Indonesia’s Solar Future
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Bibliographic details
- Authors: Harry Jacques
- Published: December 1, 2022
Overview
- Indonesia has the least installed solar energy among G20 countries despite abundant year-round sunshine and more potential solar energy than all the world’s power plants combined.
- In 2021 photovoltaics accounted for less than 200 megawatts on electricity grids in Indonesia, representing less than 0.1 percent of total installed capacity.
- The country is the world’s largest exporter of thermal coal; the state grid, Perusahaan Listrik Negara (PLN), relies on domestic coal to power two-thirds of electricity generation.
Barriers and political economy
- Perceptions that photovoltaic energy is expensive and high-maintenance impede adoption in many communities.
- Coal’s cheap domestic extraction and long-term contracts offered by PLN to independent power producers locked the grid into guaranteed coal payments even as supply outpaced demand.
- In outlying islands, diesel plants burn millions of liters of diesel at a cost of up to 22 cents a kilowatt-hour; these plants account for about 7 percent of Indonesia’s electricity capacity.
- Co-firing coal with biomass (sawdust, household waste) is planned to trim emissions from coal fleet, but implementing this will require building a dedicated biomass industry from scratch.
Recent developments and government targets
- In 2015 President Joko Widodo opened what was then the country’s largest solar power plant; the electricity it generates costs 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.
- The government added a multibillion-dollar solar project in the Riau Islands to national priority projects; if built, it could export clean energy to Singapore and catalyze domestic solar manufacturing.
- The 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.
- A 2021 regulation improved rooftop on-grid solar terms by 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.
Regional dynamics and deployment patterns
- Smaller grids reliant on diesel in eastern Indonesia are expected to see quicker solar uptake in the near term as the government seeks to retire thousands of diesel plants.
- PLN reported that solar energy accounted for 0.1 percent of the electricity generated on Lombok in June 2019; by the end of that year the share had increased to 2.8 percent.
- Nusa Tenggara is noted as having the best solar reserves in Indonesia; the regional government seeks 35 percent of electricity generation from renewables, mainly solar, by 2025—higher than the central government’s national target of 23 percent.
- Remote off-grid areas (for example, Pukurayat in the Mentawai archipelago) have received basic solar electrification, though equipment durability and battery replacement remain challenges.
Social and environmental benefits
- Renewable energy rollout can reduce indoor air pollution from fuels like firewood and kerosene, which cause thousands of pneumonia deaths every year among Indonesian children under 5, according to UNICEF.
- The shift from kerosene/alito and open-fire lighting to solar lighting in communities reduces fire risk and improves household safety and health.
Financing and decommissioning challenges
- Questions remain about how decommissioning of old coal plants will be financed; retiring 15 gigawatts of coal capacity by 2050 could cost $600 billion, according to State-Owned Enterprises minister Erick Thohir.
- Investment attractiveness is improving as photovoltaic costs decline and policy reforms advance, but implementation by PLN will be crucial to realize rooftop and grid-scale targets.
Key statistics (preserved exactly)
- 17,000 islands
- 70 islands (Mentawai island chain)
- 60 regions defined by government as underdeveloped
- less than 200 megawatts (photovoltaics on grids in 2021)
- less than 0.1 percent (share of total installed capacity in 2021)
- two-thirds (share of electricity generation powered by domestic coal for PLN)
- up to 22 cents a kilowatt-hour (cost of diesel-generated electricity in outlying islands)
- about 7 percent (diesel plants share of Indonesia’s electricity capacity)
- retiring 15 gigawatts of coal capacity by 2050 could cost $600 billion
- 25 cents a kilowatt-hour (cost of electricity from 2015 solar plant)
- less than 6 cents a kilowatt-hour (PLN power purchase agreements for 50 megawatts in Bali)
- multibillion-dollar (Riau Islands solar project designation)
- more than half (renewable projects share of planned new capacity in 10-year plan)
- up 25 percent (increase from previous blueprint)
- export allowance increased from 65 percent to 100 percent (rooftop on-grid solar regulation)
- 3.6 gigawatts (rooftop solar target by 2025)
- more than 100,000 jobs (employment target associated with 3.6 gigawatts)
- prevent 4.6 million tons of carbon emissions (associated with 3.6 gigawatts)
- 3.3 gigawatts (rooftop capacity conversations indicated would come online by end of next year)
- 0.1 percent (solar share on Lombok in June 2019)
- 2.8 percent (solar share on Lombok by end of 2019)
- 35 percent (Nusa Tenggara regional renewable target by 2025)
- 23 percent (central government national renewable target)
- 31.9 percent (Indonesia committed emissions cut by 2030 under UNFCCC submission, September)
Source: Indonesia’s Solar Future, F&D Magazine, Harry Jacques, December 2022. Canonical URL: https://www.imf.org/en/publications/fandd/issues/2022/12/country-case-indonesia-solar-future-jacques
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