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Opportunities are Increasingly Open for the Acceleration of Renewable Energy Development in 2023

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The development of the energy transition in Indonesia

  • In general, based on the result of the transition readiness framework (TRF) made by IESR, Indonesia’s readiness for the energy transition is still low.
  • The share of renewable energy in Indonesia’s primary energy mix will decline from 11.5% in 2021 to 10.4% in 2022
  • The current share of renewable energy in the electricity mix is ​​12.8%, with a capacity of 8.5 GW.
  • In Q3 2022, investment realization was less than 35% of the target of USD 3.97 billion.
  • Energy intensity has decreased at a rate of 1.7% per year, according to the National Energy General Plan’s target of reducing by 1% per year.
  • Energy intensity in residential and commercial buildings also decreased at a rate of 1.38 % per year and 2.64 per year.
  • The government, through the Ministry of Energy and Mineral Resources, has identified that as many as 11 GW of coal-fired power plants (CFPP) can be retired early. It will be discussed further with other ministries.
  • There is increasing adoption of electric vehicles.
  • 8 out of 38 provinces in Indonesia set a renewable energy target of more than 31% by 2025
  • Financing from financial institutions for renewable energy development in Indonesia has increased but is still low compared to its portfolio.

Opportunities to accelerate the energy transition

  • Readiness for energy transition is high when viewed from the declining price of renewable energy technologies.
  • The issuance of Presidential Regulation 112/2022, if followed by the regulation that accommodates the interests of renewable energy developers, will increase energy transition readiness.
  • There will be higher installed capacity additions in geothermal, hydro and solar power plants. For example, increasing the capacity of 55 MW geothermal power plants, Peusangan and Asahan hydropower with capacities of 45 MW and 174 MW, and Cirata solar power at 145 MWac.
  • Indonesia received international funding through the Just Energy Transition Partnership (JETP), the Energy Transition Mechanism (ETM), and the Clean Investment Fund-Accelerated Coal Transition (CIF-ACT) for the energy transition in the amount of USD 24.05 billion.
  • 27 out of 38 provinces have issued local regulations on the Regional Energy General Plan (RUED).
  • The trend of biofuels is predicted to increase.

 

Jakarta, 15 December 2022- 2022 will close with the primary mix target for renewable energy decrease compared to the previous year. However, the presence of international support, the increase and improvement of regulations related to incentives and the renewable energy procurement process, and the existence of project pipelines that are ready to be developed can be a driving force for the accelerated growth of renewable energy in 2023.

The Institute for Essential Services Reform (IESR), supported by Bloomberg Philanthropies, has released its main report Indonesia Energy Transition Outlook (IETO) 2023, which monitors, analyzes and projects the development of the energy transition in Indonesia. The IETO report noted that the share of renewable energy in Indonesia’s primary energy mix decreased from 11.5% in 2021 to 10.4% in 2022. It was due to the share of coal increasing to an all-time high of 43%, making a target of 23% by 2025 will be difficult to achieve if the government does not immediately strengthen its political commitment to the development of renewable energy.

“There is a contrast between the ambition and the realization of renewable energy development. There is a commitment to accelerate the use of renewable energy, but there are still different perceptions and priorities of various policymakers about how the transition process is carried out. It can be seen in the decision to abolish the feed-in tariff in Presidential Decree 112/2022, the rejection of the power wheeling clause in the formulation of the new and renewable energy (EBET) Bill, as well as the decision to maintain coal subsidies in the form of Domestic Market Obligation (DMO) prices. To carry out an effective energy transition, the government must have a unified position and set no-regress targets,” said Fabby Tumiwa, Executive Director of IESR.

IETO 2023 also highlights the achievement of renewable energy investment, which is still below the target set by the government of only USD 1.35 billion by Q3 2022, only 35% of this year’s target of USD 3.97 billion. According to IESR, the investment climate needs to be improved by increasing financial support for renewable energy developers, clearer procurement processes, clear tariff schemes, shorter and clearer licensing processes, reducing barriers to entry for foreign investors, and increasing access to capital with lower interest rates.

Moreover, providing a wider space for the integration of renewable energy into Indonesia’s energy system must be carried out immediately.

“What can be done to provide space for renewable energy penetration, aside from early retirement from the CFPP, is to operate the CFPP flexibly. Technically, this operation will require changes in the main components of the CFPP. However, no less important, the flexible operation will require flexibility in terms of 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. The Grid Code also needs to be made more detailed. This is also necessary so that operators have guidelines for operating regulations flexibly,” explained Raditya Wiranegara, one of the main authors of the IETO, who is also an IESR Senior Researcher.

On the other hand, the transportation and industrial sectors are crucial for rapid decarbonization. In the transportation sector, there is an interesting trend of increasing the adoption of electric vehicles. It can be seen from the number of two- and three-wheeler vehicles which has almost fivefold increased from 5,748 units in 2021 to 25,782 units in 2022. Even so, this number is still far from the Nationally Determined Contributions (NDCs) target, which stipulates 13 million two- and three-wheeler vehicles in Indonesia. 2030.

For the adoption of electric vehicles to become more massive, the government needs to build an electric vehicle ecosystem, including building adequate charging infrastructure, increasing consumer knowledge and awareness, and providing incentives or subsidies.

“The government needs to encourage the creation of an energy transition ecosystem in all energy sectors, one of which is to create a level playing field between fossil energy and alternative low-carbon & renewable energy technologies. The first step that needs to be studied is how current energy subsidies and compensation can be diverted to providing incentives for the development of renewable energy and the adoption of low-carbon technologies while at the same time still helping to maintain people’s welfare. An interesting example is subsidies for the purchase of electric motorbikes, as an effort to divert fuel subsidies,” said Deon Arinaldo, Manager of the Energy Transformation Program, IESR.

The use of fossil energy in the industrial sector has contributed to around 20% of Indonesia’s total energy sector greenhouse gas (GHG) emissions. Increasing process efficiency and energy efficiency as well as fuel substitution have been implemented by several energy-intensive industries to reduce their emissions.

“Implementation of CCUS could be an important short-term strategy in reducing process emissions in the cement, fertilizer and steel industries, but it has yet to start. The industrial sector also needs to develop alternative low-carbon technologies, such as electrolysis-based ammonia for fertilizers and a hydrogen-based direct reduction iron-electric arc furnace (DRI-EAF) process for iron production. Currently, most of the development of low-carbon technologies in the industrial sector is still in the early stages of an MoU and a joint study agreement,” explained Raditya.

IESR encourages the government to achieve a 100% renewable energy mix in the primary energy mix in 2050 and a renewable energy mix of more than 40% in the electricity sector by 2030. If the government can take advantage of the opportunities and support mentioned above, then the attractiveness and energy mix of renewables will increase.

Published in 2017 with the Indonesia Clean Energy Outlook (ICEO) which later transformed into the Indonesia Energy Transition Outlook (IETO) in 2019. Apart from IETO 2023, which has entered its sixth edition, IESR also published it separately. Indonesia Sustainable Finance Outlook or ISFO and Indonesia Solar Energy Outlook or ISEO in 2022. Meanwhile, the Indonesia Electric Vehicle Outlook or IEVO report will be published in early 2023. ***

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