As the impacts of climate change become more evident, and global energy demand continues to rise, the shift toward cleaner and more sustainable energy sources has accelerated. In Indonesia, this energy transition has become a critical national priority, given the country’s heavy dependence on fossil fuels and rapidly depleting reserves. To address this challenge, the government has developed a comprehensive regulatory and policy framework designed to promote new and renewable energy (Energi Baru dan Terbarukan – EBT) as both an eco-friendly power source and a catalyst for long-term investment.

Renewable energy is evolving from a backup option to the backbone of Indonesia’s energy security. Through strategic regulations, the state has demonstrated a firm commitment to accelerating clean energy adoption. Beyond reducing carbon emissions, renewable energy is emerging as a strategic economic sector, which is capable of driving investment, creating jobs, and enhancing national competitiveness. However, realizing this vision depends on a strong legal foundation, competitive incentives, and a focused investment strategy.

Legal Framework Governing Indonesia’s Energy Transformation

RIndonesia’s foundational legal instrument for energy development is Law No. 30/2007 on Energy (Energy Law). Article 3 paragraph c of this law stipulates that the goal of energy management is to provide domestic and/or foreign energy sources fo:

Meet domestic energy demand;

Supply raw materials for national industries; and

Boost national foreign exchange reserves.

A key economic benefit of renewable energy development arises when Indonesia exports renewable energy technologies, goods, and services. For instance, growing local industries in solar panels and batteries could position the country as a regional clean energy manufacturing hub.

To reinforce this strategy, the government promotes downstream processing of resources like nickel and coal into higher-value products, such as lithium batteries, biodiesel, and palm oil-based biofuels. These policy moves have already generated over Rp 1,800 trillion in non-tax state revenue in the past decade, and nickel-based steel exports reached USD 34.4 billion in 2023.

Foreign Direct Investment (FDI) in clean energy projects supports Indonesia’s balance of payments. Simultaneously, reducing fossil fuel imports conserves foreign exchange and strengthens national reserves. Thus, renewable energy contributes to national economic resilience via export growth and import substitution.

The country’s strategic direction is further codified in Government Regulation No. 79/2014 on National Energy Policy (PP 79/2014), which mandates a minimum renewable energy share of 23% by 2025 and 31% by 2050.

To expedite energy transition and address tariff obstacles, Presidential Regulation No. 112 of 2022 (Perpres 112/2022) introduces accelerated licensing, fiscal incentives, and competitive pricing for renewable energy projects

Indonesia: A Regional Hub for Green Investment

Indonesia is rapidly emerging as a top destination for green investment in Southeast Asia, thanks to its abundant natural resources, strong policy drive, and forward-looking regulations. At the World Expo 2025 in Osaka, the government confirmed USD 22 billion (Rp  358 trillion) in green industrial zone investments, including large-scale solar projects in Batam, Bintan, and Tanjung Pinang.

A DetikFinance report highlights the country’s promising renewable energy market, fueled by surging domestic demand and rich geothermal and solar resources in regions like Sumatra and Sulawesi.

Projections indicate that clean energy, circular economies, and low-carbon technologies may create millions of jobs and add USD 120 billion to GDP across Southeast Asia. Indonesia’s renewable energy resources position it as a frontrunner in carbon trading and clean energy exports. These initiatives are embedded within the 2024–2045 National Long-Term Development Plan (RPJPN) as part of a green economic roadmap focused on sustainable institutional reform.

Also read: The Role of International Institutions in the Development of New and Renewable Energy in the Domestic

Incentives and Support for Green Investors

The Indonesian government offers an attractive suite of incentives—both fiscal and non-fiscal—to boost investment in renewable energy. Under Perpres PR 112/2022, developers are eligible for streamlined permissions, tax breaks, and access to green financing

Article 22 paragraph 1 and 2 of Perpres  112/2022 specifies fiscal incentives available to businesses developing renewable energy power plants:

Income tax reliefs under relevant tax laws;
Import duty and tax exemptions on renewable energy equipment;
Land and building tax reductions;
Support for geothermal development; and/or
Financing and guarantees via designated state-owned enterprises

These incentives aim to bring renewable production costs closer to fossil alternatives, making renewable power more economically viable and driving private sector engagement. Transparent tariff structures and licensing regimes under Perpres 112/2022 are intended to foster investment from both domestic and international players.

Renewable energy development in Indonesia is not only a moral imperative in the global fight against climate change, it is a strategic investment frontier. With robust legal frameworks, attractive financial incentives, and vast renewable resource bases, Indonesia is poised to become a regional clean energy powerhouse.

Success hinges on collaboration between government, industry, financial institutions, and civil society. Investment in renewable energy promises not just economic returns but also environmental protection and a lasting legacy against future climate risks..***

Also read: Renewable Energy: A Strategic Response to the Global Energy Crisis

Regulations:

Undang-Undang Nomor 30 Tahun 2007 tentang Energi (“UU Energi”).
Peraturan Pemerintah (PP) Nomor 79 Tahun 2014 tentang Kebijakan Energi Nasional (“PP 79/2014”).
Peraturan Presiden Nomor 112 Tahun 2022 tentang Percepatan Pengembangan Energi Terbarukan (“Perpres 112/2022”).

References:

Hilirisasi Pacu Lompatan Pertumbuhan Sektor ESDM. Indonesia.go.id. (Diakses pada 22 Juli 2025 pukul 16.59 WIB).
Indonesia Teken Investasi Rp358 Triliun di Bidang Ekonomi Hijau. CNBC. (Diakses pada 22 Juli 2025 pukul 17.59 WIB).
RI Punya Pasar dan Sumber Daya EBT Menggiurkan, Investor Bakal Antre Masuk. detik.com. (Diakses pada 22 Juli 2025 pukul 18.01 WIB).
Peluang Indonesia di Tengah Lonjakan Investasi Hijau Asia Tenggara. Kompas.com. (Diakses pada 22 Juli 2025 pukul 18.03 WIB).

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