The author is a MIT-trained economist, focused on climate finance, with over a dozen years of experience across global financial services & technology ventures. This article first appeared in Hasanalyzed. It reflects the author’s own analysis and views and does not necessarily represent those of The Reformist.
A couple of ASEAN countries, Indonesia and Vietnam, have achieved remarkable economic growth over the past three decades, outperforming the global average by 50 percent and double, respectively, yet both remain heavily dependent on fossil fuels for the vast majority of their energy needs. This presents a critical policy question: can Southeast Asia’s fastest-growing economies decouple emissions from growth without sacrificing development momentum?
The answer, demonstrated through comparative analysis of their renewable energy policies, is yes—but the pathways differ fundamentally. In this piece, I will comparatively explore the financial prospects and overall future of renewable energy in both Indonesia and Vietnam. While challenges persist, driving towards a cleaner energy mix can and must be done to ensure a sustainable and decarbonized Southeast Asia.
A tale of two ASEAN economies: Indonesia and Vietnam
Indonesia and Vietnam are among ASEAN’s fastest-growing economies over the past three and a half decades. Since 1990, Indonesia has recorded average annual GDP growth of roughly 5 percent, with only two contractions, during the Asian Financial Crisis in 1998 and the COVID-19 shock in 2020. Vietnam’s growth has been even stronger, averaging around 6.8 percent per year over the same period.
To put this in perspective, the global economy expanded at an average rate of about 3.4 percent annually during these years. Indonesia, therefore, outperformed the global average by roughly 50 percent, while Vietnam nearly doubled it.
When population size is taken into account, around 280 million people in Indonesia and 100 million in Vietnam, the two countries’ GDP per capita levels have recently begun to converge. This raises a critical question: what has driven such sustained growth?
As with most emerging economies, the answer lies largely in fossil fuels. Today, around 80 percent of the total energy supply in both Indonesia and Vietnam still comes from coal, oil, and gas. This heavy reliance is reflected in their emissions intensity, measured as kilograms of carbon dioxide emitted per dollar of GDP. Vietnam emits approximately 0.39 kilograms of CO₂ per US Dollar, while Indonesia emits around 0.22 kilograms per US Dollar.
For comparison, Singapore, the least carbon-intensive economy in ASEAN, emits roughly 0.11 kilograms of CO₂ per dollar of GDP, one of the lowest ratios globally. Singapore’s experience shows that economic growth can be decoupled from emissions with the right policy mix, making it a useful benchmark rather than an outlier.
Energy systems in context: where Indonesia and Vietnam diverge
Three structural features of Indonesia’s and Vietnam’s energy systems help explain both their similarities and differences.
First, trade in energy. Indonesia’s coal production has expanded nearly ninefold since 2000, making it the sixth-largest energy exporter in the world. Around half of this coal output is exported, even as domestic industrial use, particularly captive coal for industry, continues to grow. Vietnam, by contrast, is a net energy importer. Close to 50 percent of its energy supply now comes from imports, primarily coal from Indonesia and hydropower from Laos.
Second, emissions levels. Both countries have reduced their carbon intensity since 2000, but absolute emissions remain high. Indonesia currently emits around 659 million tonnes of CO₂ per year, while Vietnam emits approximately 293 million tonnes of CO₂. These figures significantly understate the full climate impact, as they exclude other greenhouse gases such as methane and nitrous oxide, as well as emissions from land-use change. When these are included, total climate-related emissions are likely two to three times higher.
Third, renewable electricity—where the contrast is sharpest. Vietnam now generates close to half of its electricity from renewable sources. Indonesia, despite its vast natural potential, generates less than 20 percent of its electricity from renewables. This gap is the most consequential difference between the two countries, and it is where policy choices matter most.
Vietnam’s rapid solar expansion
Vietnam’s renewable surge is most visible in solar power. As recently as 2017, the country had virtually no installed solar photovoltaic (PV) capacity. Today, it has more than 18 gigawatts (GW), a scale-up achieved in under a decade.
Vietnam’s technical solar potential is estimated at around 1,600 GW, largely concentrated in the southern regions. Indonesia’s potential is even larger, at roughly 3,400 GW, more than double Vietnam’s. Yet Indonesia has installed only about 0.7 GW of solar capacity, less than 5 percent of Vietnam’s current total. Clearly, natural potential alone does not explain Vietnam’s success.
The decisive factor was policy-driven investment certainty. Vietnam introduced a feed-in tariff (FiT) in 2018 that guaranteed solar producers a fixed purchase price of 9.35 US cents per kilowatt-hour through long-term contracts. This single policy unlocked large-scale private investment by reducing revenue risk.
Vietnam’s solar boom was further reinforced by three complementary factors:
Foreign direct investment, largely from Chinese firms
Access to subsidized Chinese solar components
Productivity spillovers from multinational firms to domestic suppliers
While FiT rates have since declined and become more differentiated, particularly to encourage pairing solar with battery energy storage systems, the early clarity and generosity of the policy were enough to establish Vietnam as ASEAN’s leading renewable electricity producer.
