Enhancing the role of the private sector in achieving transitional renewable energy targets in Indonesia

Abstract

The Indonesian Government have set several medium-term targets for renewable energy development that aim to support the transition of the Indonesian electricity sector to a lower carbon future while still maintaining sustainable growth. Achieving such targets requires clear policy and regulation, a strict mandate, improved coordination among institutions, and large-scale investment. While these targets may appear to be unrealistic, in light of the Paris Agreement, Indonesia like many countries has a global obligation to reform its energy sector, transitioning away from a reliance on fossil fuels. Due to limited public finances, private sector investment has been identified as crucial for renewable energy development in Indonesia. My research aims to create a framework through which the effectiveness of Indonesian energy policy options that seek to enhance private sector investment in renewable energy development can be assessed. The framework is based on the dimensions of the energy trilemma: energy equity, energy security, and environmental sustainability.Indonesia is blessed with abundant fossil fuel and renewable energy resources, however around 10% of its population remains without access to electricity. Historically, there has been a dependence on fossil fuels, based on a belief that the country is rich in oil. However, in fact Indonesia has become a net importer of oil since 2004 and over the years, state revenue from oil and gas exports has continued to decline. Indonesian energy policy has traditionally subsidised the production and consumption of fossil fuels. Despite this, Indonesia’s energy policy has continued to support the production of fossil fuels and subsidised their domestic consumption. This precedent has seen Indonesia lag behind other countries in the search for more reliable and sustainable energy options. At the same time geographical challenges of Indonesia, extending across thousands of islands, further complicates the challenges of sustainable energy policy. This thesis takes an institutionalists’ approach to investigate the energy transition in Indonesia, emphasising the importance of cooperation among institutions, different levels of government, the private sector, and civil society. I take a private sector perspective (i.e. renewable energy developers and investors) to investigate the barriers and enablers of renewable energy investment in Indonesia. The analysis presented recognises the need for the involvement of multi actors within the policy making process. In addition, this thesis examines micro-level policy making in Indonesia, which takes into account local political and social aspects that may influence policy designed to address global environmental issues such as climate change.The methodology used in this thesis is qualitative. The methodology involved reviewing relevant documents and soliciting stories and observations based on the views of experts, business practitioners, government officials, and civil society through in-depth interviews. A qualitative approach enables an assessment of the complexity and extensiveness of Indonesia’s energy transition through the exploration of assumptions and interactions among actors, priorities, and interests. A qualitative approach can be considered more suitable than quantitative approaches when exploring phenomenon that involve multiple actors, their interactions, and the dynamics of an often fast-changing policy and political landscape.This thesis commences by investigating the background of Indonesia’s renewable energy targets. This is followed by an investigation of the barriers to private sector investment in renewable energy. Key barriers include policy uncertainty as a result of changing staff, contradictory priorities, and different interpretations of the mandate to provide affordable energy access. Further analysis focussed on the structure and policy framework in which the state electricity company, PLN, is embedded. Recommendations for the reform of the electricity sector in Indonesia follow, drawn from experiences in other countries. The findings suggest a need to establish alternative institutional arrangements in response to an unaccommodating national government policy towards renewable energy.Analysing renewable energy development from a private sector perspective contributes to the discourse of how policy can be better formulated to promote renewable energy in Indonesia with the hope of encouraging policymakers to practice more evidence-based policy making in the energy sector. The thesis calls for more transparent policymaking to address the current shortcomings of renewable energy policy making in Indonesia, which undermines the importance of private sector perspectives and the role of other stakeholders. It highlights that in unfavourable political conditions for renewable energy investment, the private sector needs to innovate and find ways to thrive.