Indonesia’s investment management agency, Badan Pengelola Investasi (BPI) Daya Anagata Nusantara (Danantara), has signed a Memorandum of Understanding (MoU) with Saudi Arabia’s energy firm ACWA Power.

The agreement, valued at 162 trilion rupiah (US$10 billion), focuses on developing renewable energy utilities in Indonesia.

The MoU was signed by ACWA Power’s Vice Chairman and Managing Director, Raad Al Saady.

The collaboration aims to strengthen strategic ties between Indonesia and Saudi Arabia.

It also promotes investments in the renewable energy sector.

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🔗 Source: CNBC Indonesia

🧠 Food for thought

1️⃣ ACWA Power deepens Indonesia presence amid challenging renewable targets

The $10 billion MoU with Indonesia’s Danantara represents a significant escalation of ACWA Power’s commitment to Indonesia, building on previous engagements in the country.

In 2022, ACWA Power already signed a similar agreement with Indonesia’s state power company PLN focusing on energy storage and green hydrogen projects during the G20 summit 1.

This expanded investment comes at a critical time when Indonesia is struggling to meet its renewable energy targets, with only 12.3% of installed capacity being renewable against a 23% target for 2025 2.

The partnership could help address Indonesia’s persistent challenges in attracting sufficient renewable investment, as the government has been forced to revise renewable targets downward due to financing difficulties 3.

Most recently, ACWA Power collaborated with PLN Indonesia Power on the Saguling floating solar PV plant in West Java, which mobilized $60 million as part of Indonesia’s Just Energy Transition Partnership 4.

2️⃣ Strategic alignment between Saudi and Indonesian sovereign investment priorities

The MoU between Danantara and ACWA Power represents a coordinated approach to energy transition financing between two resource-rich economies seeking diversification.

Indonesia’s sovereign wealth fund has been strategically focusing on renewable energy investments, particularly in electric vehicle battery supply chains, solar energy, and grid modernization 5.

Currently, renewable energy comprises about 12% of the Indonesian Investment Authority’s portfolio, with expectations to increase to 15-20% this year, indicating alignment with this new Saudi partnership 5.

The collaboration addresses critical bottlenecks in Indonesia’s energy transition, including outdated electricity infrastructure that has hindered renewable integration and requires significant upgrades 5.

This partnership comes while Indonesia seeks to enhance its position in clean energy after previous foreign investments have been predominantly directed toward fossil fuels, with only 14% of Chinese investments targeting renewables despite China being Indonesia’s second-largest foreign investor 3.

3️⃣ Long-term impact on Indonesia’s 2060 net-zero emissions target

The $10 billion partnership could significantly accelerate Indonesia’s journey toward its 2060 net-zero emissions target by addressing persistent financing gaps.

Indonesia needs to develop approximately 75 GW of renewable energy capacity by 2040 to meet its climate goals, requiring massive capital that has been difficult to secure due to low tariffs for renewables and complex procurement processes 3.

The ACWA Power agreement targets precisely the areas where Indonesia has substantial untapped potential—the country possesses 40% of the world’s geothermal reserves but requires over $20 billion in investment to reach its 5 GW geothermal target by 2025 6.

Successful implementation could establish a model for future public-private collaborations in Indonesia’s energy sector, which has historically been dominated by state-owned enterprises that control about 75% of the country’s generating capacity 7.

The partnership aims to address Indonesia’s energy security challenges while supporting its transition away from coal, which has been complicated by relatively young coal-fired assets that risk becoming stranded investments 2.

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