With the Earth’s temperature rising persistently the evidence suggests its highly probably that fossil fuel burning is having a potentially disastrous impact on the planets longer term outlook. As developing economies mature and consumption rises the already worrying data points will only get worse without a change. Renewable energy sources are therefore of critical importance for Indonesia as well as the rest of the word. From an economic perspective renewable energy competitiveness has improved rapidly in recent years, with production costs continuing to drop with costs in some countries lower than fossil fuels.
Albania, Iceland, and Paraguay essentially obtain all of their electricity from renewable sources, with Albania and Paraguay obtain 100% of their energy from hydroelectricity and Iceland 72% from hydro and 28% from geothermal. Some countries such as Norway, Canada, and several States in America are following closely behind on the trend.
Indonesia has been somewhat behind the trend but is creating targets that should encourage environmentalists as well as investors that want to focus on renewable energy in Indonesia. As the largest country in South East Asia, energy demand across the country’s more than 17,000 islands could more that triple by 2030 according to a recent government paper. With a rapidly expanding consumer economy yet more than 50 million people in rural communities without access to reliable power, Indonesia is currently facing a serious energy deficit which needs addressing.
The government certainly wants more renewable energy in the mix, with a goal of achieving 23% renewable energy use by 2025, and 31% by 2050. This resolution is in line with the country’s commitment to reduce its greenhouse gas emissions at the Paris Summit in 2015. A report done by the International Renewable Energy Agency (IRENA) earlier last year has stated that Indonesia could easily exceed its current goals and its 2050 target by 2030 (31% by 2030). The benefits of this acceleration would greatly outweigh the costs. It would cut net energy system costs and avoid air pollution and carbon-dioxide emissions. The report argued around US$53 billion per year would be saved by 2030. This amounts to 1.7% of Indonesia’s estimated gross domestic product in 2030. However, it requires over US$16 billion of capital investment per year in renewable power capacity over the same period- this is certainly something the private sector could benefit from.
In addition to that, there are some problems popping up in the actual implementation of renewable energy as a viable source in this country according to a report done by The International Institute for Sustainable Development in February. The problem, sadly, mostly lies in the hands of the government. One of them is the fact that the power purchase prices are simply too low to allow investors to recover their investments and make reasonable profits, especially since the introduction of Regulations 12/2017 and 50/2017 capping power purchase prices at 85 per cent of the local average generation cost (BPP). Frequent changes to policy, regulatory delays and patchy implementation of government policy by PLN also caused investor confidence to dwindle as well as an increase in project development risk. Developers are also concerned that the new system of pricing in actuality, favours fossil sources. This can be seen by the government’s role in subsidizing and financially supporting the coal industry. And since renewable energy prices are now linked to these prices through the BPP, unsubsidized renewables are unfairly competing against subsidized coal generation. Industry stakeholders are also concerned about the extensive power held by PLN as the main fuel supplier to diesel generators. This could cause a conflict of interests to arise since PLN owns and operates the majority of fossil fuel capacity and understandably has great interest in maintaining the status quo to avoid losing revenue.
However, there is still hope. There are many Independent Power Producers who are providing accessible electricity sources in parts of the country, which was enabled by the implementation of Law No. 30 of 2009 regarding Electricity. The law has made it possible for an integrated business entity outside of PLN with specific business areas and possibly different electricity tariffs from the ones used by PLN to provide electricity demands in the country. The total private sector investments by Independent Power Producers are expected to reach IDR 155.4 trillion (USD 11.11 billion). One of them is Clean Power Indonesia, a private company that is working to provide electricity to islands in Mentawai.
The current situation is helped by the fact that investments in renewable energy have also accelerated rapidly in Indonesia. According to the Reference Case, annual investment in renewable energy capacity in Indonesia is approximately IDR 131.5 trillion (USD 9.4 billion) in 2015-2030, and will possibly increase to IDR 226.6 trillion (USD 16.2 billion).
There are some great government initiatives such as government guarantees for developers and IPPs to minimalize financial risks, incentives, as well as tax holidays and income tax reductions that are implemented in the hopes of supporting the renewable energy industry. However, the government still has to cut back significantly on coal, fossil fuel, and diesel generators as the main source of energy if they truly want to focus on providing clean, sustainable, and accessible energy for the current and future generations to come.
Written By : Fajar Adi Nugroho