[REVISION HISTORY]

Indonesia energy transition and subsidy reform

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2026-11-03 11:13 UTC → 2026-11-03 16:16 UTC · added ~~removed~~

Indonesia is implementing strategies to reform its energy sector and reduce state spending on electricity subsidies. The government has set an ambitious target to reach 100 gigawatt-peak (GWp) of renewable energy capacity within three years, a move intended to save approximately US$4 billion in electricity subsidies. President Prabowo Subianto has initiated solar power projects across several regions, including West Java and the Riau Islands, to expand current solar capacity. Parallel to the shift toward renewable energy, the government is planning to reform how electricity subsidies are distributed. Mochamad Firman Hidayat of the National Economic Council (DEN) has announced plans to pilot a scheme that shifts from subsidies embedded in electricity tariffs to direct cash transfers for eligible citizens. This pilot would adjust electricity rates to market prices in selected regions while providing compensation through a digital social protection system. Pressure for these reforms has increased as energy subsidy and compensation spending reached Rp376.8 trillion between January and September 2026, representing a 54.1 percent surge compared to the previous year. The Energy Transition Policy Development (ETP) Forum attributed this rise to global oil price volatility and a weakening rupiah, noting that the Indonesian Crude Price reached USD 112.81 per barrel in September 2026, well above the state budget assumption of USD 70. The ETP Forum also noted that approximately half of energy subsidy benefits are currently utilized by the wealthiest 20 percent of households. To manage the expanding 2026 State Budget, Finance Minister Suahasil Nazara reported that the government has reallocated nearly Rp 200 trillion from other programs. This reallocation addresses rising costs from energy subsidies and compensation, as well as approximately Rp 60 trillion spent on natural disaster relief, including forest and land fires and disasters in northern Sumatra. As of November 2026, the government has raised its budget allocation for energy subsidies and compensation to Rp 500 trillion for 2026, up from an initial Rp 338 trillion. Minister of Home Affairs Tito Karnavian stated that the government is considering increasing subsidies for fuel, electricity, and air travel to control inflation ahead of the Christmas and New Year holiday period.

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