Australia’s place in Jakarta’s energy plan

Optimism is returning for Indonesia’s energy transition with a long-awaited update to the country’s 10-year energy plan, confirming the scale of the Prabowo Government’s decarbonisation ambitions.

The move comes amid increasing competition for influence in South East Asia. Australia’s relationship with Jakarta continues to strengthen, supported by the pivot in the Albanese Government’s approach to regional relations.

This presents an opportunity for Australian business and Government to work together on long-term energy projects, major transmission infrastructure and critical minerals, that will serve both financial and diplomatic goals. But it will take determination and a coordinated effort.

10-year plan worth the wait

In June, the Indonesian Government released its much-awaited 10-year Electricity Supply Plan for 2025–2034. It is a comprehensive document, reflecting the complex challenge of securing energy supply to support economic growth whilst transitioning to a cleaner energy mix.

As the fourth most populous country in the world, with over 285 million people, Indonesia’s electrification rate of over 99 per cent is a great achievement. Over the next decade, Indonesia expects electricity demand to rise by 67 per cent to 511 TWh, driven by its growing middle-class, urbanisation and increasing industrialisation. To meet this demand, the State plans to add 69.5 GW of new power generation capacity, of which 42.6 GW will come from renewable energy. Compared to the last Electricity Supply Plan issued back in September 2021, the latest plan includes additional new solar capacity of 13.4GW and 7.2 GW of wind, as well as increasing generation from geothermal, hydro and biomass.

US-China compete for influence

The plan comes amid increasing global attention on Indonesia, with energy a major focus. Just last month, Indonesia announced one of the first deals with the Trump Administration, limiting tariffs to 19 per cent on Indonesian exports to the US. As part of the deal, Indonesia committed to purchasing US$15 billion in energy from the US.

In November last year, the Indonesian Government also signed US$10 billion worth of deals with China focussing on green energy, infrastructure, digital technology and agriculture.

The announcements come at an interesting time for Australian-Indonesian bilateral relations, and Australia’s position within the region more broadly.

In response to heightening trade tensions commencing in 2017, the Australian Government set about diversifying the country’s trade relationships, with a strong focus on ASEAN.

With a combined population of over 692 million people and high rates of economic growth, ASEAN is now the world’s fourth largest economy, after the US, China and Germany. In 2023, two-way trade between ASEAN and Australia surpassed US$121 billion, eclipsing major economies such as Japan and the US.

Basking in renewable resource

Given its tropical location and abundant sunlight, Indonesia has vast solar energy potential. Harnessing that potential however requires careful planning given the country’s unique topography. As the world’s largest archipelagic state, Indonesia has over 17,000 islands spanning more than 5,000kms from east to west. To put that into perspective, this is greater than the distance between New York and Los Angeles.

The Indonesian Government’s ten-year electricity supply plan offers much needed clarity on how the country will get there. The plan involves material investment, approximately US$180 billion over the next decade, with much of this coming from the private sector. US$131 billion is required for new generation capacity, US$35 billion for transmission and substations, and the balance for other services.

The private sector is set to play an important role, funding 73 per cent of the new generation capacity through Independent Power Producers (IPP). Recently banked projects highlight the shift in investor sentiment, as well as participation from multilaterals and export credit agencies. Indonesia’s State-owned electricity company, PLN, will be responsible for funding and developing the transmission grid and associated infrastructure. 48,000 kms of additional transmission lines and 108,000 MVA of additional substations are required to develop the ‘Green Enabling Super Grid’ required to support the increase in generation capacity.

Indonesia is developing its own critical minerals resources, and will have demand for more to meet this challenge. Australia is deeply experienced as both a developer and supplier of minerals.

Given the magnitude of Indonesia’s solar energy production potential, the country has the opportunity to support the renewable energy demand of its neighbours. Several export projects are progressing, and in June, the Singapore and Indonesia Governments reaffirmed their commitment to the export of solar power from Indonesia to Singapore via underwater cables.

The announcement came as part of a broader package of deals to develop cross-border trade in low carbon electricity, and increased collaboration on carbon capture and storage. Given its proximity, Malaysia is similarly well-placed to produce and export renewable energy.

The ambitious proposal for a broader ASEAN electricity grid has drawn scepticism from many energy industry onlookers, and has had limited traction to-date.  Perhaps the connectivity between Indonesia, Singapore and Malaysia will prove to be the foundational building blocks to bring a much larger grid to fruition.

Where does Australia fit?

Similar to Indonesia, Australia has immense solar energy potential. It also has significant solar energy production expertise relating to the production of raw materials and transmission cables necessary to enable the transition.

Australia also has a strategic interest in seeing our closest neighbours attaining energy security in a low carbon future. Strengthening existing ties between our respective Governments and private sectors will be critical to opening opportunities to share our experience.

Jodi West is ANZ President Director Indonesia.