Can China's financial resources sufficiently fund Indonesia's pursuit of clean energy?
In 2023, China emerged as the primary source of public clean energy investments in Southeast Asia, contributing approximately USD 2.7 billion. This significant investment marked a shift in China's overseas development, transitioning from a significant financier of coal projects to a champion of "green overseas development."
Since then, Indonesia, Vietnam, and Senegal have also established Just Energy Transition Partnerships (JETPs), a global initiative aimed at supporting developing countries in their transition to cleaner energy sources.
Indonesia, in particular, has set ambitious renewable energy targets. The country has pledged to add 71 gigawatts of solar, hydro, and geothermal energy capacity over the next decade. Realizing these projects will require an estimated USD 80 billion in funding between 2024 and 2033.
These deals cover a wide range of clean energy and clean technology investments, including electric vehicles (EVs), lithium batteries, photovoltaic products, and industrial infrastructure for renewable energy. However, China's involvement in Indonesia's renewables space with public financing remains yet to be seen.
Indonesia faces a balancing act between affordable prices and investments in renewable energy power plants and the need to develop its domestic industry. Tiza Mafira, associate director of the Climate Policy Initiative Indonesia, emphasizes that Indonesia's energy transition will require all types of financing sources.
Meanwhile, China's overseas financing has been decreasing since 2016, and Beijing is yet to enter Indonesia's renewables space with public financing. Notably, PowerChina withdrew from the nine-gigawatt-capacity Kayan project in North Kalimantan due to construction issues created by Covid-19 travel restrictions.
However, China's commitment to cease involvement in new coal-fired projects abroad, as announced by President Xi Jinping, bodes well for Indonesia's renewable energy future. In fact, China is expected to become Indonesia's strongest financing partner in the renewable energy sector.
Japan has shown support for the Kayan project, with its minister for economy, trade and industry signing a letter of intent in March 2023. The Belt and Road Initiative, of which Indonesia received the second largest proportion of clean energy financing in 2024, is also becoming greener, focusing on smaller projects to mitigate climate change and energy crises.
The first JETP was announced at COP26 in 2021 and was dedicated to South Africa. Since then, these partnerships have been instrumental in supporting developing countries in their transition to cleaner energy sources.
In the current phase of renewable energy financing in Southeast Asia, Pakistan is a notable country behind China, experiencing a significant solar energy boom with substantial imports of solar panels from China and widespread adoption by companies and households. Other Southeast Asian countries are mentioned as interested in expanding nuclear capacities, but specific financing leadership beyond China and Pakistan in renewables is not detailed in the available results.
China has provided an average of nearly USD 4 billion annually for climate projects in developing countries since 2013, with over USD 34 billion invested by 2021, chiefly through bilateral lending using its policy banks. As the world moves towards a more sustainable future, China's role as a key player in renewable energy financing in Southeast Asia continues to grow.
