The Determinants for Enhancing Foreign Direct Investment on Renewable Energy in Indonesia

Energy consumption could be less, but the needs of consuming energy will always exist. Renewable energy is needed to support the supply of energy resources. The enhancement of energy supply is obliged to support the national energy security and resilience. Renewable energy is a potential sector that could be enhanced to support this measure. Inward Foreign Direct Investment (FDI) could contribute as tools to promote technology transfer. Destination countries especially from developing countries that have less experience in renewable energy technologies are looking forward to technology transfer from source countries which mostly come from developed countries. Destination countries, including Indonesia, should take some efforts to attract inward investment. These countries should define their position in renewable energy sector by knowing the characteristics of FDI on Renewable Energy (RE) at the global level and find factors that influence enterprises to locate their business in order to improve their competitiveness on attracting inward FDI on RE. These factors could become guidelines of policies to support improvement on inward FDI on RE and in the end it could also promote improvement on renewable energy sector as well. Therefore, there are 3 (three) objectives of this research, namely identification of FDI inwards-outwards characteristics on renewable energy at the global level and in Indonesia; to investigate the determinants of inward FDI on renewable energy at the global level; and to propose some measures for Indonesia in order to enhance inward FDI on renewable energy. These research objectives are supported by main research question “what are the factors that influence the competitiveness enhancement to attract FDI on renewable energy in Indonesia?” Literature review in this research relates to the 4 (four) main concepts, namely the geographical of global corporate networks, competitiveness on globalized economy, Foreign Direct Investment (FDI) on global networks, and renewable energy as alternative source. As conclusion to this literature review, the conceptual framework will be formulated and discussed. Research design and methods in this research are using descriptive, exploratory, and prescriptive analysis. Descriptive analysis is used to emphasized the characteristics of FDI on RE at global level and in Indonesia. Exploratory analysis uses multiple regression analysis to find the determinants of inward FDI on renewable energy at global level. Prescriptive analysis is applied by providing policies recommendations based on descriptive analysis and multiple regression analysis results. Based on analysis and findings, this research found that the linkages mainly dispersed in within and among northern hemisphere. Northern part of the world-North America and European countries-are mostly the key players on renewable energy sector. This linkages characteristics happen because the main intention of development of renewable energy is to secure energy supplies within developed countries since they have the largest energy consumption. Expanding their businesses to other countries that have significant potential on renewable energy is their second intention to gain more revenues. Meanwhile based on multiple regression analysis, significant variables that signify as the determinant of location factors of inward FDI are infrastructure, labour market efficiency, market size, energy production, and policy on climate change, and TPES/GDP. Based on this analysis results, countries that have measurement in encouraging inward FDI on RE should have paid more attention to those significant variables. Indonesia is one of the countries that still need inward FDI to their renewable energy sector development. Indonesia could appear as one of the important key players on Asia region if Indonesia can improve those significant variables.