Indonesia May Start Using Biodiesel B35 in February 2023, What Should the Government Pay Attention?

Direktur Eksekutif IESR, Fabby Tumiwa

Jakarta, February 7, 2023 – Indonesia’s ESDM Ministry confirmed that 35 percent biodiesel or B35 biodiesel would begin to take effect on February 1, 2023. B35 contains 35 percent palm oil-based biofuel and 65 percent diesel. Hopefully, this program can reduce greenhouse gas (GHG) emissions by around 34.9 million tonnes CO2e. Responding to this policy, the Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, explained that one of the reasons for biofuel development has started because of the high demand for fuel oil (BBM) continues to increase. There has been a decrease in crude oil production in Indonesia. He stated this in a webinar with the theme “Problematics of Cooking Oil, CPO for Food vs. Energy,” organized by Satya Bumi and Sawit Watch, on Saturday, February 4, 2023

“The issue of developing biofuels (BBN) in Indonesia can be grouped into several subjects, including domestic prices versus market prices, off-taker issues (suppliers of industrial or market needs), including state intervention. The use of biofuels has begun to be encouraged considering that most of the fuel oil (BBM) is imported, resulting in a deficit in the trade balance, rate weakens, and risks to the security of energy supply,” said Fabby Tumiwa.

Direktur Eksekutif IESR, Fabby Tumiwa
Executive Director of IESR, Fabby Tumiwa attended webinar organized by Satya Bumi and Sawit Watch, Saturday (4/2/2023)

Moreover, Fabby stated that palm oil production in biofuels could impact the environment if not appropriately managed. Citing several studies over the past ten years, said Fabby, the biofuel program in Indonesia is correlated with deforestation, threats to biodiversity, and climate change can increase disaster risk. Based on the Biofuels Development and Indirect Deforestation study (2023), an increase in demand for biofuel from CPO was followed by the rise in the area of ​​oil palm plantations; from the 2014-2022 period, the site of ​​oil palm plantations increased to 4.25 million ha.

“The use of biofuels is claimed as one of the strategies to cut greenhouse gas emissions, compared to substituting diesel oil for biofuels. This argument needs to be tested. For this reason, there is a need for a standard GHG emission calculation methodology so that the government’s claim for substitution to biofuels is proven to have the benefit of reducing GHG emissions,” said Fabby.

On the other hand, Fabby said, there are social impacts in the development of biofuels, namely supporting the national and local economies, such as reducing the trade balance deficit, creating jobs, and increasing the output value of farmers. However, there are also negative impacts or obstacles to the development of biofuels that should be taken into account, such as land conflicts, corruption, the weak position of farmers, and poor working conditions. Thus, Fabby suggested there is potential for non-CPO raw materials that Indonesia can use to produce biofuels.

“Some potential non-CPO raw materials such as non-food crops (nyamplung, kemiri sunan, malapari with a land potential of 250,000 ha or around 280,000-kilo liters of biodiesel/year, Kaliandra with a potential land of 2,771,000 ha), waste oil (used cooking oil with a potential of .7 million tons/year and animal fat, fish, tail-oil, palm oil waste with a potential of 1.2 million tons/year) and agricultural or plantation waste (rice husk with a potential of 151 million tons/year, corn cobs with a potential of 31 million tons/year, sugarcane bagasse with a potential of 8 million tons/year and palm oil waste with a potential of 70 million tons/year,” said Fabby.

Fabby emphasized several recommendations to ensure the sustainability of biofuels, such as clarifying development goals and utilization and setting clear parameters to measure success. It is necessary to have a biofuel development roadmap linked to programs in other ministries/agencies, developing NDPE requirements and ISPO certification. For all CPOs for FAME production in the biofuel program, as well as prioritizing co-processing for biofuels to replace gasoline.

Director of Bioenergy, Directorate General of New, Renewable Energy and Energy Conservation (EBTKE), Ministry of Energy and Mineral Resources, Edi Wibowo, said that there are several supports to start the B35 program, such as the sufficient supply of biodiesel with an installed production capacity of 17.2 million kilo liters, the government provides incentives from BPDPKS, prepares support policies to ensure program sustainability, application of national standards and technical guidelines. Based on data from the Ministry of Energy and Mineral Resources, the total allocation for 2022 is 11.02 million kilo liters consisting of the realization of the implementation of biodiesel in 2022 with the production of 11.8 million kilo liters, domestic distribution of 10.5 million kilo liters, exports of 372 thousand kilo liters and incentives paid from the distribution is around IDR 22.1 trillion.

“Substitution of BBM for BBN is a strategic effort to save foreign exchange due to reduced diesel oil imports, increasing the added value of Crude Palm Oil (CPO). It is also expected to create several new jobs, reduce greenhouse gas emissions and increase Indonesia’s new renewable energy mix. Furthermore, the procurement of biodiesel (B35) in 2023 is based on the President’s direction at a cabinet meeting on December 6, 2022, and the results of the steering committee meeting on December 27, 2022,” said Edi.

