Indonesia to Export 300 Megawatt Renewable Energy: Opportunities for Foreign Investment

Indonesia has the world’s fourth-largest population and expected will have the world’s fourth-largest economy by 2050. Hence, the rise in demand for energy looks inevitable which would further open up new possibilities for renewable energy companies.

To ensure judicious use of renewable energy resources, the Indonesian government has set aggressive targets. The National Energy Policy (KEN) and Plan (RUEN) target that renewable energy resources provide 23% of all final energy consumption, whereas the draft National Electricity Plan (RUKN) aims 25% renewable electricity for the power sector, by 2025.

These targets also satisfy the country’s greenhouse gas emissions goals while increasing national energy security at the same time.

Moreover, the Indonesian government is working on a proposal to export up to 300 megawatts (MW) of power to Southeast Asia via a 400 kilovolt (kV) underwater transmission system. According to reports, the power to be exported will be created using innovative and renewable energy sources (EBT). The idea came about when the government proposed the creation of a 2.2-gigawatt peak (GWp) floating solar power plant (PLTS) in Duriangkang Reservoir, Batam, Riau Islands.

Hence, the development of Indonesia’s renewable energy sector will generate medium- to long-term opportunities for foreign investors as the government shifts its focus to renewable energy.

Understanding Market Landscape of Indonesia Renewable Energy Sector

Based on Indonesia’s electricity supplier – PLN’s Electricity Supply Business Plan (RUPTL) and current market circumstances, the overall market for renewable energy is expected to reach USD 38.9 billion by 2025.

The following has been divided depending on the size of the market for each type and category of renewable energy, as well as the potential share for foreign enterprises.

Geothermal

The market for geothermal energy is expected to be around USD 21 billion. With a number of new projects coming online and new concession areas issued, Indonesia became the world’s second-largest geothermal power producer in 2018. Geothermal exploration is regarded as a high-risk, high-capital endeavor. National state-owned companies have been given the majority of new geothermal concessions, although many lack the resources and competence to properly develop the projects.

Hydropower

The hydropower market is predicted to be worth USD 12.9 billion, with medium and large hydropower (> 10 MW) accounting for USD 9.5 billion and small hydropower (< 10 MW) accounting for USD 3.4 billion. With a few exceptions, the government prefers to establish PLN rather than IPPs for most medium and large hydropower projects. These initiatives have the added benefit of being able to attract foreign investment in Indonesia.

Bioenergy

The market for bioenergy is expected to be worth USD 2.5 billion. This includes USD 650 million for biomass, USD 200 million for biogas, USD 1.5 billion for waste-to-energy, and USD 166 million for biodiesel producers. While there are presently no waste-to-energy projects in Indonesia, with the release of a Presidential decree encompassing 12 of the country’s major cities and a smooth procurement procedure in place, the sector is projected to accelerate.

Solar Energy

The solar photovoltaics (PV) market is expected to reach USD 769.3 million, with utility-scale PV accounting for USD 675.5 million and rooftop PV accounting for USD 93.8 million. Smaller solar PV systems (250 kW to 5 MW) on small island isolated grids now supported only by diesel generators are being promoted by the government and PLN in addition to bigger grid-linked solar PV projects. The bigger utility-scale projects are being developed by foreign investors. The majority of the equipment opportunities in the market for both utility-scale and rooftop solar PV are accounted for by imports of solar PV panels and inverters.

Smart Grid Solutions

The smart grid solutions market is estimated to open between 2020 and 2025. Currently, improved micro-grids and battery energy storage systems (BESS) are in the pilot demonstration stage. It is estimated that these markets will reach USD 153 million and USD 280.5 million, respectively, based on MEMR’s focus on enhancing grid operability and PLN’s realization of the importance of smart transmission and distribution system control and BESS.

Government Supports Foreign Investment in Indonesia Renewable Energy Sector

Relaxed Regulations

Following the passing of the Positive Investment List, the Indonesian government opened up certain formerly closed-off corporate sectors to foreign investment, particularly those in the energy industry, such as:

Incentives

Indonesia’s Renewable Energy Power Plant Business Activities (KBLI 35101 A) has also been designated by the government as a pioneer industry eligible for tax breaks.

For newly established investments with a minimum value of IDR 100 million, the Corporate Income Tax (CIT) due will be waived for the first 5 to 20 years after commercial production begins, followed by a 50% CIT decrease for the next two years.

Furthermore, the Ministry of Finance provides Indonesia tax holiday of 50% of CIT payable for 5 years, followed by a 25% CIT reduction for the next two years, based on a capital investment plan of IDR 100 to 500 billion.

How Can InCorp Help?

While making an investment in Indonesia renewable energy sector, InCorp Indonesia (an Ascentium Company) will provide you with a seamless company registration experience. Our consultants can further assist you with the acquisition of business licenses with the least delay.

Moreover, if you want to analyze sectors and know more than what the stats say before investing in Indonesia, InCorp’s market research and due diligence team can assist you to review your possible investments. Furthermore, InCorp provides tax and accounting services and can act as your HR entity to carry out HR and recruitment services to help cut overhead costs of setting up a department.