indonesia

which has undermined efforts to promote renewable energy within the archipelago. Among the
other barriers to developing renewable energy in Indonesia, four are deserving of special attention.
The most notable one is the lack of coordination among the central government’s ministries
and institutions that deal with renewable energy development, as well as between the central
government, which issues the major policies for the development of renewable energy, and the
local governments where most renewable energy projects take place. The situation is made worse
by Indonesia’s weak human resource capacity to deal with renewable energy, particularly in
district and provincial governments.
A second challenge is managing the rapidly changing legal and regulatory environment, which
has further inhibited the development of renewable energy. Following Indonesia’s economic
and political crises in 1998, the number of laws and regulations has increased exponentially.
The country’s renewable energy business is still adapting to these new laws and regulations—a
process that has been complicated by conflicting regulatory interests among sectors and regions.
Geothermal is one example of an area where the laws and regulations guiding its development are
quite complex. 25
A third barrier is the high upfront costs associated with renewable energy development. Thus
far the main sources of financing for renewable energy development in Indonesia are the central,
provincial, and district governments, whose budgets are quite limited. This funding has been
supplemented by foreign grants and loans—for instance, from the Japanese government, the
governments of some European countries, and the Millennium Challenge Account of the United
States. Private sector financing to develop renewable energy in Indonesia is still limited, probably
due to the poor investment climate for the sector.
A final challenge in renewable energy development is related to the geography of Indonesia,
which comprises over 17,000 islands, 34 provinces, and 514 districts. In many cases, the sources of
renewable energy are found on islands far away from demand centers. Transportation costs between
islands are expensive, and infrastructure connecting the vast archipelago is still very limited. 26
Strategies to Improve Energy Security
Having been lulled by an old paradigm that Indonesia is rich in energy resources, Indonesians
are now increasingly concerned that the nation is facing an energy security crisis. Efforts to
address this issue are being carried out by the government.
The National Energy Council, which was established in 2009, is responsible for preparing
the national energy policy. The most recent national energy policy describes several strategies
for improving energy security: (1) intensify energy exploration, (2) limit exports of energy,
(3) reduce the country’s dependence on energy imports, (4) accelerate the development of energy
infrastructure for domestic purposes, (5) expand the use of renewable energy (particularly
geothermal, hydro, and local sources), and (6) promote energy conservation. 27 Additionally, one
of President Jokowi’s development approaches is to “build from the periphery”—meaning that the
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25 President of Indonesia, “Undang-undang Republik Indonesia nomor 21 tahun 2014 tentang panas bumi” [Law of the Republic of Indonesia
about Geothermal 2014], 2014, available at http://www.indolaw.org/UU/Law%20No.%2021%20of%202014%20on%20Geothermal.pdf.
26 Nugroho, “Renewable Energy in Indonesia”; and U.S. Energy Information Administration, “Indonesia,” October 7, 2015, http://www.eia.
gov/beta/international/analysis.cfm?iso=IDN.
27 “National Energy Policy (Government Regulation no. 79/2014),” available at IEA, http://www.iea.org/policiesandmeasures/pams/indonesia/
name-140164-en.php.
SPECIAL REPORT u DECEMBER 2015