World Bank encourages private investment in renewables in Indonesia

Indonesia should put in place a package of reforms and investment in order to achieve its aim of cutting greenhouse gas emissions by between 26% and 41% by 2030 and to reach carbon neutrality no later than 2060, according to a new WB report.

Renewables and climate change expert John Yeap of Pinsent Masons said: “This encouragement by the WB to allow for greater private sector participation in the Indonesian power sector is to be welcomed, though frankly there is very little that is new here, both in terms of the narrower agenda of net zero and the broader agenda of sector reforms around pricing and institutional transparency and robustness.” 

“As southeast Asia’s largest economy, blessed with renewable energy resources such as geothermal and solar, Indonesia has the potential to be the region’s leader in renewables, and the reforms and the alignment of interests identified in the report will help facilitate the delivery of that potential,” he said.

The WB recommended that Indonesia strengthen its public institutions, and align the government and PLN’s net zero carbon strategies to provide a clear signal to private investors. It also recommended that the Indonesian government set up a coordinating inter-ministerial commission to ensure the alignment of sectors, climate and financial targets.

Indonesia should encourage private investment in renewable energy by reforming renewable energy price controls, reducing local content requirements for renewable energy equipment, and gradually abolishing coal and fuel subsidies, according to the report.

The country should improve the revenue adequacy of PLN, the state-owned power utility, to ensure the financial sustainability of the power sector. PLN could also expand the use of green bonds and carbon credits and explore new financing schemes and sources, according to the WB.

Indonesia should have an economic plan including reforms to unlock new sources of growth, social assistance and an active labour market programme to help smooth incomes and acquire new skills for those most affected by the energy transition, “paving a just transition for all”, the report said.

Indonesia joined the Accelerating Coal Transition (ACT) programme to support its transition from coal to clean energy during the COP26 international climate change conference in November.