Can Indonesia be next?
Indonesia adopted a different approach. Around the same time Vietnam launched its FiT, Indonesia introduced a net-metering scheme aimed at installing 1 GW of solar capacity by 2021. Under this system, rooftop solar producers could sell excess electricity back to the grid, but only at 65 percent of the retail tariff. The policy was further weakened by complex licensing requirements and uncertainty surrounding contracts with the state utility, PLN.
The result was predictable. As of today, Indonesia still has less than 1 GW of installed solar capacity, and the net-metering policy has since been scrapped entirely, leaving a policy vacuum.
Despite this, ambition remains. There are approximately 17 GW of solar projects currently in the pipeline, including Green Corridor Indonesia, a proposal to export renewable electricity from the Riau Islands to Singapore.
There have also been isolated successes. Indonesia’s largest operational solar project—the Cirata floating solar plant in West Java—has a capacity of 192 megawatts (MW) and can generate around 300 gigawatt-hours (GWh) per year, enough to power roughly 50,000 households. However, this project is an exception rather than the norm.
By contrast, Vietnam’s Dau Tieng solar complex, operational since 2019, has a capacity of approximately 600 MW, more than three times larger than Cirata. At least seven other solar plants in Vietnam individually exceed Cirata’s capacity.
In the absence of strong national incentives, Indonesia’s solar growth has instead been driven by commercial and industrial rooftop systems. Companies such as Xurya, Suryanesia, and Hijau bypass the grid altogether by selling power directly to businesses under long-term purchase agreements. Collectively, these firms have attracted over US$ 100 million in climate-focused venture capital, suggesting that investor interest persists despite weak policy signals.
Leaving (behind unsustainable economic growth) on a JETP(lane)
Solar power alone will not deliver a full energy transition. This is where the Just Energy Transition Partnership (JETP) becomes central.
Indonesia secured US$ 20 billion in JETP commitments at the 2022 G20 summit in Bali. Vietnam followed shortly after with US$ 15.5 billion in pledged funding. While modest relative to total investment needs, JETP financing is intended to be catalytic, crowding in much larger pools of private capital.
1. Indonesia: untapped potential, execution gap
Indonesia’s renewable energy potential is vast. Of its estimated 3,686 GW of technical renewable potential, around 333 GW is considered financially viable under current conditions. This includes not only solar, but also geothermal energy—where Indonesia holds the largest reserves in the world due to its position along the Pacific “Ring of Fire.”
Modelling by the World Resources Institute suggests that Indonesia can achieve 8 percent annual GDP growth by 2029 while still reaching net-zero emissions by 2060, provided its JETP pathway is implemented effectively. This transition could create nearly 3 million green jobs and significantly reduce public health costs through lower air pollution.
The scale of required investment is large, around US$ 600 billion by 2050, equivalent to US$ 20–30 billion per year. Yet this figure is less daunting when compared with Indonesia’s projected US$ 236 billion in fossil fuel subsidies over the same period. Every dollar invested is also estimated to generate US$ 1.41 in economy-wide benefits, indicating strong returns.
2. Vietnam: rapid growth, fragile foundations
Vietnam’s challenge is different. Its renewable expansion has outpaced the development of grid infrastructure and energy storage. Large volumes of solar power are now being generated in the south, while demand remains concentrated elsewhere. Without sufficient transmission capacity and storage, curtailment risks are rising.
This is why Vietnam’s first JETP-funded project focuses on grid transmission and stability, implemented in partnership with the French Development Agency. Additional support from the Asian Development Bank is targeting battery energy storage systems, which are essential for managing solar intermittency.
Two transition paths, one shared objective
Both Indonesia and Vietnam remain heavily dependent on coal, but their paths forward differ:
Indonesia must focus on executing its renewable potential at scale, while managing social and economic impacts.
Vietnam must reinforce its energy infrastructure to stabilize and sustain its renewable gains.
If policy execution matches ambition, both countries can follow Singapore’s example and decouple emissions from growth. The challenge is no longer technical feasibility, but political and institutional delivery.
Want to share your views on public policy reforms or other political issues?
Write to us: connect@thinkpolicy.id
We have updated the terms of our opinion submission policy. Please review here before sending your piece.
 | A guest post by
|
Hi Max,
Thank you for making a robust analysis that is easy to digest!
I am curious, in your opinion, what do you think is the most urgent action/policy that the government of Indonesia needs to take to unlock the issue or provide a foothold for future development? I am not up to date on the energy sector, so it was surprising to me to know how small our share of the RE production is compared to Vietnam, although we already have Perpres 112/2022 that provides a competitive ceiling purchase price by PT PLN. In this case, I assume some constraints are in place that make the ceiling price less attractive, albeit a similar price to other countries.