Liberalisation alone won’t power Indonesia’s energy transition - East Asia Forum
Published January 04, 2026
Liberalisation Alone Will Not Drive Indonesia’s Energy Transition
Indonesia is at a critical juncture in its energy landscape, facing the dual challenges of meeting growing energy demands and transitioning to a more sustainable energy system. The government’s commitment to liberalising the energy sector is a step towards achieving these goals, but it alone will not suffice to drive the necessary changes. A comprehensive approach that includes regulatory reforms, investment in renewable energy, and the development of local capacity is essential for Indonesia to successfully navigate its energy transition.
Current Energy Landscape
As the largest economy in Southeast Asia, Indonesia is experiencing rapid economic growth, which is leading to an increase in energy consumption. The country’s energy demand is projected to rise significantly in the coming decades, driven by urbanisation, industrialisation, and population growth. Currently, Indonesia relies heavily on fossil fuels, particularly coal, which accounts for approximately 60% of its energy mix. This reliance poses significant environmental challenges and undermines the country’s commitments to reducing greenhouse gas emissions.
In response to these challenges, the Indonesian government has set ambitious targets for renewable energy development. The National Energy Policy aims for renewable energy to contribute 23% of the total energy mix by 2025, and 31% by 2050. However, the path to achieving these targets is fraught with obstacles, including regulatory barriers, insufficient investment, and a lack of infrastructure.
The Role of Liberalisation
Liberalisation of the energy sector is seen as a key strategy to attract investment and stimulate competition. The government has initiated several reforms aimed at opening up the electricity market to private players and encouraging foreign investment. These reforms include the introduction of power purchase agreements (PPAs) and the establishment of independent power producers (IPPs).
While liberalisation is an important step, it is not a panacea. The success of these reforms depends on the establishment of a stable regulatory framework that provides clear guidelines for investors. Currently, Indonesia’s regulatory environment is characterised by uncertainty, which can deter potential investors. Furthermore, the lack of a coordinated approach between various government agencies can lead to delays and inefficiencies in project implementation.
Investment in Renewable Energy
Investment in renewable energy is crucial for Indonesia’s energy transition. The country has abundant renewable resources, including solar, wind, and geothermal energy. However, attracting investment in these sectors has proven challenging. According to a report by the International Renewable Energy Agency (IRENA), Indonesia needs to invest approximately $20 billion annually in renewable energy to meet its targets.
To facilitate this investment, the government must create a conducive environment for renewable energy projects. This includes providing financial incentives, such as feed-in tariffs and tax breaks, to make renewable energy more competitive with fossil fuels. Additionally, improving access to financing for renewable energy projects, particularly for small and medium-sized enterprises, is essential to stimulate growth in the sector.
Capacity Building and Local Development
In addition to liberalisation and investment, building local capacity is vital for Indonesia’s energy transition. Developing a skilled workforce that can support the growth of the renewable energy sector is essential. This includes training programs for engineers, technicians, and other professionals who can contribute to the design, installation, and maintenance of renewable energy systems.
Moreover, fostering local businesses and industries that can supply goods and services to the renewable energy sector will enhance the overall sustainability of the transition. By supporting local enterprises, Indonesia can create jobs, stimulate economic growth, and reduce its reliance on imported technologies and expertise.
Challenges Ahead
Despite the potential for a successful energy transition, several challenges remain. One of the most significant barriers is the entrenched interests of the fossil fuel industry, which may resist changes that threaten their market share. Additionally, the lack of public awareness and support for renewable energy initiatives can hinder progress. Engaging communities and stakeholders in the energy transition process is crucial to building support and ensuring that the benefits of renewable energy are widely shared.
Furthermore, the existing energy infrastructure in Indonesia is predominantly designed for fossil fuel-based generation. Transitioning to renewable energy will require significant upgrades and investments in grid infrastructure to accommodate new technologies and ensure reliability. This presents both a challenge and an opportunity for innovation in the energy sector.
The Way Forward
To successfully navigate its energy transition, Indonesia must adopt a holistic approach that integrates liberalisation, investment, and capacity building. This requires strong leadership and commitment from the government, as well as collaboration between public and private sectors. By creating a stable regulatory environment, providing financial incentives for renewable energy projects, and investing in local capacity development, Indonesia can position itself as a leader in sustainable energy in Southeast Asia.
Ultimately, while liberalisation is a critical component of Indonesia’s energy transition, it is not the only solution. A multifaceted approach that addresses regulatory, financial, and capacity-building challenges will be essential for achieving the country’s renewable energy targets and ensuring a sustainable energy future.
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