Indonesia’s Rapid Development for the Green Energy Transition

Indonesia’s Rapid Development for the Green Energy Transition

  • InCorp Editorial Team
  • 25 November 2022
  • 4 minute reading time

Any form of energy produced from renewable resources, such as sunlight, wind, or water, is called green energy. It frequently comes from renewable energy sources, although there are essential distinctions between renewable and green energy, which we will discuss below.

The Difference Between Clean and Green Energy

Renewable energy methods like solar energy, wind power, geothermal energy, biomass, and hydroelectric power are familiar sources of green energy. Each of these technologies operates uniquely, whether by harnessing the sun’s energy, as with solar panels, or employing wind turbines, water flow, or both to produce energy.

To be categorized as green energy, a resource must not cause pollution, as is the case with fossil fuels. Accordingly, not all of the sources employed by the renewable energy sector are environmentally friendly.

For instance, while burning organic material from sustainably managed forests may be renewable, the CO2 emissions from the burning process make the process not environmentally friendly.

Unlike fossil fuels like coal or natural gas, which may take millions of years to form, green energy sources are typically supplied by nature. Green sources frequently avoid environmentally harmful mining and drilling operations.

Green Energy Transition and Leaving Coal Behind

Indonesia’s Rapid Development for the Green Energy Transition

As countries are getting increasingly conscious about their carbon footprint, there has been an apparent attempt by a large number of countries to transition away from the usage of coal towards a greener, more sustainable source of energy.

Regarding bilateral cooperation, Germany started the Green Infrastructure Initiative (GII) to support Indonesia’s efforts toward the green energy transition. The GII focuses on managing water and wastewater, managing solid waste, and urban public transportation.

Jokowi wants to make East Kalimantan’s Nusantara a metropolis where most people use public transport. The building of Nusantara, which will be effectively replacing Jakarta, is aimed to be sustainable and green. The government will use renewable energy sources to power the city.

By 2060, Indonesia promises to have zero emissions. Climate Investment Funds (CIF) has agreed to collaborate with the government-owned utility Perusahaan Listrik Negara (PLN) to convert coal facilities to use solar power and battery storage.

PLN has promised to stop developing new coal-fired power plants starting in 2019 and phase them out by 2056. The plan also encourages policy changes to decommission other coal assets, roll out 400 MW of installed renewable energy generation, and reclaim 150 hectares of coal mines.

Its implementation will be assisted by the World Bank and the Asian Development Bank. With the plan already laid out, Indonesia offers a good investment scene.

Aside from that, the US and Japan are currently negotiating a multi-billion dollar package with the Indonesian government to help the country shift away from coal. According to secret diplomatic service reports of the EU that Politico has seen, they made an initial USD 10 billion offer.

Challenges For Coal Power Plant Industry

The government must overcome many obstacles in the development of EBT. Most of the hiccups include the potential for the green energy transition to spread across the nation.

Network restrictions, the requirement for large base load or storage power plants, limited domestic industry capabilities, market uncertainty, transportation, and a decrease in energy consumption due to the pandemic are impairing the development.

The most significant problem with the transition, though, is financial. These include initial investment expenses, high bank interest rates, and a lack of desire for banks to invest. Those problems are responsible for slowing down the financing process.

Additionally, developing nations continue to pay a high price for clean energy technology and the energy transformation process.

Mining Companies Seek Alternatives

The introduction of renewable energy and the creation of an EV ecosystem in Indonesia are the stated objectives of Indika Energy.

On September 22, PT Mitra Motor Group (MMG), a subsidiary of Indika Energy and a manufacturer of electric four-wheelers, established a joint venture with Foxteq Corporation Singapore.

The business partnership, which concentrated on producing commercial electric vehicles and batteries, was followed by an investment from MMG of IDR 39 billion (USD 2.5 million), or 60% of the paid-up capital.

By purchasing the bauxite miner PT Perkasa Investama Mineral for USD 5 million through its subsidiary PT Indika Mineral Investindo, publicly traded coal miner PT Indika Energy has completed a drive to diversify its business away from coal.

Presently, Indika owns all of the business. In particular, the mining and processing of bauxite minerals was one area where they sought to diversify their business away from the coal industry.

The energy transition is a momentum worth taking a risk. As all countries are racing to reduce emission levels, businesses may maximize their profits and benefit from this common goal.

Companies seeking to do so in Indonesia may contact InCorp Indonesia (formerly Cekindo) for company registration and business license matters.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Get in touch with us.

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Frequent Asked Questions

As their names suggest, the main differences between the three business kinds in Indonesia lie in the businesses and the purpose of their incorporation. Local company owners (PT) must be Indonesian citizens, as even 1 percent of foreign ownership is not allowed. This type of company is not limited to entering any business field, and restrictions on incorporation are not so tight. On the contrary, a foreign-owned company (PT PMA) is open to international investors, but the maximal percentage of foreign shares differs in various business sectors. Contact InCorp to get the most updated information on the Negative Investment List. International investors tend to open representative offices as a first step to understanding the Indonesian market before setting up a limited liability company. This type is used for marketing and promotion activities and needs the right to sell directly and receive income.

There are three things business owners need to consider before setting up a business in Indonesia: the type of business entity, capital requirements, and regulations.

Indonesian regulations separate local companies from foreign companies. Generally, foreign-owned companies (PT PMA) have more limitations than their local counterparts (Local PT). However, to pursue more foreign direct investment in the country, the government has taken several bold initiatives to increase the ease of doing business and provide numerous attractive incentives for foreign investors.

Yes, this mainly applies to import and export businesses. Instead of establishing a company, you can use an under-name import service, an importer of record.

It should take between 30 to 45 days.