Indonesia has abundant natural resources and the potential to become a regional powerhouse in the field of green energy. Indonesia is estimated to have a technical potential of 400 gigawatts (GW) for renewable energy-based power generation. Solar power contributes half of that amount, while hydropower and geothermal can each generate capacities of up to 75GW and 29GW, respectively. If fully developed, this would be more than enough to meet Indonesia's future needs – however, the pace of the energy transition must be carefully managed to ensure a fair transition. These promising prospects indicate significant green energy opportunities in Indonesia, where renewable energy could generate two-thirds of the country's total energy mix by 2050 – up from just 14 percent currently.
Indonesia also has significant potential as a carbon capture and storage (CCS) hub, with an estimated carbon dioxide (CO2) storage potential of four to eight gigatons by utilizing its depleting oil and gas reserves. The utilization of saline aquifers in Indonesia could add an additional 600 billion tons of CO2 storage potential. This CCS opportunity could significantly accelerate national efforts to reduce CO2 emissions.

Indonesia is also positioned to become one of the leading producers of green molecules in the region. As a developing country with a growing industrial sector, there is an increasing demand for industries such as steel, cement, and chemicals to switch to environmentally friendly hydrogen to accelerate their decarbonization. The demand for green hydrogen across Asia is expected to reach more than 300 million tons per year (mtpa) by 2050.

Potential regional energy hub

With significant renewable energy and CCS potential, Indonesia can do more than just meet the demand for environmentally friendly energy; it can act as a regional hub to catalyze broader decarbonization in Southeast Asia. Its strategic geographical location allows for connections with neighboring countries through existing and developing energy interconnections, supported by the government's commitment to advancing renewable energy. This means that Indonesia can offer a platform to accelerate the decarbonization of neighboring countries in Southeast Asia.

This potential aligns with Indonesia's commitment to increasing the share of renewable energy in the national energy mix, supported by policy interventions and incentives for renewable energy technologies. This could position Indonesia as a leading player in the environmentally friendly energy landscape in Southeast Asia.

Realizing Indonesia's potential as a regional green energy hub depends on ensuring the rapid adoption of renewable energy, implementing the right policies, developing infrastructure, and enhancing capabilities across the supply chain to help accelerate the development of renewable energy and CCS technology.

The import of 2GW of green electrons from Indonesia by Singapore is an important step. The electricity export agreement, signed in January 2022 and March 2023, reaffirms the commitment of both countries to facilitate cross-border electricity trade and interconnection, while also encouraging investment in the development of the renewable energy manufacturing industry. Exporting green electrons also provides an opportunity to initiate the domestic renewable energy value chain in Indonesia by compensating for the low demand for eco-friendly electricity in the short term. Developing renewable energy manufacturing capabilities can also ensure supply security in the long term.

Although the potential is great, realizing the ambition to become a hub for renewable energy generation in this region requires bold steps and policy interventions related to demand and supply, as well as supporting infrastructure and collaboration with stakeholders. There are several strategic imperatives for the success of exporting eco-friendly electrons.

Accelerating the adoption of renewable energy technology

Establishing policies to stimulate the adoption and demand for renewable energy is important. This includes tax credits and subsidies to reduce the costs of purchasing and installing renewable energy systems. These incentives make environmentally friendly energy more financially accessible to consumers and the broader business world.

Other countries have launched incentives and subsidies to accelerate the adoption of renewable energy technologies. For example, the Investment Tax Credit (ITC) in the United States is an incentive that reduces federal income tax liability by a portion of the cost of installing solar energy systems during the tax year. The ITC allows homeowners and businesses to deduct a percentage of the installation cost of solar energy systems from their taxes their federal. In addition, solar energy systems that meet the domestic content threshold are entitled to a 10 percentage point increase in ITC value.

In India, the government offers various subsidies and incentives for the installation of solar panels under the National Solar Mission. This includes capital subsidies and rebates, as well as tax benefits for residential and commercial installations.

In addition to a range of subsidies and incentives, the establishment of clean energy standards or renewable portfolio standards in the medium term, which require companies to use a portion of their energy from renewable sources, will also further accelerate the adoption of renewable technologies in the domestic market.

Ensuring green energy investments for developers, investors

It is important to create an attractive economic environment for investors and operators. Government support in the form of tax incentives for producers and developers, as well as subsidies and grants for research and development (R&D), plays a crucial role in promoting renewable energy.

There are several potential policies that can be implemented to incentivize investment. Commercial premium tariffs or tariffs above market prices for renewable energy fed into the national electricity grid can be considered to ensure attractive investment returns for power developers, encouraging participation.

It is also important to ensure a transparent market and stable policies. A clear and communicated plan to increase renewable energy, supported by coherent national energy policies that offer long-term stability, is crucial for investor confidence. Market data must be transparent and accessible to help investors make informed decisions and reduce perceived risks.

Capabilities, infrastructure, and regional collaboration must be strengthened to accelerate Indonesia's development as a center for environmentally friendly energy. Several initiatives are needed to build appropriate energy infrastructure. First, strengthening and enhancing the domestic electricity grid to accommodate the increasing number of renewable energy sources is crucial. This includes investing in smart grid technology, improving the stability of the electricity grid, and increasing energy storage capacity to handle various renewable energy sources such as solar and wind.

Enhancing the development of capabilities in environmentally friendly technologies is also crucial, especially for new opportunities such as green hydrogen and CCS. The government can allocate funds for research and development activities to support this transition. Government support for research institutions, collaboration with universities, and providing incentives for private sector research and development through tax relief or direct funding will support this. Coherent policies across demand, supply, and infrastructure must be established to ensure the acceleration of capability development throughout the environmentally friendly value chain.

In addition, accelerating the development of Indonesia's carbon market and implementing an appropriate carbon tax is also important to expedite the development of a green ecosystem and unlock significant funding potential.

Finally, regional collaboration is crucial to connect opportunities across Southeast Asia. Partnerships are key to developing electricity trade agreements, infrastructure development, and other licensing requirements. The ASEAN Power Grid, for example, is an important initiative to build regional electricity interconnections among countries in Southeast Asia, which will then enable the trade of environmentally friendly electricity across national borders.

With the right interventions on the demand side, supply, and supporting ecosystem, Indonesia is ready to become a center for green energy in Southeast Asia. In turn, Indonesia's new position as a green energy powerhouse in the region will help provide significant economic and social benefits for the country.

Source:https://www-thejakartapost-com.translate.goog/business/2024/02/01/indonesias-rise-as-southeast-asias-premier-green-energy-powerhouse.html?_x_tr_sl=en&_x_tr_tl=id&_x_tr_hl=id&_x_tr_pto=tc