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Opportunities and Challenges for Entrepreneurs Thinking About Indonesia's Solar Energy Sector

Explore the multifaceted aspects of investing in Indonesia's solar panel manufacturing business.

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Being the world's fourth most populated country, Indonesia is witnessing rising energy consumption, generating new prospects for renewable energy firms. As a result, the government has set aggressive renewable energy objectives to fulfill its greenhouse gas emission target in the energy sector, also increasing national energy security. 

Here are some of the multifaceted aspects of investing in Indonesia’s solar panel manufacturing business.

Related: How Widespread Will Solar Energy Be Soon?

The outlook of solar power generation in Indonesia

The solar photovoltaics (PV) market is expected to reach $769.3 million, with utility-scale PV accounting for $675.5 million and rooftop PV accounting for $93.8 million. Both divisions are in their infancy, with government rules and PLN (State-owned energy provider) procurement processes recently implemented. 

According to the International Renewable Energy Agency, Indonesia's installed solar power capacity is expected to expand considerably by 2030, thanks to its government and PLN initiatives. Moreover, the projects include plans to dramatically improve energy availability by deploying solar energy systems to almost 1.1 million people in rural locations without power.

Related: Why Foreign Investors Should Invest in Indonesia's Electric Vehicle Market

Opportunities and challenges in Indonesia's solar power industry

Opportunities

Renewable energy business opportunities

The major commercial prospects of the energy sector are connected with privately constructed and financed Independent Power Producers (IPPs) that sell power to PLN under a long-term (up to 30 years) Power Purchase Agreement (PPA) contract.

Moreover, consulting and engineering studies, significant electro-mechanical equipment supply, and Engineering, Procurement, and Construction (EPC) management, especially for projects with a capacity higher than 10 megawatts (MW), provide the highest (by value) prospects for foreign firms.

Many foreign firms have opened offices in Indonesia to conduct market research, build relationships with PLN and evaluate prospective business partners.

Related: 4 Things to Consider When Choosing the Best Asian Country for Business Expansion

More supportive regulations

The MEMR (Ministry of Energy and Mineral Resources) modified rules to establish Regulation No. 26 of 2021, which includes the following incentives for solar PV development: 

  • eliminating the net-metering discount for energy exported from rooftop solar PV projects to PLN's grid
  • increasing the setoff period for unused credit (to the end of the relevant semester)
  • reducing the time it takes to issue permits and integrating data into an online system.

Regulation 26 also lays the ground for carbon trading, outlined in detail in a subsequent MEMR rule. Rooftop solar PV projects constructed outside PLN's commercial regions, such as industrial estates, are subject to Reg 26.

Challenges

  • The highly fragmented structure of Indonesia's grid, operating problems inside off-grid areas, funding prospects for new projects currently limited by local banks and land acquisition issues are all obstacles in the power sector.
  • Moreover, there's an absence of suitable design requirements for thermal and water heating in industrial buildings, a lack of understanding of renewable energy potential, space constraints and inadequate focus on liquid biofuels.
  • Another major stumbling block is the comparatively high prices. Indonesia has a 65% higher average cost per megawatt of solar PV capacity than India and a 10% higher cost per megawatt than Thailand.

According to the IEA's report on Indonesia, public sources and state-owned enterprises (SOEs) have played a significant role in funding fossil fuel generation rather than renewables. Furthermore, about half of the capital invested in renewable energy sources came from private sources.

Related: What It Takes to Create a Leading Fintech Hub

Eric Chin

Written By

Entrepreneur Leadership Network Contributor

Eric Chin is the CBDO at InCorp Global. Chin consults business entities on the ideal market-entry strategies for setting up or expanding business operations in South Asia. He advises fund managers and family offices when they consider markets like Singapore.