UNTAPPED POTENTIAL: Renewable Energy in Indonesia, part 3
The RE Potential of Indonesia
Reports from international energy agencies and studies done by scholars confirm the significant potential of Indonesia to generate power from renewable energy sources. The table below shows the summary of the total capacity potential of each RE source against the 2018 installed capacity.
The values above show the staggering untapped potential of Indonesia’s RE resource. Note that these potential values are based only on the presence of resources and specific assumptions (i.e., for Wind power potential was calculated based on average wind speeds of >4m/s). Assuming only 10% of the calculated potential can be developed commercially and cost-effectively, it is still quite a large number (44.3GW) compared to the end of 2018 installed RE capacity of 9.3GW. Realizing the RE potential of Indonesia will entail significant capital investment and increased participation of private enterprises. It is therefore, imperative, that the government continues to develop policy and energy reforms that are consistent and are pro-investments.
Suggested Course of Action: Practices, regulations, and policy supporting RE
Indonesia can adapt the electricity market reform done and being done in neighboring ASEAN nations such as the Philippines and Vietnam, and in more developed countries in North America and Europe. The shift to a more liberalized, competitive electricity market will ensure efficient use of resources, level playing field across various electricity market participants, and adaptability to a rising trend of decentralization in the energy systems. The government of Indonesia began its attempt to ease out on monopoly by letting IPPs participate since the 1990s. In 2016, IPPs were also given the green light to generate and distribute power in 2,500 remote villages spread across the island nation (Prakoso, 2016). This is a good start; however, transmission, distribution, and retail segments are all still under PLN.
Burke (2019) presented strategies on how to increase renewable energy penetration in Indonesia, with emphasis on wind and solar development, which remain underutilized. Apart from restructuring the electricity market, Indonesia must exhibit strong political commitment in achieving its disclosed ambitious RE target by 2025. The challenge is given to the President and to the officials of the Ministry of Energy and Mineral Resources (MEMR) to strengthen support to RE by initiating a fair pricing mechanism (in PPA or in FiT) where RE cost of generation is compared to fossil fuel generation without subsidy. Lazard (2019) latest report on the Levelized Cost of electricity shows wind and solar to be competitive to fossil fuel generation. Furthermore, considering the externalities brought about by fossil fuel generation, RE sources offer not just cost-effective generation price but also savings in the health and environment sector of the country.
The country can also find benefit in increasing its openness to international trade and investments. For solar and wind, the lowest cost and high-quality equipment are available and traded in the world market. A certain level of protectionism can be good. However, since Indonesia is still building its RE portfolio, a more liberalized approach in supply, procurement, and investment is necessary to drive down costs and attract more investors.
Other strategies include the implementation of large-scale renewable energy auction, the establishment of renewable portfolio standards, or renewable purchase obligation (RPS/RPO). Also, incentivizing utilities which incorporate generation from RE sources, the formation of Indonesia Clean Energy Agency responsible for research, policy support, and management of auction and RPO. Lastly, the involvement of consumers through residential and commercial & industrial (C&I) solar rooftop segment should also be capitalized and given support through a net-metering scheme with better price points.
The next big thing: Unleashing Indonesia’s RE Potential
Indonesia is one of the fastest-growing economies in the ASEAN region, with growing energy consumption. Aside from the energy requirement, the country also experiences a threat in energy security with the dwindling fossil fuel resources and a threat to the environment and health due to pollution caused by a fossil-fuel reliant energy system. Renewable energy potential in the country is significant, and tapping into this potential will help address the abovementioned issues.
Around 36GW of new renewable energy capacity must be installed in the next 5-6 years for Indonesia to attain its 2025 RE target. This is a massive jump from its current capacity, and radical changes must be done, or the country can only be expected to reach half of its target (AT Kearney, 2019). It is evident that Indonesia is far from reaching its mark with its current approach. AT Kearney uses the term “policy overhaul,” which is required to boost Indonesia’s energy uptake by putting accountability on a specific energy player, in this case, the PLN. The lack of accountability and dedicated government agency looking at the expansion of renewables cost the country years of slow RE growth. However, it should also be noted that PLN may not find any incentive in taking up the challenge of boosting RE especially since it is also a shareholder of fossil fuel generating facilities and the buyer of power (mostly from fossil fuel plants) which is locked in for as long as 30 years.
A separate clean energy agency, led by a high official with members from MEMR, academe, and private institutions, can facilitate the radical changes required to bring forth massive RE development. Easing out of specific rules with regards to investment and foreign trades should also be considered by the government to ensure cost-competitive pricing and an increase in investors’ interest. Strong political will, active public and private/investors participation, and consistent policy support are all required for Indonesia to be the next big hot spot of renewable energy in the ASEAN region.
We hope you liked this series and in case you missed them, here are the links for part one and two. Don’t forget to subscribe to our Daily Roundup straight to your inbox, check out our other articles and interviews on our homepage, or continue the discussion on our Facebook and Twitter pages.