As Indonesia accelerates its march toward energy independence, President Prabowo Subianto's administration has made ambitious declarations: achieving full energy sovereignty within five years, Invest Indonesia reported. But beyond the symbolic ribbon cuttings and capacity additions lies a complex ecosystem riddled with structural inefficiencies, financing gaps, and long-standing policy inertia. Despite the optimism, the path toward a secure, inclusive, and sustainable energy future is anything but straightforward.

Electrification gaps amid resource wealth

The Ministry of Energy and Mineral Resources (MEMR) revealed that 12,659 villages across Indonesia remain without access to electricity, Antaranews reported. Even more alarming, 2,519 villages, predominantly located in frontier, outermost, and underdeveloped areas, remain in total darkness. Around 70% of these villages are concentrated in Eastern Indonesia, a region rich in natural resources but chronically underserved in infrastructure.

This stark contrast is further highlighted by analysis from Publish What You Pay (PWYP) Indonesia, which found that seven out of 18 oil and gas producing provinces had electrification ratios below the national average as of 2014. The irony is glaring: energy-rich regions remain energy poor.

Untapped renewable energy potential

Indonesia is blessed with vast renewable energy (RE) potential, estimated at 441.7 GW, but as of 2025, only 13.1 GW (approximately 2.97%) has been utilised. According to MEMR, the country’s RE demand by 2020 was projected to be 17% of total energy consumption or about 3,372.70 MW, primarily from geothermal and bioenergy. However, progress has been hampered by high costs, lengthy development timelines, and insufficient investor interest.

Geothermal energy, for example, demands an investment of about $120mn per kWh, with returns materialising only after 6 to 7 years. Despite the long-term benefits, the perceived risks and low tariff returns deter private sector involvement. Renewable energy development is still heavily reliant on investment, but financing remains one of its largest bottlenecks.

The government has issued several regulations, including PMK No. 21/PMK.011/2010 and PMK No. 21/PMK.011/2011, to encourage renewable energy development, but their implementation has fallen short. In comparison, fossil fuel subsidies still dominate the national budget, effectively undercutting efforts to grow cleaner alternatives.

To meet its 45 GW renewable energy target, Indonesia needs between IDR 1,300 and 1,600 trillion in investment, an enormous sum that will require both public and private commitment.

No strategic energy buffer in sight

Indonesia’s vulnerability is further exposed by its lack of energy buffer reserves. While countries like Japan, South Korea, Thailand, and China maintain crude oil reserves covering 39 to 40 days of consumption, Indonesia holds no strategic or buffer reserves, according to Indonesia Petroleum Association’s report. Its only reserves are operational stocks held by Pertamina, which range from 13 to 33 days depending on fuel type, 13 days for gasoline and avtur, 15 days for diesel, and 33 days for kerosene. These do not include reserves for refinery operations.

A government initiative aims to build 30 days’ worth of fuel buffer reserves, but the plan faces significant funding challenges. Constructing a 2mn kilolitre storage facility would require an estimated IDR14 trillion ($854mn), while daily fossil fuel procurement costs could add up to IDR1 trillion. Limited fiscal space has forced the government to prioritise other programs over the past 14 years, leading to persistent delays in reserve development.

Plans are now underway to involve the private sector in constructing buffer storage facilities. However, heavy reliance on profit-oriented actors poses risks, especially in a volatile market. A more sustainable model would incorporate a dedicated funding mechanism to ensure reserve buildup continues even during market downturns.

The decline in oil and gas exploration

Indonesia currently holds total oil reserves of 7,305.02 MMSTB, split almost evenly between proven (3,602.53 MMSTB) and potential reserves (3,702.49 MMSTB). Natural gas reserves stand at 151.33 TSCF, with 97.99 TSCF proven. Based on current production levels, these reserves will be exhausted in 23 years (oil) and 59 years (gas).

Compounding the issue is the nation’s low oil and gas Reserve Replacement Ratio (RRR), which currently sits at just 50%. The National Exploration Committee (KEN) has set an ambitious goal to raise the RRR to 100% over the next five years. This requires discovering new reserves equal to the volume extracted annually, no small feat given current investment trends.

Exploration, a capital-intensive and high-risk endeavour, has been sidelined in favor of production and development. From 2010 to 2014, out of 494 wells explored, only 153 yielded viable oil and gas content, reflecting a declining success rate. The cost per exploration averages $6–8mn, with each discovery yielding around 17.6 BOE (barrel of oil equivalent). Given these odds, it's no surprise that investors are wary.

To reinvigorate exploration, a specialised oil and gas fund is proposed. This fund would be used to support research, new field development, and to convert probable (P3) reserves into proven (P1) reserves, thereby strengthening Indonesia’s long-term energy security.

The case for an oil and gas fund

The establishment of an Oil and Gas Fund, an endowment carved from national oil and gas revenues, has been proposed as a cornerstone policy to address Indonesia’s multifaceted energy challenges. Properly governed, this fund could serve multiple strategic functions:

• Finance renewable energy development, enabling faster project execution and bridging the cost gap with fossil fuels.
• Support oil and gas exploration, ensuring the Reserve Replacement Ratio remains sustainable over time.
• Invest in upstream-downstream integration, driving local economic growth and added value.
• Subsidise RE-generated electricity, making it more competitive and accessible.

Crucially, the fund would require strong institutional governance. It should be jointly managed by the Ministry of Energy and Mineral Resources and the Ministry of Finance, with distinct operational, regulatory, and supervisory arms. Disbursements would require presidential approval, and the Supreme Audit Agency (BPK) should be mandated to audit the fund, ensuring transparency and public accountability.

President Prabowo’s vision for energy independence is not out of reach, but it will require more than ceremonial launches and headline-generating megawatts. Indonesia must confront deep-rooted issues, ranging from rural electrification and RE underinvestment to the absence of strategic reserves and declining exploration activity. A well-managed Oil and Gas Fund could serve as the financial backbone of this transition, ensuring not only short-term energy access but long-term national resilience. So far, the infamous Danantara is yet to be put to work to support this vision.

Without structural reforms and sustainable financing mechanisms, Indonesia risks remaining energy vulnerable, even as it sits atop one of the world’s richest energy endowments.