Jakarta – Global rating agency Moody's Investors Service believes Indonesia is unlikely to achieve its renewable energy target by 2025 and expects coal to continue to dominate the country's energy mix over the next five to seven years.
Indonesia wants to derive 23 percent of the its primary energy needs from renewable sources, such as geothermal, solar and wind, within the next six years, from 12 percent currently.
But the government has been placing more focus on coal-fired power plants than on renewable sources, Moody's said in a report published on Wednesday.
"Renewable energy faces many challenges in Indonesia. The key challenge is the evolving policy and regulatory framework, which has seen multiple changes over the years," Moody's wrote.
Wind and solar electricity costs are higher than coal-based power generation, which the government subsidizes. Also, tariffs are set at 85 percent of the average power tariff in each region for renewable energy projects, the agency said.
"The absence of a strong electricity grid on many Indonesian islands also makes it difficult to have large renewable energy projects," it added.
The agency noted that state utility company Perusahaan Listrik Negara (PLN) is both the largest coal-based power generator and the sole electricity distributor in the country. Renewables would increase the risk of PLN's coal- and oil-based power projects being abandoned.
"Another reason for the slow adoption of renewable energy is the concerns over falls in utilization rates for coal-based projects," Moody's said.
PLN's energy mix consisted of coal (46 percent), gas (31 percent), diesel (14 percent), hydropower (8 percent) and geothermal (1 percent) in 2018.
This may protect coal-based power producers, which "are unlikely to suffer from sudden changes to carbon transition policy."
They include LLPL Capital, which controls Lestari Banten Energi, an independent power producer with a 670-megawatt coal-fired power plant in West Java, and Minejesa Capital, which controls Paiton Energy in East Java, as well as PLN, Moody's said.
"However, financing for new coal-based projects and refinancing for existing coal-based projects will face difficulty, as some banks and financial institutions have taken a policy decision to not lend to coal projects," the ratings agency said.