Indonesia has achieved remarkable economic growth and reduction in poverty since the Asian Financial Crisis. However, its growth has relied heavily on coal-fired power technology while it is among the most vulnerable to climate change in the world.

To transit into a more sustainable development model, Indonesia has launched a series of initiatives aiming to leverage state-owned enterprises (SOEs), promote private sector participation through public-private partnerships (PPPs) as well as nurture market forces in the energy sector, and stimulate green innovation.

SOEs remain prominent in infrastructure development. Recent reform to consolidate SOEs into sectoral holding companies have generated diverse impact across firms and sectors. In construction, reformed SOEs significantly increased operating scales, but the performance of private firms deteriorated. In mining, the private firms were prompted to improve whereas the impact on SOEs is limited.

The PPP framework reforms seemed to have prompted PPP growth but only in the short term. The energy sector dominates PPPs, with most projects being fossil fuel-based and renewables lagging. The distribution of energy PPPs correlates more with local fiscal constraints than the demand for private sector innovation to deliver the last mile connectivity.

Power sector reforms have been effective in reducing market barriers but not so much in stimulating renewable investment. Installed IPP capacity has grown in tandem with reforms, especially since 2015. The importance of renewables in total power mix has not been increasing except in off-grid power generation capacity.

Indonesia may be falling behind global green innovation. Patent filing in Indonesia is driven more by foreign companies than domestic firms. Nevertheless, sectoral innovation data points to the importance of carbon capture, conservation, hydropower, recycling, and electronic vehicles (EV). The concentration is due to the confluence of market pulling effects and government instruments. Recent EV innovation and the development EV supply chain look promising.