Energy ventures in Indonesia experience growth as funding from the West shows signs of decline

In the dynamic world of international development, Indonesia finds itself at the centre of a growing competition between the US and China. This struggle is particularly evident in the energy sector, where both nations are vying for investment opportunities.

The US continues to support a US$2 billion World Bank loan guarantee for Indonesia, a move aimed at bolstering the country's renewable energy initiatives. However, China has been making significant strides in this area. In 2022 and 2023, China was the largest single-country provider of development financing to Indonesia, accounting for approximately 10% of the total.

China's interests in Indonesia extend beyond just financing. The country sees Indonesia as a strategic location for manufacturing products for further trade, and this is evident in the Chinese EV battery company CATL's recent groundbreaking of a US$5.9 billion nickel battery plant in West Java.

However, the nickel industry in Indonesia has been a source of concern due to its environmental impact. Nickel mining, such as in Morowali, has been linked to health problems in nearby communities and has been fined for environmental violations. A study by the Centre for Research on Energy and Clean Air and Celios identified severe public health risks linked to air pollution from nickel smelters.

Despite these concerns, opportunities for renewable energy investments remain open to any interested party, including China. Chinese companies have been expanding their involvement in Indonesia's green-energy value chain, including solar and hydropower projects, electric vehicle assembly, and smart grid development.

In contrast, the US Development Finance Corporation remains interested in investments, provided Indonesia can offer viable projects. However, the US quietly withdrew from the Just Energy Transition Partnership (JETP) in March 2025, leaving Germany and Japan to take over coordination.

The JETP, launched in 2022, aims to help Indonesia shift away from coal with a pledged US$20 billion in grants, soft loans, and private finance. As of now, only US$1.2 billion has been mobilized from the JETP.

It's worth noting that besides China, no other countries have been explicitly mentioned in the available sources as having committed to financing green energy projects in Indonesia so far. The search results do not provide specific information on other countries financing Indonesian green energy initiatives.

Meanwhile, total Chinese infrastructure commitments in the region nearly quadrupled in just a year, to almost US$10 billion in 2023. Much of China's development financing went toward major infrastructure projects such as high-speed rail in Indonesia and Malaysia.

Aid reductions by the US, EU, and UK could shrink official development finance to the region by more than US$2 billion, bringing it to about US$26.5 billion by 2026. This potential decrease in funding could reshape the landscape of development financing in the region, potentially giving China a larger role.

As Indonesia navigates this complex landscape, it will be interesting to see how the country balances the opportunities and challenges presented by both the US and China.