Indonesia is at a critical juncture in its pursuit of a sustainable energy future. With the goal of increasing renewables in its energy mix to 23 per cent by 2030, the country faces an ambitious challenge. Its current renewable energy share stands at just 12 per cent, making the need for international collaboration more urgent. Partnerships with Western countries and China have been central to Indonesia’s strategy, but these alliances also come with challenges that may complicate progress toward achieving its green energy targets.

One of the most significant international collaborations in Indonesia’s energy transition is the Joint Energy Transition Partnership (JET-P), signed in November 2022 between Indonesia and the International Partners Group (IPG), led by the United States and Japan. The initiative was designed to mobilise funding for Indonesia’s clean energy goals, with a pledge of approximately US$21.6 billion in both public and private financing. However, concerns about the terms of this funding have emerged. Only a small portion — US$295 million — has been offered as a grant, with the remainder coming from debt-based financing. While the initiative aims to accelerate Indonesia’s transition to renewable energy, economists have raised alarms over the risk of exacerbating Indonesia’s debt burden. Drawing from lessons learned in similar projects, such as the JET-P’s implementation in South Africa, where funds have mostly been provided as loans rather than grants, concerns have arisen about the potential financial impact on Indonesia. In South Africa, the heavy reliance on loans for its energy transition has led to an increasing debt burden, with critics warning that the country may struggle to repay these loans without jeopardising its broader economic stability. For example, while the JET-P pledged over US$8.5 billion in financing for South Africa’s clean energy transition, more than 70 per cent of these funds came in the form of loans, which puts considerable strain on South Africa’s public finances.

This situation has raised alarms about the long-term sustainability of the funding model. Similar concerns are now being voiced regarding Indonesia, especially as the bulk of the US$21.6 billion promised through JET-P has also been earmarked for loans, rather than grants. Moreover, Indonesia has yet to receive any of the promised funds, despite the initial deadline passing in mid-2023. This delay in disbursement highlights the need for the country to urgently explore alternative sources of financing that could avoid increasing its debt burden, and provide more immediate support for its renewable energy transition.

China’s promise to provide significant resources also brings challenges. These concerns are mainly centered around similar issues — financing mechanisms that could increase Indonesia’s debt — but have also centred around the environmental impacts associated with some Chinese-backed projects, including pollution from coal-fired power plants and nickel mining, which have been criticised. This could prompt Indonesia to consider looking beyond its traditional partners in the West and China to explore opportunities in the Middle East, where energy expertise and a stated commitment to sustainability could provide a more suitable alternative.

Over the past few years, Indonesia’s ties with the Gulf states have expanded well beyond the traditional realm of energy. These partnerships now encompass a wide array of sectors, reflecting a broader, more comprehensive strategic alignment. In addition to energy, trade and investment have been key drivers of this deepening relationship. Indonesia has attracted substantial foreign direct investment (FDI) from Gulf nations, particularly in sectors such as infrastructure, real estate, and tourism. The United Arab Emirates, and Saudi Arabia, for example, have committed to major projects in Indonesia, from urban development to the construction of new airports and ports, aimed at bolstering Indonesia’s position as a regional economic hub.

Furthermore, the Gulf states have been instrumental in supporting Indonesia’s infrastructure development through financing and expertise, particularly in large-scale infrastructure projects that aim to modernise transportation networks and bolster its economic growth. These investments also reflect the Gulf’s broader strategy of diversifying its economies away from oil reliance, with a keen interest in infrastructure projects that offer long-term returns.

The Middle East, led by the UAE and Saudi Arabia, has invested heavily in renewable energy technology as a strategic priority to diversify their economies in anticipation of reduced demand for fossil fuels in the near-future. This makes the Gulf a natural partner for Indonesia in its green transition, as it offers both financial resources and technological expertise that could complement ,or even replace, the need for Western or Chinese involvement.

The UAE, in particular, has positioned itself as a leader in renewable energy. With an installed capacity of 69 per cent of the total renewable energy in the Middle East, it has emerged as a hub for solar, wind, and other sustainable energy technologies. A significant example of UAE-Indonesian cooperation is the Cirata floating solar power plant in West Java. Developed by the Emirati renewable energy firm Masdar, the US$129 million project, which was completed in 2022, is the largest solar power plant in South-east Asia. It has the capacity to power 50,000 homes, and offset 214,000 tons of carbon dioxide emissions annually. Masdar has also committed to expanding its investments in Indonesia’s renewable energy sector, including the development of a 1.2 GW solar photovoltaic facility in partnership with PT Indonesia Power, Tuas Power, and EDF Renewables.