Indonesia Needs to Overhaul Strategy to Pursue 23% Renewable Energy Mix in 2025

Jakarta, 1 February 2023 – The Ministry of Energy and Mineral Resources (MEMR) has announced the performance achievements for 2022 and the 2023 program plans for the MEMR sector, the Electricity Subsector and New Renewable Energy and Energy Conservation. In contrast to coal, whose production increased by 3% from the target of reaching 687 million tons in 2022, the achievement of the renewable energy mix in primary energy and electricity generation increased only by around 0.1% and 0.45%, respectively, from the previous year. Moreover, investment in the renewable energy sector is still far from the target. The Institute for Essential Services Reform (IESR) views this development as a warning signal for the government to immediately overhaul its strategy in achieving the target of a 23% renewable energy mix in 2025 and achieving net zero emission (NZE) in 2060 or sooner.

The renewable energy mix in electricity generation was recorded at 14.5% with an installed renewable energy capacity of 12,542 MW. This installed capacity exceeds the 2022 target but is still far from the minimum target of 24 GW in 2025. The low mix of renewable energy in power generation reflects the achievement of the renewable energy mix in primary energy, which only reaches 12.3% (Ministry of Energy and Mineral Resources temporary data) in 2022.

“The underdevelopment of renewable energy in the electricity sector in the last three years shows that there has been a misstep and a lack of breakthroughs in the strategy for developing renewable energy. Since 2019, renewable energy generation capacity has only grown by 2 GW, only 25% of the capacity needed to reach the target of 23%, according to government regulation No. 79/2014 concerning National Energy Policy. Renewable energy development has been held hostage by the continued construction of coal-fired power plants (CFPP) in the 35 GW program even though the electricity demand growth target was not achieved and PLN’s reluctance to increase the renewable energy mix under the pretext of overcapacity,” said Fabby Tumiwa, Executive Director of IESR.

The massive use of solar energy and cooperation should be a strategic effort for the government to achieve the target of the renewable energy mix. In 2021, the rooftop solar PV became a National Strategic Project (PSN) with a target of 3.6 GW until 2025 but is hampered by PLN’s reluctance to implement MEMR Regulation No. 26/2021. From the target solar energy installed capacity of 893 MW in 2022, only 270 MW was achieved. Instead of being more ambitious, in 2023, the government will reduce the solar energy development target by half from 2022 to 430 MW. The government needs to show the firmness and clarity of the rules that encourage the adoption of solar PV.

“The development of renewable energy, particularly rooftop solar PV, is hindering PLN’s interest in pursuing growth in electricity sales to absorb excess supply. The plan to dieselize the 500 MW diesel power plants by 2024 is also constrained by the PLN auction process and the lack of investor interest. Therefore, the government must look for a breakthrough to accelerate rooftop solar PV. Direct support from President Jokowi is needed to firmly order PLN to accelerate the development of renewable energy with the remaining two years, pursue the 10 GW target in RUPTL and integrate rooftop solar to achieve the PSN target,” continued Fabby.

Furthermore, the government needs to expedite the implementation of Presidential Decree No. 112 of 2022 concerning the Acceleration of the Development of Renewable Energy for the Provision of Electric Power, especially by releasing a roadmap for discontinuing the operation of coal-fired power plants and preparing an investment plan that is embodied in the Just Energy Transition Partnership (JETP).

Fabby Tumiwa added that from the results of the IESR study, there is a potential of 4.5 GW of PLTU capacity that can be retired before 2025, and an additional 3 GW from the list of PLTU projects in the 2021-2030 RUPTL, which have the possibility of being cancelled. Termination of the operation of old and inefficient power plants before 2025 allows for greater integration of renewable energy.

“In contrast to the government’s promise to reduce coal power plants before 2030, coal production is targeted to be 695 million tonnes this year. This increase in production came from an increase in domestic demand/DMO, which rose to 177 million tonnes. One of the factors driving this increase is domestic demand originating from electricity generation, including captive CFPP and CFPP integrated with industrial areas (PPU) outside the PLN system. This increase in demand is a steep road for the government to achieve the electricity sector’s peak emission target of 290 million tons of CO2 in 2030, as agreed at JETP,” explained Deon Arinaldo, IESR Energy Transformation Program Manager.

Likewise, the government plans to implement B35 in February 2023 with an allocation of biodiesel needs of 13 million kl. Meanwhile, to increase the blending ratio of biodiesel by 40%, it is estimated that the production of 15 million kl of biodiesel is required. IESR views that Indonesia can implement B40 at the end of 2023.

“Currently, biodiesel production capacity has reached 17.5 million kl and will continue to increase to close to 19.5 million kl at the end of 2023 in line with the addition of several new factories. So, biodiesel production can be optimized to increase the blend of biodiesel to B35, even up to B40. Especially if world oil prices tend to be as high as they are today. However, we must balance the sustainability of CPO production,” explained Deon.

IESR states that the government has to have more courage in leading the energy transition process and implementing the promises in the Bali Compact, the result of Indonesia’s presidency at the G20 2022, and showing its influence in leadership in ASEAN this year to attract more investment in the renewable energy sector. Renewable energy investment achievements, which are only USD 1.6 billion, are relatively small.

“Political will for the development of renewable energy needs to be increased and supported by consistent regulations (such as regulations for rooftop solar) that provide more support for renewable energy than fossil energy. As an example of political will, this can be reflected in the government’s renewable energy development target, which has fallen this year compared to the previous year. Others, such as the development of the New Energy and Renewable Energy Bill (EBET), which still provides support for fossil energy, so it does not give a clear signal to the market. Investor confidence in investing in renewable energy in Indonesia needs to be built because it is an absolute prerequisite for attracting investment,” added Deon.