Jakarta, December 15, 2022 – The Institute for Essential Service Reform (IESR) launched the Indonesia Energy Transition Outlook (IETO) 2023 report. IETO 2023 is the 6th edition; previously, this report was titled Indonesia Clean Energy Outlook in 2017 but changed its name in 2020. Its transformation widens the analysis from initially focusing solely on clean energy developments to analyzing the energy system, including its funding system.
Deon Arinaldo, Manager of the Energy Transformation Program, IESR, stated that Indonesia’s energy transition had entered a new phase. It’s reflected in several published policies supporting adopting low-carbon and low-emission technologies, such as Presidential Decree 112/2022. In addition, the achievement of funding commitments for the energy transition Just Energy Transition Partnership (JETP) and infrastructure projects resulted from the G20 Summit. IESR also reviewed this topic in the IETO 2023 report.
“Funding is one of the keys to a successful energy transition in Indonesia. Furthermore, we also highlight the role of solar power in the energy transition and the development of electric vehicles,” he said.
Fabby Tumiwa, Executive Director of IESR, presented at the report’s launch and discussed the Indonesia Energy Transition Outlook (IETO) 2023 organized by IESR with the support of Bloomberg Philanthropies, explained that the earth’s temperature has increased by at least 1.1°C. Without intervention, the temperatures can reach 2.8°C. Furthermore, Fabby emphasized that a transition to renewable energy is crucial to limiting the increase in the earth’s temperature to more than 1.5°C.
“The IESR study shows that solar PV is coupled with a storage capacity of 50% and 100%, so renewable energy will be cheaper than operating a coal-fired power plant (CFPP) after 2032. That is, when we still maintain fossil power plants in the energy system, we will face an increase in much more expensive energy costs,” explained Fabby Tumiwa.
Fabby continued that enlarging the portion of renewable energy in Indonesia’s energy system is far more profitable than utilizing fossil energy or maintaining fossil energy with carbon capture technology, such as carbon capture and storage (CCS). However, 87% of the electricity consumed by Indonesia still comes from fossil energy and only 13% from renewable energy. For this reason, Fabby said three things needed to be done to encourage the energy transition.
“First, make the most of Indonesia’s renewable energy potential for the electricity, transportation, industrial and other sectors. Based on the latest ESDM study, Indonesia has far more than enough renewable energy potential to achieve 100% renewable energy to achieve net zero emissions (NZE). By increasing renewable energy, we also have to reduce coal power plants. Second, boost investment for the energy transition,” said Fabby.
The IESR study assesses that Indonesia will need USD 25-30 billion in investment from now until 2030 to support the achievement of net-zero emissions (NZE) by 2060 or sooner. A no-regrets policy is required to obtain investment, or once there is a policy, it cannot be revoked or terminated. Second, it is necessary to reform policies that hinder renewable energy. Thus, said Fabby, the government must review the domestic market obligation (DMO) for coal mining because this policy contradicts Indonesia’s efforts to promote renewable energy. Third, managing the energy transition process. The energy transition is a risky action because it will cause an increase in costs in the short term, and at the same time, we are still dependent on coal energy. Moreover, the energy transition process needs to be managed effectively so that the energy transition process will be smooth.
On the same occasion, the Secretary General of the Ministry of Energy and Mineral Resources (ESDM), Rida Mulyana, explained that the energy transition is one of the priority issues at the G20 Indonesia Presidency in 2022. It can be seen by the Bali Compact agreement, which can serve as a guide to achieving the NZE 2060 or faster. Furthermore, Indonesia already has a road map for the transition of new renewable energy (NRE) to net zero emission in 2060, created by the Ministry of Energy and Mineral Resources.
“Indonesia plans to build massive solar PV starting in 2030, followed by onshore and offshore wind power plants starting in 2027, and geothermal will also be maximized. Indonesia will optimize hydroelectric power plants, we will send the electricity to load centers on other islands, and nuclear power plants will operate in 2039,” said Rida Mulyana.
Akbar Bagaskara, IESR Electricity System Researcher, stated the electricity system is low-hanging fruit to reach NZE. The electricity system contributes 250 MtCO2 emissions, or about 40% of emissions in the energy sector. Renewable energy status in the energy mix is 12.67%, while the 2025 target is 23%. Thus, said Akbar, Indonesia needs to reduce its fossil capacity and seek alternative energy sources to achieve this target.
“At least Indonesia can use renewable energy that has not been maximized, such as solar and wind. Then, the transmission network (grid) must also be made flexible. However, regulations are needed regarding guidelines for operational systems and negotiations for generating units,” said Akbar.
In line with Akbar, Raditya Yudha Wiranegara, IESR Senior Researcher, explained that what can be done to provide renewable energy penetration is to operate CFPP flexibly. Technically, this operation requires changes in the main components of the CFPP.
“Flexible operation will require flexibility regarding power purchase agreements and fuel supply contracts. According to the IEA, by making these contracts more ‘flexible,’ there will be savings of 5% of the total operating costs for a year, or the equivalent of USD 0.8 billion. Grid Code should also be made more detailed. This is also necessary so that operators have guidelines for operating regulations in a flexible manner,” stated Raditya.
Julius Christian, IESR Clean Fuel Specialist Researcher, explained that until now, fossil energy consumption in transportation had reached 87%, the industry has reached 56%, and buildings have reached 41%. In the transportation sector, using electric vehicles is a crucial strategy for a low-carbon transportation system because it has higher energy efficiency and uses renewable energy. Julius explained that up to now, 199 buildings had been certified as green buildings in Indonesia, even though large buildings should already have green building certification.
“We need to focus on four things to accelerate the energy transition; 1) regulations encourage people and industries to switch to carbon-efficient technologies; 2) the government needs to socialize more to increase public awareness to switch to low-carbon; 3) incentives and financing schemes are also worth considering; 4) preparing the supporting ecosystem,” said Julius.
On the other hand, Martha Jessica, IESR Social and Economic Researcher, said the importance of collaboration between the central government and local governments to promote the energy transition and achieve NZE. Currently, 71.05% of provinces in Indonesia have established Regional Energy General Plans (RUED), in which each region sets its energy mix targets.
“One province that has shown a commitment to the development of renewable energy is Central Java. Interestingly, there is a new commitment to green recovery this year. This is defined as using public budgets to target the site level, especially for renewable energy development. Approximately IDR 8.9 billion has been budgeted for this commitment. This development has succeeded in increasing the income of its users by 2-3 times, where farmers get an easier water source through solar water pumps,” said Martha.
Handriyanti Puspitarini, the IESR Senior Researcher, said several essential things in Indonesia’s energy transition status, namely, fossil energy use, had increased this year due to the increasingly vibrant economy. Still, this condition is sure to change due to the large amount of foreign assistance to reduce emissions, especially in the electricity sector. She considered that regulations supporting renewable energy penetration need to be available. She gave an example that limiting the capacity of a rooftop solar PV by 15% would reduce people’s interest in utilizing it and suppress community participation regarding the renewable energy mix on a national scale.
“Thus, changes are needed, such as increasing financial support for rooftop solar PV project developers, clarifying tariff schemes and licensing processes, and increasing developer access to capital with lower interest rates. Implementation of President Regulation112/2022 also needs to be observed next year. Some people also think that this is the time for Indonesia to do an energy transition and utilize other energy sources such as solar, water, and wind,” said Handriyanti.