Valuable lesson and momentum
The global energy crisis has served as a valuable lesson and momentum
for Indonesia to review its energy policy, in order to strengthen national energy security. With plentiful natural resources, Indonesia is well-equipped to achieve energy security. Moreover, its wealth of energy sources should increase Indonesia’s bargaining position in trade and investment diplomacy at a regional and global level.
Indonesia is in a strategic position to help meet global energy needs. The
country has the seventh-largest coal reserves in the world, of up to 34.87 billion tons as of the end of 2020 (BP Statistical Review). In addition, according to the Geological Agency of the Energy and Mineral Resources
Ministry, Indonesia’s total coal resources reached 148.7 billion tons, with 39.56 billion tons of reserve as of July 2020. Even though Indonesia is the ffth largest coal-producing country in the world, with a production targeted at 626 million tons in 2021, it is the largest coal exporter in the world. Of total production, coal exports reached 400 million tons or 75 percent, while only 25 percent or around 137.5 million tons was left for the domestic market, mainly for coalfred power plants. Indonesia should be able to reduce its “aggressive” coal exports to secure its domestic energy
supply.
So far, coal has played an important role in national electricity
generation. Of the total installed capacity of 63.3 Gigawatts in 2020,
coal-fred power plants contributed 31,900 Megawatts (50.3%) of the
total energy mix. In the 2021-2030 electricity procurement plan (RUPTL),
it is predicted that there will be additional new power plants capable of
producing 40.6 GW, in which 13.8 Megawatts is to be generated using
coal. In the same period, the country plans to gradually reduce its share
of coal-fred power capacity to 44.73 GW (45%) of total electricity capacity
of 99.2 GW by 2030.
The fundamental problem faced by the national electricity sector is
oversupply, due to lower-than-expected growth in electricity demand.
For example, in 2020, of the total installed capacity of 332,000 GWh, the state-owned power company PLN only managed to sell 243,000 GWh, meaning there was a surplus of 89,000 GWh. Indeed, in the last nine years (2012-2020), the national electricity surplus reached an average of 25% annually. Assuming the average electricity supply cost (BPP) is Rp1,348 per kWh in 2020, the oversupply cost around Rp120 trillion last year. This is definitely a huge waste of resources, not only on the investment to build power plants but it also burdens PLN and the state budget, in the form of annual compensation fees, which amounted to Rp7.5 trillion in 2017 and have been rising since—Rp23.2 trillion (2018), Rp22.3 trillion (2019), and Rp17.9 trillion (2020).
The electricity oversupply stemmed from the government’s overly-high projections for growth in electricity demand, which in the 2019-2028 RUPTL is estimated at around 6.4% per year. In the 2021-2030 RUPTL, this projection has been revised down to 4.9% per year. However, amid challenging economic recovery during and post Covid-19 pandemic,
of course the target, especially from the industrial sector, is still shrouded
in uncertainty. The indicator can be seen from the growth of PLN electricity sales to household and industrial customer category, which grew below
GDP even before the Covid-19 pandemic struck. For example, the growth
of electricity sales to households was only 0.88% in 2017 and 3.56% 2018. For industrial customers, the growth was only 1.21% in 2019. This once again confrms that in the midst of the government’s efforts to increase
the installed capacity of national electricity coverage in the next ten years, the demand side fails to catch up. Moreover, Indonesia’s electricity consumption per capita today is still quite small at 1,084 kWh (in 2020),
below ASEAN average of 1,342 kWh per capita. The government has also
encouraged industrial players and industrial estates to produce electricity
independently using renewable sources, such as rooftop solar panels. These
will further decrease the demand for PLN-generated electricity.
The next issue is, at a time when the electricity sector is still experiencing a large oversupply, the government also plans to increase power capacity generated from New and Renewable Energy (EBT) sources to reach 20,900 GW (51.6%) by 2030. This is part of the government’s efforts to show to the world that Indonesia is committed to reducing its greenhouse gas emissions by 29% in 2030, according to its Nationally Determined Contribution (NDC) target.
However, behind this ambitious target, there is a considerable risk to
national energy security in the form of the large investments required and
the potential increase of BPP, which in effect will affect electricity tariffs or
increase compensation fees to PLN. In addition, the use of rooftop solar
PV systems, which can only produce electricity during hot sunny days is
still unreliable, so like it or not, PLN still has to prepare backup power
plants based on fossil fuels, such as coal-fred, diesel-fred and gas power
plants.
