The Political Economy of Indonesia’s Renewable Energy Sector and Its Fiscal Policy Gap

Abstract

This research paper identifies fiscal policy gaps that occur in Indonesia's renewable energy (RE) sector and analyses its political economy. Primary data from 37 stakeholders and secondary data from fiscal policies from Indonesia's 2007-2017 taken from Ministry of Finance (MOF) and Ministry of Energy and Mineral Resources (MEMR) regulation databases. The fiscal policy data were analysed using a cluster approach and meta-synthesis method. The results show that Indonesia has experienced multi-faceted principal-agent problems between PT PLN, the agent with sole authority to manage electricity transmissions, and various principals, namely the Ministry of State Owned Enterprises (MSOE), the MEMR, the Ministry of Industry (MOI) as the intermediary between domestic and foreign RE industries, and the MOF. While changing the MEMR's feed-in-tariff (FiT) policies sends an uncertain policy signal, the MOF's fiscal incentive policies other than FiT to promote RE development in Indonesia remain sub-optimal; the fiscal policies required to incentivise a large volume of smalland medium-scale investment in RE are absent. Differentiated tax rates and tax-break periods for national and foreign companies on the micro, small and medium scales could significantly accelerate the development of RE by both domestic and foreign companies, supporting Indonesia in achieving its sustainable development goals and emission reduction targets under its nationally determined contribution.

Breaking barriers to low-carbon development in Indonesia: deployment of renewable energy

“…Regarding governance barriers, many respondents, especially those working in government, legislative, and academic institutions, as well as NGOs, believe that complex bureaucratic procedures are a major barrier to implementing LCD. Although various bureaucratic reforms to the institutions that handle energy sector affairs have been implemented in Indonesia, past political influence and limited coordination are lingering issues ( Halimanjaya, 2019 ). This category of problems also includes the complex licensing procedures required for several government levels and institutions in different locations, with a lack of communication and knowledge gaps among relevant stakeholders ( Jupesta et al., 2011 ), a state of affairs that aptly characterizes the case of biogas installations in Bali ( Bößner et al., 2019 ).…”

Evidence on optimal risk allocation models for Indonesian geothermal projects under PPP contracts

“…This change was intended to address inflation risk resulting from long project lead times, but PLN cost constraints led to a further change in 2017 whereby the tariff negotiated in the PPA could not exceed the Average Generation Cost (or BPP) 15 of PLN for the respective region. 16 According to Wahjosoedibjo and Hasan (2018) the 2014 tariff model can be economically attractive for geothermal developers, provided that the (Halimanjaya, 2019). In addition, as the BPP differs for each region, in Java-Bali and Sumatra, where electricity generation is dominated by coal power plants, the BPP is lower, potentially resulting in reduced geothermal tariffs and underinvestment in these regions (McCormack and Mandelli, 2017).…”

The contestation of ideas behind Indonesia's rural electrification policies: The influence of global and national institutional dynamics

“…On the one hand, there are targets for overcoming energy poverty; but on the other hand, the target for achieving national energy security and minimizing negative impacts on the environment are equally essential (Gunningham, 2013). Several scholars have coined the term “coal dilemma,” to describe the actions of the many countries—including Indonesia—that rely on the abundance of coal over renewable energy due to the former being cheaper, thereby neglecting impacts to the environment even if they have signed up to environmental conventions (Halimanjaya, 2019; Kurniawan & Managi, 2018; Qi et al, 2020; Rehman et al, 2021; Wang et al, 2021). Energy sovereignty also plays a role in the justification of combining the target of meeting national energy demand with Indonesia's own coal reserves, suggesting Indonesia's energy policy should be determined by this special condition (Suroso et al, 2021).…”