## INDONESIA’S SOLAR FUTURE

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**Canonical URL:** [INDONESIA’S SOLAR FUTURE](https://www.imf.org/-/media/files/publications/fandd/article/2022/december/indonesias-solar-future.pdf)

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### Current status of solar in Indonesia
- Photovoltaics accounted for less than 200 megawatts on electricity grids in 2021.
- That was less than 0.1 percent of total installed capacity.
- In 2017, off-grid hamlet Pukurayat received electric lighting for the first time from four lamps powered by a rooftop solar panel.
- In 2017, a private installation cost more than $10,000 for photovoltaic equipment for a home on a small island.
- A lightning bolt scorched a system’s $5,000 inverter in one documented case.
- Diesel-burning plants in outlying islands can cost up to 22 cents a kilowatt-hour, accounting for about 7 percent of Indonesia’s electricity capacity.
- In 2015, a then-largest solar power plant generated electricity costing 25 cents a kilowatt-hour.
- PLN signed power purchase agreements at less than 6 cents a kilowatt-hour for 50 megawatts of solar power in Bali.
- In June 2019, PLN reported that solar energy accounted for 0.1 percent of the electricity generated on Lombok; by the end of 2019 the share had increased to 2.8 percent.

### Barriers and political economy
- Coal is plentiful and can be extracted cheaply in Indonesia; the state grid, Perusahaan Listrik Negara (PLN), relies on domestic supplies to power two-thirds of electricity generation.
- To attract investment, PLN offered independent power producers long-term contracts, locking the state-owned grid into guaranteed coal payments even as electricity supply outpaced demand.
- State-Owned Enterprises minister Erick Thohir said that retiring 15 gigawatts of coal capacity by 2050 could cost $600 billion.
- PLN plans near-term emissions trimming by co-firing coal with biomass (such as sawdust and household waste); analysts note this will require building a dedicated biomass industry from scratch.

### Recent reforms, projects, and targets
- The government added a multibillion-dollar solar project in the Riau Islands to the docket of national priority projects in August; if built, the project could export clean energy to Singapore and catalyze a domestic solar manufacturing industry (analysts’ view).
- Last year, Indonesia’s energy ministry approved a new 10-year business plan in which renewable projects make up more than half of planned new capacity, up 25 percent from the previous blueprint.
- The energy ministry introduced improved terms for rooftop on-grid solar capacity: cutting permit times and increasing the export allowance from 65 percent of excess electricity generated to 100 percent.
- The 2021 regulation set a target of 3.6 gigawatts of rooftop solar capacity by 2025, which the government hopes will support more than 100,000 jobs and prevent 4.6 million tons of carbon emissions.
- Conversations with about 30 developers indicated that 3.3 gigawatts of rooftop solar capacity was set to come online by the end of next year (Institute for Essential Services Reform).

### Regional variation and deployment prospects
- Eastern Indonesia and smaller grids reliant on diesel are expected to see quicker solar uptake in the near term as the government seeks to retire thousands of diesel plants.
- Nusa Tenggara is identified as having the best solar reserves in Indonesia and regional authorities want renewables, mainly solar, to drive 35 percent of electricity generation in the province by 2025—higher than the central government’s national target of 23 percent.
- Indonesia has more potential solar energy than all the world’s power plants combined (statement in the text), yet installed capacity remains very low.

### Social and health impacts of solar deployment
- Rudimentary solar panels and batteries have been relatively successful in bringing electrification to remote off-grid areas such as Pukurayat.
- Arrival of renewable energy can reduce indoor combustion of fuels (firewood, kerosene), which UNICEF cites as causing thousands of pneumonia deaths every year among Indonesian children under 5.
- Prior to receiving solar in 2017, Sakerebau’s family used an open container of kerosene and a homespun candle (alito), known causes of air pollution and house fires.

### Outlook and implementation challenges
- Falling photovoltaic costs and regulatory reforms improve the business case for solar, but implementation on the ground (for example, PLN’s execution of rooftop export allowance changes) will be crucial.
- Analysts emphasize the need to resolve how the decommissioning of old coal plants will be financed.
- Transition strategies include co-firing with biomass and scaling rooftop and utility-scale solar, with near-term momentum in eastern and off-grid areas.

*Source: FINANCE & DEVELOPMENT, December 2022 — "INDONESIA’S SOLAR FUTURE"*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2022/december/indonesias-solar-future.pdf_