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Regulatory reform key to post-pandemic green energy investment, IEA says

The International Energy Agency (IEA) has urged the government to boost Indonesia’s use of renewable energy and to increase its electrification capacity through pro-investment regulatory reform as the country pursues economic recovery.

In a recent report, the IEA argued that certain key regulatory reforms would open access to private renewable energy investment and would improve the financial standing of state-owned electricity distribution firm PLN.

The IEA, a Paris-based organization, said President Joko “Jokowi” Widodo should issue a Presidential Regulation on green energy pricing to enable more privately owned renewable energy companies to enter the domestic market.

“The existing fiscal space needs to be used wisely, while an improved policy, regulatory and investment framework can help mobilize a more diverse pool of sources of funding, especially from new investors and private-sector industry players,” the July 17 report reads.

“There is a huge opportunity to boost sustainable investment as part of the recovery.”

Investment in renewables has been held back by an uncertain regulatory environment, IEA report stated, amid government renewable energy targets dominated by hydropower and geothermal energy.

Indonesia has committed to obtain 23 percent of its energy from renewable sources by 2025. Regulations stipulate that Indonesia should have reached a 17.5 percent renewable energy mix by 2019, yet the country only hit 12.36 percent that year.

Read also: Indonesia to mend contract scheme to boost green energy projects

By the end of 2019, the country had about 10 GW of installed renewable power capacity, a third of its installed coal-fired capacity and a sixth of its fossil fuel capacity, IEA data shows.

The IEA report brings an intergovernmental voice to domestic renewable energy players’ calls for the Indonesian government to invest in green energy as Indonesia sets aside a Rp 695.2 trillion (US$47.9 billion) COVID-19 response fund to boost the economy and fund the healthcare system during the pandemic.

The government has not announced any commitment to allocating funds to develop renewable energy, but the Energy Ministry has said it is exploring a solar power recovery plan.

Read also: Indonesia working on $1b solar-driven green economic recovery scheme

Energy and Mineral Resources Ministry electrification director general Rida Mulyana announced in February a proposed regulatory reform in the green energy sector to introduce feed-in-tariff (FIT) pricing and allow arrangements other than build-own-operate-transfer (BOOT) contract schemes.

The former guarantees fixed electricity rates for small renewable power plants, seeking to ensure predictable financial returns. The second proposal eliminates a scheme that has been criticized as an impediment to financing renewable energy.

“This report shows the IEA’s commitment to supporting the recovery of Indonesia’s energy sector from global dynamics and the COVID-19 pandemic,” said Energy and Mineral Resources Ministry spokesman Agung Pribadi on Monday. 

The ministry plans to meet the IEA and French business associations in September to promote investment in renewable energy in Indonesia.

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