Global Energy Crunch Lessons for Indonesia

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GLOBAL ENERGY CRUNCH Lessons for Indonesia
Illustration: LEONARDO A. PUTONG

IO – Still reeling from the Covid-19 pandemic, now nearing the end of its second year, the world is gripped by a different type of crisis. The global energy crisis, caused primarily by inadequate supply of natural gas and coal, has dampened optimism for a still fragile economic recovery and the
revival of manufacturing. Some of the world’s leading producers, such as such as China, India, Britain and several European countries, are facing a critical shortfall in energy supplies, which in turn threatens to derail their Covid-battered economies.

The situation is particularly dire in the U.K., as it faces economic turmoil caused by soaring electricity tariffs, shortage of fuel, and scarcity of food
supplies. The sight of snaking queues of vehicles at various gas stations in
the UK has grabbed the world’s attention and shows that Britain, a developed country whose national energy security is bolstered by renewable energy sources, can also experience an energy shock. The energy crisis that hit the UK was triggered by disruptions in wind farms, coupled
with a surge in gas prices that have soared by up to 250% since January 2021. Likewise, rising crude oil prices have now peaked out at a seven-year high of US$80 per barrel. In fact, the share of oil and gas in UK’s energy consumption is still dominant, at 39.7% and 36.2%, respectively. Meanwhile, renewable energy sources, expected to wean the country from its dependence on fossil energy, only account for about 14.4% of the UK’s
energy mix (Statista, 2019).

Amid the energy crunch, the UK finally took a pragmatic approach, by reactivating its coal-fired power plants in order to alleviate the pressure. In fact, the use of coal constitutes just 3.3% of the UK’s electricity generation. In addition, the use of coal-fred power plants has so far been considered “taboo” because it goes against the UK’s commitment to phase out coal-fred power plants by October 2021 and transition toward the use of environmentally-friendly renewable energy in order to achieve its the zero-emission target by 2050. However, the ongoing energy emergency will force UK policymakers to make a rational choice of reviving the country’s retired coal-fred power plants in order to maintain electricity supply and affordability. The choice is perfectly reasonable as the price of electricity from coal, at €53.96 per MWh, is much lower than gas which has hit €85.23 per MWh as of October 19.

GLOBAL ENERGY CRUNCH Lessons for Indonesia

The energy crisis in the UK has had enormous implications not only for households, but also for the private sector. Household electricity consumers in the UK have to bear the most expensive tariffs in Europe—up to £475 or equivalent to Rp9.3 million per MWh. As a result, it is predicted that millions of people in the UK will not be able to keep their homes warm in winter due as they cannot afford to pay the electricity bills.

Making matters worse, soaring energy prices have affected several
key industrial sectors in the U.K., such as steel and fertilizer producers who increasingly fnd it diffcult to keep their production costs low to maintain their cost-competitiveness. In fact, another victim of the energy crisis is the closure of two large fertilizer plants that produced carbon dioxide (CO2) as a by-product used in abattoirs and cooling system in warehouses storing meat, poultry and soft drinks. This means that the energy crisis in the UK could also lead to food supply disruptions just as winter is coming.

Another country that also suffers from the energy crisis is China,
which has seen the worst blackouts in decade, affecting households and
forcing widespread production cuts. On the one hand, the mismatch between energy supply and demand in China was driven by its robust economic recovery, one that has pushed electricity demand through the roof, even higher than pre-pandemic levels. On the other hand, there has
been a disruption to coal production in China due to a partial lockdown
in several coal-producing regions to aggressively stamp out Covid-19 infections in the country. Currently, China is battling a Delta variant outbreak that has forced 11 provinces into lockdown.

Coal-producing hubs that have been forced into lockdown include Xian, with 643 coal mines and production capacity of up to 994.7 million tons per year, and Inner Mongolia, with 383 coal mines capable of producing up to 897 tons per year. Ceke, the third largest port in China, is also affected. Even though China has become the largest coal producer in the world, with a production output of up to 3.7 billion tons (in 2019), the halt of production in several key coal-producing regions has eventually forced China to import coal more aggressively to meet its domestic needs.

Excessive increase in demand for coal, amid declining global supply,
has in turn pushed coal prices to a record US$280 per ton as of October
5 (ICE Newcastle, Australia). China has a large dependency on coal, not
only to meet its existing needs but also to increase its coal-fred electricity generation by up to 200 Gigawatts in 2024, with an estimated investment of US$200 billion. The again shows that despite global pressure to reduce dependence on fossil energy to meet climate change targets, the reality on the ground calls for maintenance of energy security for economic development at the heart of each country’s competitiveness.