UNTAPPED POTENTIAL: Renewable Energy in Indonesia, part 2

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Renewable Energy Highlights and Targets

Even after the Dutch colonization, Indonesia remains to be a leader in fossil fuel exploration in the ASEAN region. Vast reserves of oil and gas, together with the massive low to medium-quality coal, explain the country’s reliance on fossil fuel to address its power generation needs. However, aging oil and gas fields and depleting fossil fuel reserves force Indonesia to look into renewable energy to meet its growing power demand.

In 2006, the national energy policy of Indonesia, Kebijakan Energi Nasional or KEN, was enacted. This policy was a significant milestone in the energy sector of the country and set out the target energy mix, which includes both fossil fuels and renewable energy sources. KEN was revised in 2014, increasing the renewable energy target share to be at least 23% by 2025. Despite this positive drive in renewable energy, KEN projected that in 2025, the three primary fossil fuel sources will still have a significant contribution to the country’s energy mix at an aggregate of 77%, with coal decreasing to 30% but with an oil-based generation growing to 25%.

The study by Maulidia et al (2019) summarized the target increase in renewable energy in 2025. Table 1 shows massive additional capacity targeted for geothermal and hydropower. These two are mature technologies that can replace coal-fired power generation as baseload. However, the timeline in achieving this target is only ten years, and usually, a geothermal field development from exploration to first export of power, at best case, requires seven years. Hydropower can be developed in a shorter time span of ~ five years, given good feasibility study and local development support. Bioenergy capacity is targeted to increase threefold, which could still be a challenge given limitation in the feedstock. Variable renewable energy such as wind and solar power is targeted to increase by 581x and 83x, respectively. This feat will definitely be a challenge to Indonesia, especially since there is insignificant progress in wind and solar development from 2015 to 2018. A robust and policy-driven initiative must be in place to achieve such stellar targets. It could be challenging, but not impossible, as proven by Vietnam, which went on to develop a 2GW capacity of solar in two years.

Renewable energy sources and targets (Maulidia et al, 2019; adapted from Ministry of Energy and Mineral Resources Indonesia

Drivers for Renewable Energy Development

Similar to the other 163 nations, Indonesia sets its ambitious 23% renewable energy share as stipulated in KEN. IRENA (2017) summarized the three key benefits and drivers for the increasing uptake of renewable energy in Indonesia: 1) health and environmental impact, 2) macroeconomic impact, and 3) energy security and access.

Indonesia’s heavy reliance in coal-fired power generation generates a high level of GHG emission, contributing to almost half of the emissions in South East Asia. Outdoor pollution from fossil fuel generation and motorized vehicles, and indoor pollution caused by traditional bioenergy use for cooking, were responsible for almost 6,500 premature deaths in the country and increasing air pollution-related illnesses. Aside from the negative effects on health, emissions due to fossil fuel generation contribute a considerable percentage of the annual carbon emission of the country, together with emissions from land-use conversions. The segments of the fossil fuel supply chain (exploration, mining, extraction, and generation) also affects the environment by contributing to water pollution and water shortage due to the heavy demand for cooling waters of coal plants. Increasing renewable energy share in the power system is expected to alleviate the environmental and health impacts brought about by Indonesia’s fossil fuel dependence.

Description: solarPowerPlantKupang_bisnisomKornelisKaha
Indonesian President Joko Widodo (middle) in the inauguration of 5MWp Kupang Solar Power Plant in December 2015 (Photo source: bisnis.com/Kornelis Kaha)

Renewable energy development will also boost economic activity in the country by attracting more private investors and creating more jobs for the locals, estimated to be more than 1 million by 2030, throughout the stages of RE plant development. IRENA (2017) estimated a GDP increase of 0.3% to 1.3% in 2030 from strong deployment of new renewable energy projects and improvement in the trade balance between 0.9% to 1.6%. Furthermore, the massive uptake of renewable energy will expose Indonesia to knowledge transfer and innovation in energy technology. Both of these will positively impact the economy of Indonesia and can trigger receptiveness to new and more efficient power generation technology, and further inflow of capital investments in the country.

Lastly, given the aging oil and gas fields, and dwindling coal reserves, Indonesia has been increasing its petroleum imports to meet its growing demand. With the reliance on fossil fuel, Indonesia is exposed to the high and volatile prices of petroleum products in the world market. Decreasing the share of fossil fuel generation by deploying more indigenous renewable energy sources in the power system is one way for Indonesia to strengthen its energy security. Furthermore, modular renewable energy such as solar PV and wind, together with a storage system, can provide access to electricity in off-grid and remote villages scattered all over the islands of Indonesia. Establishments of micro-grid run mainly from RE sources will be more cost-effective than augmenting the main power grid to reach all the villages in Indonesia’s 17,000 islands.

Current Challenges

Indonesia can learn a lot from its fellow ASEAN nations Philippines and Vietnam in improving the uptake of renewable energy. The Philippines has a more advanced market-based power system, while Vietnam has an aggressive absorption and transition to a more competitive energy market landscape.

It is interesting to note that Indonesia started its Feed-in Tariff scheme a year earlier than the Philippines. However, renewable energy development has been slow not because of the lack of resources but due to the existing policy and regulatory conditions. The implementation of FiT, and the cost it incurred, is also shouldered by the state through PLN since electricity is subsidized by the government. Renewable energy tariff is pegged against the Cost of Generation, which is heavily influenced by fossil fuel generation. Depending on the price on the local and national grid, the approved tariff will vary, and a cap will be set based on the Cost of Generation from the prior year, with variable RE usually having lower cap than baseload RE technology.

PLN also implements a rigorous financial model to ensure retail electricity price will not increase, which usually lead to PLN sourcing power from low-cost coal rather than renewable energy despite the carbon reduction commitment of the country. Furthermore, a study by Guild (2019) points out that poor governance and weak regulations in energy leading to multiple revisions of FiT policy are reasons why the confidence of RE investors in the country is low, resulting in slow capital infusion and development of new RE projects.

Aside from the policy and regulatory hurdles mentioned above, Burke et al (2019) elaborated on other key challenges of RE uptake which include: 1) strong position of coal and fossil fuel market in Indonesia, 2) uneven price comparison (renewables vs. heavily subsidized electricity tariff, and lack of pricing on externalities), 3) grid management concerns especially on variable renewable energy, 4) protectionism, and 5) weak political support. These challenges convinced certain scholars that Indonesia would fall short of its RE target, especially if nothing will change with the policy and implementation as the current trajectory of development has been very slow.


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