In the electricity crisis in the UK and Europe, the Indonesian government should draw the important lesson that even developed countries at the center of renewable energy development cannot completely abandon
fossil fuels, especially during an energy emergency as is happening today.
Of course, Indonesia must step cautiously during its own energy transition by keeping in mind the national power capacity, both in terms of large investment needed and the risk of burdening the state budget.
More importantly, the energy transition should also be supported
by the readiness of infrastructure and renewable energy technology,
supplied domestically. This means that energy transition must not
make Indonesia dependent on imported raw materials and technologies. According to Kuznet’s inverted U-curve theory, a country will prioritize its economic and industrial development by optimizing existing natural resources, then after going through an industrialization phase, can only reduce the negative impact on the environment of development, through technological, infrastructure and human capital sourced from within the country. If these prerequisites have been achieved, it is plausible for Indonesia to achieve an eco-friendlier energy transition.
The “middle path” approach being taken by Indonesia in the utilization
of fossil fuels during its energy transition is, for example, by applying
“biomass co-fring” technology which not only has the potential to reduce
coal consumption but also GHG emissions from power plants. With coal demand at around 120 million tons per year, 10% utilization of biomass means that 12 million tons of coal can be potentially replaced by biomass, from agricultural waste, wood processing waste, and even household waste. So far, 17 PLNowned coal-fred power plants owned by PLN have applied this innovation; the number is expected to increase to 53 in coming years.
The government has a great ambition to increase the share of NRE in the energy mix. Government Regulation 79/2014 on National Energy Policy even mandates that by 2025 the share of NRE can exceed 23%. However, it should be noted that in Article 9 (f) there is a condition that says the NRE energy mix target should be achieved “as long as it is economically feasible.” This means the target is not something that must be achieved at
all costs without considering the economic impact, on both PLN and the
state budget. The government also needs to be objective so that even the share of NRE in the energy mix of developed countries such as the US,
the UK and EU is still currently at 12-14%. Thus, energy transition policies must be made carefully, measurably, and gradually, so as to not cause any adverse economic impact that can undermine the sustainability of the energy transition itself.
Energy transition is certainly the need of the hour, as various innovations and changes in the behavior of global communities make them increasingly aware of the real impacts of climate change. However, Indonesia must not be careless in this respect. One alternative strategy that can be implemented is optimizing the use of fossil fuels such as natural gas during an energy transition. Moreover, Indonesia has a treasure trove of natural gas, with proven reserves of 43.6 trillion cubic feet (TCF) and potential of up to 62.4 TCF. With average gas production of 6 billion cubic feet per day (BCFD), it is projected that natural gas reserves in Indonesia can still be extracted for another 20 years, assuming no new reserves are found. Utilization of natural gas for domestic needs should be optimized, as well as for household and industrial use, through the expansion of gas pipeline networks. With this strategy, Indonesia can at least reduce its dependence on LPG imports to meet domestic needs.
Optimizing the use of natural gas in Indonesia is also very important
and relevant if we refect on how the UK and the EU use natural gas as
a “bridge” to their energy transition. Not only because it is the cleanest-burning fossil fuel: it is also reliable and more effcient. In fact, the disruption in the natural gas supply from Russia to Europe also contributes to the crisis.
Simultaneously, Indonesia needs to increase the utilization of geothermal power. According to the data from the Geological Agency of Energy and Mineral Resources Ministry, Indonesia has 24 GW of geothermal resources. Of these potential reserves, the installed capacity of the new geothermal power plant only extracts 2.1 GW, or 8.9% of existing resources. Once it is operational, the electricity generated by geothermal power plant is also relatively competitive, at around Rp1,107 per kWh in 2020, compared to other renewable energy sources such as solar power plants. In addition, geothermal power plants can serve as a “backbone” in ensuring the reliability of the national electricity supply.
With a variety of potential energy sources, it is telling that Indonesia’s
Energy Security Index is still in a “resilient” category, namely at 6.57 (of
8.0). However, Indonesia must not be complacent or negligent in anticipating future energy crises, especially when the country has to import fuel to meet domestic needs, due to the depletion of its primary energy sources.
Indonesia’s electricity sector has also been robustly supported by the
government’s affirmative policy in the form of a domestic market obligation (DMO) for coal, which set the selling price at US$70 per ton. The policy shows that the national interest in ensuring energy security and the availability of reliable and affordable electricity supply for the people
is the constitutional mandate. While many countries have to struggle desperately to fnd fossil energy sources to meet their domestic needs, Indonesia is very fortunate to still have abundant natural resources, a valuable asset that we must use wisely to achieve our sustainable and equitable energy transition. (Abra)