Challenges of the Energy Transition for Indonesia

Indonesia is the world’s largest archipelagic state, and faces unique challenges in transitioning to cleaner and more sustainable energy systems. Its diverse and rapidly developing economy is heavily reliant on fossil fuels, although there is a growing awareness of the economic and environmental risks of failing to transition more rapidly. This transition involves significant environmental, economic, social, and political hurdles for which technology, investment, and knowledge partnerships are increasingly critical.

1. Dependence on Fossil Fuels

Indonesia relies heavily on fossil fuels, particularly coal, which dominates its energy mix with more than 60% of electricity generation. Its dependence is driven by abundant coal reserves and transitioning from coal to renewable energy sources means disrupting entrenched economic interests and industries, which poses a challenge both politically and economically. Indonesia also has substantial reserves of oil and natural gas. Reducing reliance on these resources is complicated by existing fossil fuel subsidies that make renewable energy comparatively less competitive.

2. Geographical and Infrastructure Barriers

Indonesia’s geography—spanning over 17,000 islands—presents logistical and infrastructural challenges for energy distribution. Many remote and rural areas still lack access to reliable electricity. Technology and competitiveness advances in off-grid solutions present substantial opportunities for solution partnerships. Implementing systems at scale involves overcoming challenges like financing, maintenance, and capacity building in local communities. 

3. Policy and Regulatory Framework

Indonesia’s energy transition has been hampered by an inconsistent policy and regulatory environment. Whilst the government has committed to net-zero emissions by 2060, policies often lack clear and practical mechanism that would reasonably accelerate its transition. Policy and regulatory changes are essential in allowing renewables to compete fairly in the market. Policymakers are balancing the competing demands of ambitious climate goals, economic development, and an investment environment increasingly concerned with the lack of practical progress on cleaner energy sources that industry need access to. 

4. Financial Constraints

The financial burden of transitioning to renewable energy is significant for Indonesia. Developing renewable energy infrastructure requires substantial investment, and Indonesia faces competition for global funding with other emerging economies. Additionally, the risk perception of investing in Indonesia’s renewable energy sector remains high due to regulatory uncertainty, market volatility, and concerns about project profitability. To attract private and foreign investment, Indonesia needs to create a stable investment climate, including transparent policies, risk mitigation measures, and attractive incentives for renewable energy projects.  

5. Social and Economic Impacts

The energy transition has profound social and economic implications, particularly for workers and communities caught in the complexities of the global energy transition. There are millions of people dependent on jobs from both the fossil fuel industries and conversely export manufacturing industries in Indonesia with scope three commitments related to GHG Emissions Protocol. The government must manage this transition carefully to minimize social impacts. Policies that promote “just transition” principles—such as reskilling programs for workers, alternative livelihoods for affected communities, and targeted economic development initiatives—are essential but resource-intensive.

6. Public Awareness and Support

Public awareness and support for renewable energy are growing but remain relatively low in Indonesia. Many Indonesians are accustomed to subsidized electricity and fuel prices, which makes renewable energy seem less affordable or practical. Education, effective journalism, and outreach efforts are necessary to build public support for the energy transition. These initiatives require time, resources, and the creative solutions needed to overcome the entrenched reliances.

7. Technological and Resource Constraints

Indonesia’s renewable energy potential is vast, including solar, geothermal, wind, and hydropower. Indonesia has an increasingly talented and capable workforce that can execute its energy transition. There are significant gaps for which partnerships are capably of overcoming. Access to advanced technologies, skilled talent, and project implementation expertise are needed to bridge and resolve barriers to implementation.

8. Climate Vulnerabilities

Paradoxically, Indonesia is highly vulnerable to the impacts of climate change, including rising sea levels, marine ecosystems collapse, extreme weather events, and biodiversity loss. These vulnerabilities add urgency to the energy transition, however robust policy and regulatory innovations need to be aligned with technology solutions that concurrently protect people and their livelihoods.

Indonesia’s energy transition is a complex endeavor requiring coordinated efforts across sectors and levels of government. There is a commitment to reduce greenhouse gas emissions and expand renewable energy, however overcoming these challenges will require bold leadership, innovative solutions, and robust international cooperations.

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