Bank Indonesia reported an increase in economic growth of 5.17% (yoy) in Q2 2023 compared to previous quarter growth of 5.04% (yoy).
The increase in household consumption due to the growing social mobility and higher income expectations has become a key factor in Indonesia's economic growth. The country’s 2023 overall economy is predicted to remain stable, with an estimated growth between 4.5-5.3%
Indonesia's economic growth is reflected in growing electricity demand, meanwhile the nation’s electrification ratio has been progressing slowly.
At the end of 2023, the trend of electricity demand growth is expected to increase align with PLN's target of 6% (yoy) electricity consumption growth. However, until Q1 2023, Indonesia's electrification ratio only grew by 0.09% compared to 2022. The country’s major problem remains unequal distribution of electricity especially in remote areas.
Fossil fuel will continue to play a central role in Indonesia's energy landscape and the expansion of energy from renewable sources remains slow.
The Ministry of Energy and Mineral Resources (MEMR) noted that in 2023, Indonesia's primary energy mix through coal and oil reached 74% while renewable energy stood at 12.3%. Indonesia's dependency on fossil fuels has led to excess electricity generation, which subsequently positions Indonesia in a dilemma in achieving renewable energy targets. In the first half of 2023, installed capacity from renewable energy only increased by 0.15 GW, reaching 12.7 GW from the previous year's level and representing 15% of the total generation capacity.
Hydropower remains the most mature renewable energy technology over the years (6.73 GW), followed by geothermal (2.37 GW) and biomass (3.11 GW).
The GoI projects the renewable installed capacity to reach 12.9 GW by the end of this year. Meanwhile, Indonesia’s renewable energy investment falls significantly short of its 2023 first-half target, representing only 29.4% of the USD 1.8 billion target17. From this figure, USD 214 million is for geothermal energy, USD 82 million for bioenergy, USD 223 million for various other NRE projects, and USD 8 million for energy conservation
The GoI targets an additional installment of the renewable energy capacity of 368.5 MW in 2023 , with investment focused on renewable energy technologies, grid, battery storage, and electric vehicles.
By the end of this year, the total installed capacity of solar energy is projected to reach 700 MW to 800 MW, with rooftop solar PV plays an important role in Indonesia's deep decarbonization. This year, PLN plans to build 200 MW of solar power plant across 94 locations in exchange of PLTD25. This will require an estimated investment of USD 700 million.
EV sales are predicted to rise at an average growth of 6% in the upcoming years.
Consumer awareness and government incentives are expected to drive such growth. The MEMR targets the installation of Public Electric Vehicle Charging Station (SPKLU) to reach 1.030 units by 2023, two times higher than the last year’s level. To boost EV market penetration, the GoI prepares a subsidy of IDR 7 million (approximately USD 475) subsidy per electric motorbike bought and reduces the Value Added Tax (VAT) for electric cars to 1%.
Some regulatory progress has been made as an effort to accelerate energy transition.
First is the launch of the Indonesia Carbon Exchange, following the issuance of Financial Services Authority Regulation (POJK) Number 14 of 2023. Second is the anticipation of Indonesia Green Taxonomy version 2.0, which refers to an economic activity classification that supports environmental protection and management efforts, as well as mitigation and adaptation to climate change. Third is the issuance of RUU EBET which discusses power wheeling schemes and overcapacity condotion if the country were to add renewable energy power plants. Besides regulatory progress, the GoI is developing a comprehensive investment and policy plan (CIPP) to guide the implementation of JETP agreement.
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