UNTAPPED POTENTIAL: Renewable Energy in Indonesia, part 1
Introduction to Indonesia’s Energy and Power System
Indonesia is an archipelagic nation in South East Asia, which consists of more than 17,000 islands. With a rapid economic growth of 5-6% per year, and a growing population currently at 270 million people, the country continues to increase its energy consumption at around 5% per year (BP, 2019). Indonesia’s archipelagic setting makes it challenging to attain 100% electrification. The urban hubs like Jakarta have an electrification rate of over 99%. However, electrification in regions such as Nusa Tenggara Timur and Papua remains below 60% (International Energy Agency, 2016). Thousand small villages scattered over the smaller islands remain off-grid and have no reliable electricity supply.
This challenge in electrification and deployment of reliable energy supply all over the numerous island groups of Indonesia can be addressed with the help of renewable energy such as wind and solar power. Indonesia is strategically located to have ample solar and wind resources, and the construction of such technologies allow for a small system, in the ranges of a few kW to a megawatt, ideal for the power requirement of a small community. Modularity, ease in construction, and continuous price drops make these variable renewable energy technologies competitive against diesel generators. However, RE (renewable energy) uptake remains slow despite the presence of abundant resources, and the commitment of the country to reduce its carbon emissions.
This report presents the untapped potential for renewable energy in Indonesia. Part one will provide the background of Indonesia’s energy system, as well as the electricity market structure and pricing. Part two will discuss the existing situation of renewable energy and the current challenge in attaining the RE target. Lastly, part three will present the RE potential of Indonesia and examine the possible strategies to ensure that the country can take advantage of these RE sources.
Energy Supply Mix
In 2018, almost 90% of Indonesia’s 65.48GW energy supply came from fossil fuels, with nearly half of the total amount coming from coal-fired power generation alone. Next to coal is gas-fired generation at 26% and oil-based power generation at 9%. The significant share of coal in the energy mix is not a surprise as Indonesia also leads the world ranking of coal exporting countries together with Australia and South Africa, with the three nations exporting 28% of the global coal traded.
The remaining 14% of Indonesia’s capacity comes from renewable energy sources, primarily from hydropower (small and large), geothermal power, and biomass. The country is known to be the second-largest geothermal energy producer next to the United States of America with a total installed capacity of 2,045MW. Share of variable renewable energy such as wind and solar power remains insignificant (<1%) in the Indonesian energy mix.
Electricity Market Structure and Players
The state-owned Perusahaan Listrik Negara (PLN) remains to be the leading player in the Indonesian electricity market, dominating the generation, systems operation, transmission distribution, and sales/electricity retail. Independent power producers account for 26% of the power generation; however, 100% of all the other electricity market segments are wholly controlled by PLN. The entry of IPP only occurred in the 1990s, but before that, PLN was the sole player in the electricity market.
Report by Guild (2019) mentioned that PLN operates at a loss and relies on government funding to continue to be afloat. In 2018, the Indonesian Government compensated a total of US$ 1.63 billion (Nantu, 2019). Increasing market-based participation and enabling price dictated by supply and demand could help alleviate the burden of the Government and improve the economic efficiency of the power market.
There have been attempts to diversify and move toward a competitive market scheme in the last decade. However, the results remain minimal with only a 26% share of IPP generation when the provision has been in effect for three decades.
Indonesia has one of the lowest electricity rates in the ASEA region, and in the world, due to the presence of subsidies from the government. Prices are determined by the government, in consultation with consumer groups. Figure 3 shows the increase in the Indonesian electricity rates from 1992 to 2015, which is roughly +6-7 US c/kWh for the 23-year period (Burke, 2019). At present, published PLN rates in October 2019 was set to 7 US c/kWh for manufacturing, 7.9 US c/kWh for commercial, and 10 US c/kWh for residential consumers. These rates are comparable to Malaysia’s electricity tariffs and are slightly lower than Vietnam’s.
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