Friday, June 14, 2024

Solar energy potential in Indonesia underutilized

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Indonesia has harnessed less than 1 percent of its solar energy potential, lagging significantly behind neighboring countries as fossil fuels continue to dominate and account for about 83 percent of the energy mix in Southeast Asia, while renewable energy contributes only 14.2 percent, said Helen Wong, Managing Partner at AC Ventures on Tuesday, May 28, 2024.

One of the underutilized renewable energy sources in Indonesia is solar energy, compared with Vietnam which has made notable progress, with solar power comprising 20.5 percent of its renewable energy share. Indonesia, however, remains far behind.

Wong highlighted that approximately 40 percent of Indonesia consists of remote areas scattered across islands beyond Java, which are unlikely to be connected to the national grid soon. This complicates infrastructure development but also underscores the challenge of effectively utilizing abundant renewable resources.

Wong pointed out that Southeast Asia has a technical potential of 17 terawatts, over 20 times the capacity needed to meet net-zero emission targets by 2050. However, the current renewable energy capacity is only 99 gigawatts.

“Given this scenario, opportunities are emerging, and investors are starting to secure their positions in the renewable energy sector in the region,” she said.

To address this, the Indonesian government and the International Partners Group (IPG) have launched the Indonesia Just Energy Transition Partnership (JETP) during the G20 Summit in Bali. This agreement aims to raise an initial US$20 billion from public and private financing to reduce emissions in Indonesia’s energy sector.

A significant part of this plan involves the early phase-out of coal-fired power plants in Indonesia, which currently make up 60 percent of the local energy mix.

To bridge the production gap, there is a need for aggressive investment in renewable energy, with a target of generating 36 gigawatts annually from photovoltaic solar panels alone, seven times the investment recorded between 2018 and 2021.

Wong emphasized the urgent need for climate action, particularly in Southeast Asia. However, Indonesia faces a problem of over-investment in coal, leading to a surplus of cheap electricity.

“In this context, JETP discussions should be seen as a push for global climate investors,” she said.

Despite this, Wong noted that Indonesia’s regulatory framework still contends with substantial subsidies for fossil fuels, especially coal, making it challenging for solar energy to compete.

State electricity company PT PLN, which manages the electricity grid, is currently the sole purchaser of solar energy and is not very enthusiastic about increasing its solar energy purchases.

AC Ventures frequently encounters startups across various categories. According to Wong, the most promising subsector in Indonesia’s solar energy market is the commercial and industrial sector.

“Xurya, one of our portfolio companies, is the largest player in Indonesia’s commercial and industrial market, providing green energy to multinational companies, with a current capacity of around 200 megawatts,” she said.

She added that solar energy is still in its early stages in Southeast Asia. AC Ventures continuously evaluates solar energy project opportunities, starting with the right projects and ensuring that financing costs allow for good internal rates of return.

“We consider the internal rates of return for solar projects and the total capital payback period. Regarding subsidies, while beneficial, they can cause market volatility, and solar energy prices have dropped significantly to almost match fossil fuel costs,” Wong concluded.

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