very excited" in purchasing large-scale private green electricity or excess rooftop solar power, and "they are not in a hurry to deploy renewable energy."

PLN, facing financial issues, has long received substantial government subsidies. According to the Institute for Energy Economics and Financial Analysis (IEEFA), the Indonesian government allocated 123 trillion IDR (about 8 billion USD) in 2022 alone to cover PLN's operational and maintenance costs.

Moreover, the energy industry is capital-intensive, and currently, the capacity of domestic Indonesian companies falls short of government policy requirements. Mari Pangestu believes that instead of demanding localization and requiring local companies to participate in every segment of the supply chain, it would be better to form a regional supply chain.

In addition to collaborating with ASEAN countries, Indonesia could also target Australia and New Zealand. She specifically mentioned China, noting that "decoupling just because of geopolitical issues is detrimental to a developing country."

Source: Indonesia Business PostLatitude MediaIEEFA

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