Navigating Indonesia’s solar power supply development dilemma

A striking problem looms over the rooftops of residential and business buildings in Indonesia’s big cities.

Febby, a typical middle-class employee who likes to plan for the future, started a project that uses sunlight for energy by installing solar panels on his roof, hoping to help the environment by using cleaner energy.

However, despite taking action, the rules and processes of state electricity company PLN have delayed his plans. Febby has been without approval from PLN for nine months, which has made him lose hope and wonder if the promise to use solar energy instead of conventional energy will be fulfilled. Febby is not alone.

Many customers, including businesses, are stuck waiting painfully for months just to start the process of installing solar panels, primarily for on-grid projects. Consumers and enterprises are experiencing heightened frustration, particularly in light of the Association of Solar Energy Indonesia calling for expedited measures. Supporters of solar energy are grappling with disillusionment due to the significant gap between government commitments and actual outcomes.

The final nail in the coffin would be the unfavourable potential changes to Ministerial Regulation No. 26/202 regarding on-grid solar systems. If enforced, these changes would make installing and transitioning to solar energy extremely difficult and discouraging.

For instance, consumers would not be able to export and sell surplus solar energy to PLN (net metering), capacity charges would change for all customers (instead of only businesses), the process of approving solar installations would depend on PLN’s discretion, and the time frame for registering solar installations would become more stringent.

Due to the unfavourable changes, the future of solar adoption seems bleak. The net metering changes have direct economic consequences that render solar less attractive.

The policy allowing sales of surplus energy generated from solar panels has been proven to dramatically increase solar adoption, as seen in Brazil, where adoption increased by 110 times in six years.

While the rest of the world is embracing more solar-friendly regulations, Indonesia seems to be doing the opposite. The removal of net metering is a setback for Indonesia’s solar panel industry. Aside from regulations, Indonesia has also not made any significant progress in terms of investment. For example, the government invested US$113mil (RM526mil) in the electric vehicle industry in 2023.

In stark contrast, the solar sector received a comparatively modest boost of US$1mil in 2022 through various tax incentives, including tax allowances and tax holidays. This discrepancy highlights that government support for clean energy is limited to specific groups. The lack of investment and unfavourable regulations has resulted in Indonesia achieving an energy capacity of only 213 megawatts out of its 2025 target of 35 gigawatts, which includes rooftop, floating and ground-mounted solar panel installations to generate electricity. The bulk of the challenge to solar transition is financing. In Indonesia, there is large uncertainty about who should be responsible for financing, as transitioning to solar carries risks that no one wants to bear.

The private sector may hesitate to invest unless they see equal commitment from the government. Lessons from other countries suggest that the government could play a starting or catalytic role in this. However, why the Indonesian government is hesitant to take the first significant step is understandable. The country’s heavy reliance on coal as its primary energy source remains a formidable stumbling block: Coal’s dominance as an energy source grew from 54% in 2016 to a staggering 67% in 2022.

Rachmat Fathoni is lead consultant of policy advocacy firm Mandala Consulting. The views expressed here are the writer’s own.