Emirati companies are also involved in other renewable projects across Indonesia, such as the development of ground-mounted solar power plants in partnership with state-owned energy companies like Pertamina. Furthermore, Masdar has signed several memoranda of understanding (MoUs) with Indonesian partners to explore new renewable energy ventures, underscoring the potential for deeper collaboration between both countries in this arena. These investments are a testament to the UAE’s dedication to supporting Indonesia’s renewable energy transition through both capital, and technological expertise.

This cooperation has expanded beyond energy into environmental preservation as well. Both countries recognise the role ecosystems like mangrove forests play in mitigating climate change. Mangroves are highly-effective carbon sinks, and preserving them is vital for Indonesia’s climate action plan. In 2020, the UAE and Indonesia signed an agreement to rehabilitate 600,000 hectares of mangrove forests, including the creation of the Khalifa bin Zayed Mangrove Park. This collaboration not only highlights the UAE’s broader environmental priorities, but also aligns closely with Indonesia’s efforts to protect its biodiversity and contribute to global climate goals.

Saudi Arabia offers similar opportunities for collaboration, as it has also invested heavily in renewable energy technologies. Saudi Arabia’s state-owned ACWA Power has already invested a total of US$150 million in two floating solar power plants in Indonesia, Saguling and Singkarak. These projects not only provide clean energy, but also contribute valuable expertise in deploying renewable technologies in Indonesia’s unique environment.

Riyadh’s growing interest in renewable energy in Indonesia also extends to other sectors, such as electric vehicles (EVs). As Indonesia seeks to become a global hub for EV production, Saudi Arabia has shown interest in investing in the country’s electric vehicle value chain, particularly in the nickel mining industry, which is essential for producing batteries. Indonesia’s vast nickel reserves make it an attractive partner for countries like Saudi Arabia, which are eager to secure raw materials for their renewable energy industries.

Beyond energy, Saudi Arabia is also exploring cooperation in the hydrogen and ammonia value chains. In 2022, Saudi Aramco and Pertamina signed a deal to jointly develop clean hydrogen and ammonia projects, which are key components of Indonesia’s roadmap to achieving net-zero emissions by 2050. Saudi Arabia’s expertise in blue hydrogen, which involves using natural gas and carbon capture technologies to produce hydrogen, could complement Indonesia’s efforts to transition to cleaner energy sources and reduce carbon emissions.

While the UAE and Saudi Arabia provide substantial opportunities, Oman and Kuwait are also making efforts to collaborate with Indonesia. Kuwait has partnered with Indonesian companies to export green products, such as organic plastics made from cassava, and bamboo tableware. Oman has been involved in discussions on hydrogen development, and has shown interest in expanding its renewable energy projects in Indonesia.

Despite the promising developments, there are challenges as well. One concern is that Middle Eastern investments, though substantial, may not be enough to meet all of Indonesia’s energy needs. Additionally,  it is important to note that while the Middle East’s commitment to sustainability has been growing, there are ongoing concerns about “greenwashing,” as evidenced by recent developments at COP29, where some Gulf countries faced scrutiny for promoting their oil businesses under the guise of green initiatives. Nonetheless, the Middle East’s increasing focus on renewable energy development, particularly in solar and hydrogen, makes it a promising partner for Indonesia’s energy transition.

In conclusion, while the US and China will remain central players in Indonesia’s energy transition, the Middle East — particularly the UAE and Saudi Arabia — offers a complementary alternative. These countries bring substantial investments, expertise, and a shared commitment to sustainability, helping Indonesia accelerate its renewable energy goals while mitigating the risks associated with financing and environmental concerns. By deepening its partnerships with the Middle East, Indonesia can build a greener, more resilient energy future driven by diverse collaborations, sustainable development, and environmental stewardship.

Image Caption: Indonesian President Joko Widodo (2nd L) shakes hand with United Arab Emirates (UAE) Minister of State for Foreign Trade Thani Ahmed Al Zeyoudi (3rd R), as Minister of State Owned Enterprises Erick Thohir (2nd R) and CEO of Indonesia’s State Electricity Company Darmawan Prasodjo (L) look on during the inauguration of the newly built floating solar power plant on the water that can generate 192 mega watts of peak electricity in cooperation between the Indonesian government and Masdar from the UAE, at Cirata Reservoir, West Java, on 9 November 2023. Photo: AFP

About the Author

Muhammad Zulfikar Rakhmat, a researcher at Jakarta-based Center of Economic and Law Studies, is an MEI Research Affiliate.