Indonesia's Energy Sector in Transition: Power Generation Expansion and Renewable Energy Drive
- Indonesia | 20 August 2018

Indonesia’s energy sector is undergoing significant changes as the country strives to overcome energy shortages and meet President Joko Widodo’s ambitious plan of introducing 35GW of power generation capacity by 2019. Despite initial skepticism about the program’s success, the national electricity company, PLN, announced in November 2017 that contracts had been signed for the construction of 31GW of new power generation. While uncertainties remain regarding the completion of all projects by the set deadline, the investments made will undoubtedly address the country’s power generation limitations in the coming years. Indonesia’s slightly slower economic growth has also reduced the immediate urgency for power generation expansion, with GDP projected to grow by 5.2% in 2017 instead of the promised 7%.
Signs of progress in power generation expansion are evident as PLN and private players have signed various agreements for the development of hydro, geothermal, and mini-hydro projects, totaling 640.65MW in capacity. These projects, with a combined investment of USD 1.51 billion, will contribute to the country’s energy needs and economic growth. Energy and Mineral Resources Minister Ignasius Jonan emphasized the importance of electricity as a driving force for Indonesia’s future, highlighting the potential for increased use of electric vehicles and a shift from LPG to electric stoves in households.
While coal-based power remains dominant in Indonesia’s energy mix, accounting for over 50% of national consumption, the government has shown a strong commitment to achieving its international environmental sustainability goals. President Widodo directed his cabinet to increase the share of renewable energy sources in the power generation matrix to 23% by 2025. The development of renewable energy has gained momentum in 2017, with the government contracting over 1,000MW of new renewable generation capacity in the first nine months alone, twice as much as in the previous three years combined. The use of hydropower and geothermal sources has exceeded earlier predictions, and the Ministry of Energy and Natural Resources has prohibited coal-based power generation development on Java, creating opportunities for cleaner alternatives.
Geothermal energy holds great potential in Indonesia, as the country ranks third in global geothermal production and possesses the world’s largest reserves. The government aims to add over 2GW of geothermal generating capacity to the national grid in the next five years, with several projects already under development. Geothermal projects, including the Sarulla Geothermal Power Plant, the Karaha Geothermal Power Plant, the Sorik Marapi Geothermal Power Plant, and the Lumut Balai Geothermal Power Plant, will contribute significantly to the clean energy transition. Additionally, smaller-scale geothermal projects in remote communities are being explored as an ideal solution for power generation.
The geothermal sector faces challenges related to exploration costs and necessary infrastructure development, such as obtaining permits in remote and protected forest areas. Collaboration between private companies and the government is essential to overcome these challenges and drive further geothermal development. Meanwhile, Indonesia’s oil and gas sector has experienced a decline, with the collapse of oil prices and excessive red tape hindering its growth. The government has implemented changes to improve conditions for oil operators, and the national oil company, PT Pertamina, aims to increase production from 800,000bpd to 1 million bpd by 2019. However, the sector’s future is uncertain, with plans for the NOC to take over most of the country’s oil and gas fields as contracts with foreign operators expire.