Why does Indonesia subsidize fuel and electricity?

The Indonesian government subsidizes fuel and electricity to help keep energy affordable, especially for low-income groups (Ministry of Finance, 2010b). Energy subsidies are intended to increase household incomes in two ways. The direct effect is that, by paying less for fuel, households have more disposable income to spend on other things.

How can Indonesia ease the transition from fuel subsidies?

A suite of policies have been used by countries around the world, including Indonesia, to ease the transition away from fuel subsidies. The policies can be grouped into two categories: those that provide assistance to poor households and those that help the broader community to understand and support reform.

Why does Indonesia need a subsidy?

The Government of Indonesia, like many countries around the world, has used subsidies for decades to promote a range of social and economic objectives. Among the priorities vying for support are poverty alleviation, infrastructure development, health and education.

When will fuel subsidies be reformed in Indonesia?

In May 2011 the government announced that fuel subsidies will be retained but the distribution mechanism will be changed to a direct and targeted subsidy. A roadmap for the reform will be announced in July 2011 (KOMPAS, 2011b). The government of Indonesia has been trying to reduce subsidies for electricity by increasing tariffs.

How will Indonesia prepare for future renewable investment?

The government needs to undertake an in-depth economic evaluation of wind farms against coal-fired power plants. This will prepare Indonesia for receiving future renewable investment under the Belt and Road initiative, which already makes up 57% of the total overseas energy investment in 2020.

What are the main issues for energy transition in Indonesia?

For the rest of the article, we will lay out the three main issues for energy transition in Indonesia: fossil fuel dependency, underexplored renewable potential, and complicated political landscape. For each issue, we have one or two corresponding strategies of which we detailed their prospects.