Cheap Energy Is Not Enough: Indonesia Needs Productive Energy

There is a fundamental difference between possessing energy and possessing the capabilities that energy can create. A country may have abundant natural resources, produce large amounts of electricity and offer energy at competitive prices.

Yet none of this necessarily makes its economy stronger. Energy acquires strategic significance when it changes a nation’s ability to produce, create added value, develop technology and improve its people’s welfare.

The most fundamental question in energy policy, therefore, is not simply how to provide enough affordable energy, but what kind of economic capabilities that energy is meant to support. For Indonesia, this distinction matters because the future of energy should not stop at meeting demand; it should form part of a broader effort to expand the possibilities for national development.

Energy prices have often been one of the main measures used to assess the success of policy. This is understandable. Energy is a significant component of production costs, affects people’s purchasing power and determines the competitiveness of various business sectors.

Excessively high prices can undermine productivity and deter investment. But cheap energy does not automatically create a competitive economy. Industry needs more than low tariffs.

It needs reliable supply, appropriate electricity quality, adequate infrastructure, regulatory certainty and the ability to plan investment over the long term. Low prices lose much of their benefit if supply disruptions halt production, the grid cannot accommodate growing demand, or the necessary technology remains wholly dependent on others.

The issue, then, is not a choice between cheap and expensive energy. It is about understanding energy’s economic value more fully. Price is part of the cost, but reliability determines whether production can continue.

Capacity determines how much demand can be served, while the grid determines whether energy can reach users. Access to technology determines whether the system can develop, while the quality of human resources determines whether that technology can be operated and improved.

Together, these elements constitute energy’s productive value. A policy focused on just one risks overlooking the relationships that determine overall economic competitiveness.

More fundamentally, energy is the ability to turn potential into reality. Unprocessed natural resources still hold potential, but have not yet generated their full economic value. Available electricity creates opportunities for production, but added value only emerges when it powers machinery, processes raw materials, supports product development and enables services that people need.

In this sense, energy is not the end goal of development. It is one of the prerequisites for productive activity. Its success should therefore be measured by what people and industry can do with the energy available, not merely by how much energy is produced.

This perspective has implications for Indonesia’s industrialisation strategy. The country’s wealth of coal, natural gas, geothermal energy, hydropower, solar and wind power, bioenergy and strategic minerals gives it an important asset base. But resource advantages become economic advantages only when they are linked to productive activities that generate added value. Mineral downstreaming, for example, should not be judged solely by the growth in the number of processing facilities or production volumes.

The next questions are whether these processes foster technology development, strengthen domestic suppliers, improve workforce skills, expand research and build the capacity to produce increasingly higher-value goods.

Energy plays an important role in this process because it determines the cost, reliability and viability of industrial operations. But it becomes a strategic advantage only when it is connected to a productive ecosystem capable of using it.

The same logic applies to renewable energy development. Adding capacity from solar, wind, hydropower and other sources is an important part of transforming the energy system. But the benefits can go beyond the amount of electricity generated.

Renewable energy development also creates opportunities to build industries producing components, engineering services, storage systems and control equipment, as well as domestic capabilities in operations, maintenance and technical expertise. The 100 GWp solar power programme, for instance, can be seen not only as a plan to add generation capacity, but also as an opportunity to develop industrial and technological capabilities.

This does not mean every component must be manufactured domestically regardless of cost and efficiency. What matters more is ensuring that the scale of investment also expands national capabilities, rather than simply adding physical assets whose strategic value depends on external supply chains.

Indonesia must also consider the relationship between energy and the locations of economic growth. Energy available in a particular region can help attract industry, but supply alone is not enough.

Transport infrastructure, electricity grids, market access, workforce quality, land certainty and logistical support all help determine whether productive investment will grow. Energy development should therefore be planned alongside the development of industrial zones and new growth centres.

An energy surplus has greater economic value when it is connected to production that needs the supply. Conversely, capacity that is misaligned with economic demand risks creating underused assets. The challenge is not just to generate as much energy as possible, but to position it appropriately within the national economy.

The growth of data centres, artificial intelligence, electric vehicles and high-tech manufacturing shows that the relationship between energy and the economy will become even closer. The industries of the future will need not only large amounts of energy, but also stable supply, high-quality systems and infrastructure capable of keeping pace with technological change.

Investment decisions increasingly depend on confidence that energy will be reliably available throughout a facility’s operating life. In this context, a country’s advantage is no longer determined solely by how cheap energy is today, but by its ability to provide competitive, reliable energy for an evolving economy. This presents an opportunity for Indonesia, while also requiring more integrated planning across energy, technology and industrial policy.

Making energy a driver of productivity does not mean neglecting affordability for the public. Energy remains a basic need that affects quality of life, access to education and healthcare, mobility and economic opportunities.

Energy policy must therefore balance affordability, reliability, sustainability and the ability to generate added value. Affordable prices matter to households and small businesses, while industry needs a cost structure that enables it to compete.

But affordability policies must take account of the sustainability of investment and the health of the energy system. The aim should not simply be to suppress prices in the short term, but to ensure households and businesses have access to energy that supports economic activity sustainably.

This means broadening the measures of success for energy policy. Generation capacity, domestic production, electricity access and tariffs remain important indicators. But the government should also consider the extent to which energy boosts industrial productivity, attracts realised investment, strengthens domestic supply chains, advances technological capability and creates added value.

Supply reliability should be assessed as part of competitiveness, while renewable energy development should also be linked to the industries growing around it. This approach would shift policy evaluation from merely counting what has been built to assessing the economic capabilities it has created.

Changing the measures of success also requires closer policy coordination. Energy policy cannot work in isolation if its ultimate aim is to strengthen national productivity. Investment in power plants must be aligned with the grid and industrial needs.

Industrial policy must take the availability and characteristics of energy supply into account. Education and research should be directed towards strengthening the technical capabilities required by the future energy system.

Meanwhile, investment policy must provide certainty so that energy projects and productive activities can develop over the long term. These cross-sector links matter because energy’s economic benefits are determined not only by the sector that produces it, but also by other sectors’ ability to use it.

Ultimately, cheap energy is an advantage, but productive energy is a strategic capability. Price advantages can shift with the market, while the ability to turn energy into technology, industry and added value can strengthen competitiveness over the long term.

Indonesia must continue to expand capacity, maintain affordability, improve reliability and develop a more diverse range of energy sources. But all these efforts should serve a larger purpose: building an economy capable of using energy to create new capabilities, rather than merely meeting existing needs.

A nation does not become strong simply by possessing abundant resources or being able to buy energy cheaply. It becomes strong when it can turn resources into knowledge, knowledge into technology, and technology into productivity and prosperity.

In this process, energy is not merely a commodity to be traded or a cost to be reduced. It is the foundation that enables national potential to develop into tangible capabilities.

The question guiding Indonesia’s energy future should therefore not be only how cheaply energy can be provided, but how much capability can be built through it. The ultimate goal of energy development is not simply for Indonesia to have more energy, but to enable it to produce more from every unit of energy it has.