Policy uncertainty stalls Indonesia’s energy transition - East Asia Forum
Published December 20, 2025
Policy Uncertainty Impedes Indonesia's Energy Transition
Indonesia, a country rich in natural resources, has set ambitious goals for transitioning to renewable energy. The government's commitment to achieving a target of 23% renewable energy in the national energy mix by 2025 is commendable. However, the journey toward this objective is facing significant challenges, primarily due to policy uncertainty.
The Indonesian government has established various policies and regulations aimed at promoting renewable energy. Notably, the 2014 Renewable Energy Law was a significant step forward, as it aimed to attract investments in the renewable sector. However, the implementation of this law has been inconsistent, leading to confusion among investors and stakeholders. The lack of clarity regarding regulations, licensing, and grid access has created an environment of uncertainty that hampers the progress of renewable energy projects.
One of the primary obstacles in the energy transition is the reliance on fossil fuels. Indonesia is one of the largest coal producers in the world, and coal remains a significant part of its energy mix. In 2020, coal accounted for approximately 60% of the country's total energy consumption. This heavy dependence on fossil fuels not only contradicts the government's renewable energy goals but also poses environmental challenges, including air pollution and greenhouse gas emissions.
Moreover, the government has been slow to phase out fossil fuel subsidies, which further complicates the transition to renewable energy. According to the International Energy Agency (IEA), Indonesia spent around $9 billion on fossil fuel subsidies in 2020. These subsidies incentivize the continued use of fossil fuels, making it difficult for renewable energy sources to compete on price.
In addition to the economic challenges, Indonesia's energy transition is also hindered by social factors. Access to electricity remains a significant issue, especially in rural areas. Approximately 12 million people in Indonesia still lack access to electricity, and the government has prioritized expanding the electricity grid to these underserved regions. However, the focus on expanding fossil fuel-based energy sources has overshadowed the potential of decentralized renewable energy solutions, such as solar and wind power, which could provide access to clean energy in remote areas.
Despite these challenges, there are positive developments in Indonesia's renewable energy sector. The government has launched several initiatives to promote solar energy, such as the rooftop solar program, which aims to encourage households and businesses to install solar panels. Additionally, the Ministry of Energy and Mineral Resources has set a target of installing 6.5 gigawatts (GW) of solar capacity by 2025.
Furthermore, Indonesia has abundant renewable energy resources, including geothermal, hydro, and biomass. The country has the potential to become a leader in geothermal energy, with an estimated capacity of 29 GW. Currently, Indonesia ranks as the second-largest producer of geothermal energy globally, yet only a fraction of its potential has been harnessed. The government has recognized this potential and is working to attract investments in geothermal projects.
Another positive trend is the growing interest from international investors in Indonesia's renewable energy sector. Several foreign companies have expressed interest in investing in solar and wind projects in the country. For instance, in 2021, a consortium led by a major international renewable energy firm announced plans to develop a 1 GW solar project in Indonesia, signaling confidence in the country's renewable energy potential.
However, for Indonesia to realize its renewable energy ambitions, it is essential to address the existing policy uncertainties. The government must provide a clear and stable regulatory framework that encourages investment in renewable energy. This includes streamlining the permitting process, ensuring grid access for renewable energy projects, and providing long-term power purchase agreements to attract investors.
Additionally, phasing out fossil fuel subsidies is crucial for leveling the playing field between fossil fuels and renewable energy. By redirecting these funds toward renewable energy projects, the government can stimulate growth in the sector and contribute to job creation and economic development.
Furthermore, promoting decentralized renewable energy solutions can help address energy access issues in rural areas. By investing in off-grid solar and wind projects, the government can provide clean energy to underserved communities while reducing reliance on fossil fuels.
In conclusion, while Indonesia has made strides toward transitioning to renewable energy, significant challenges remain. Policy uncertainty, reliance on fossil fuels, and social factors pose obstacles to achieving the government's renewable energy targets. However, with the right policies and investments, Indonesia can unlock its renewable energy potential and pave the way for a sustainable energy future.