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

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. ***

Kompas | Fossil Fuels Dominant Energy Supply, Government Should Push Renewable Energy Faster

The writer of Indonesia Energy Transition Outlook (2023), a senior researcher at IESR, Handriyanti D Puspitarini, explained that Indonesia’s gross domestic product (GDP) grew 5.72 percent in the third quarter of 2022, in line with increased economic activity as before the pandemic. However, more budget allocations support fossil energy in the economic recovery program.

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Government and Industrial Sector Support for Energy Transition in Central Java

Semarang, December 8, 2022 – Indonesia is setting a target to achieve a renewable energy mix of 23% in 2025. In order to encourage the energy transition in Central Java, the Institute for Essential Services Reform (IESR) and the Central Java Provincial Government are holding the Central Java Stakeholder Gathering 2022 with the theme ‘Energy Transition for Development of Low Carbon Areas’ which takes place annually via hybrid.

Achmad Husein, The Regent of Banyumas, stated that he had closed the two most giant landfills​​ in Banyumas to reduce carbon. Garbage will be sorted into useful, non-organic and organic waste.

“In managing waste, Banyumas uses technological solutions divided into two types, first downstream (community), by using a waste bank. Second, an app initiative to reduce plastic waste upstream, by buying all plastic from the community (various types of plastic). Then, there is also an application for people to sort organic waste and get paid. Each kilogram of organic waste is paid Rp. 100, “explained Achmad Husein.

Tavip Rubiyanto, Head of Sub-Division of Energy and Mineral Resources, Directorate of Synchronization of Regional Government Affairs I, Directorate General of Regional Development, Ministry of Home Affairs, explained the importance of regional development, which can make a significant contribution to national development. However, several cities still need to prepare a Regional Energy General Plan (RUED), so assistance from the Central Government is required in its design. The problem is that regions can only contribute as much as the authority they hold.

“Regional authority for energy transition is relatively small, so its contribution is also relatively small. For this reason, the Ministry of Home Affairs will draft a Presidential Decree for Strengthening Regional Roles. Consequently, the regions need to revise the RUED according to the new authority/budget to support the energy transition target,” Tavip explained.

In line with Tavip, Djoko Siswanto, Secretary General of the National Energy Council (DEN) hopes that there will be better coordination and cooperation between local governments in Indonesia to achieve renewable energy goals. For example, ​​the Central Government can instruct local governments to use electric vehicles in implementing RUED. Even so, there are still obstacles in increasing energy utilization in accordance with regional potential, most importantly funding.

“On the other hand, we need international support to face the funding challenges in the energy transition. For this reason, regional regulations can become a basis for investors in developing renewable energy in the region. It could be with the cooperation of region-owned business entities, the private sector, and international parties,” said Djoko.

To support the acceleration of the energy transition in the region, Muhammad Firdaus, Deputy Head of Bank Indonesia Representative for Central Java Province, explained that green financing (green economy) in Central Java is significant o support a sustainable economy. The green economy is projected to deliver benefits such as job creation, and help ease export barriers. Thus the reduction in production costs is only a maximum of 10%, making it less attractive for companies to implement a circular economy.

“Bank Indonesia is trying to encourage banks to extend credit to the green economy sector. One of the projects that has been carried out is Green Loan to Value Ratio (LTV) 0% (without down payment) and allows buying green bonds to meet the Macroprudential Inclusive Financing Ratio (RPIM),” he said.

Meanwhile, Ignasius Iswanto, General Manager Engineering, PT Djarum OASIS Kretek Factory stated that Djarum had made efforts towards sustainability. For example, Djarum already has a carbon footprint report, water resources management, energy saving, and composting. Furthermore, PT Djarum uses a biomass boiler with wood chip fuel on boilers. Emissions reduced from planting rain trees (trembesi) in the Djarum Bakti Lingkungan Program amount to 4,457,400 million tonnes of CO2e. He also explained that through his efforts to make Djarum an environmentally friendly company, he discovered another energy producing source using wastewater, namely plasma energy.

“Plasma energy should also be considered as a source of renewable energy, where liquid waste can be broken down by plasma into electricity and clean water. However, its use is more suitable for industrial complexes,” said Ignasius.

CNN | The Government Requirements When Providing Subsidies for Electric Motorcycles

Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, explained the Government needed to explain the amount of the IDR 6.5 million subsidies in more detail. In addition, the Government also needs to determine the criteria for the electric motorcycle that can get assistance.

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Magnifying the Ambitious Climate Action from Business Sector

Direktur Eksekutif IESR

Jakarta, November 30, 2022 –  The Indonesian government needs to show strong attention to climate mitigation efforts by increasing commitment and may significantly reduce greenhouse gas emissions. The Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, stated that rising global temperatures are worsening the climate crisis. He conveyed his speech at the Astra Green Energy Summit 2022 with the theme “Real of Action on the Energy Transition Journey Towards a Sustainable Environment.”

“Since the United Nations Framework on Climate Change Conference (UNFCCC) document was agreed upon in 1992, most countries ratified its documents in 1994. Thus, all climate change negotiations are directed at preventing the earth’s global surface temperature increase,” said Fabby Tumiwa.

Quoting Climate Action Tracker 2022 data, said Fabby, Indonesia’s climate policies in the energy sector are deemed insufficient to withstand the increase in the average global temperature below 1.5°C as agreed at the COP 26 Summit in Glasgow in 2021. For this reason, Fabby argues that global greenhouse gas (GHG) emissions must peak in 2030 and then decline if Indonesia wants to prevent a rising temperature above 2°C, which has far-reaching implications.

“This means ambitious action is needed, especially for G20 states responsible for global greenhouse gas emissions (GHG). Reducing GHG emissions must also be carried out by economic actors. If it is only the government’s responsibility for its reduction, I think it will be difficult,” explained Fabby Tumiwa.

Fabby explained that the decarbonization process needs to be carried out comprehensively because it is related to Indonesia’s energy supply structure. Indonesia’s primary energy supply for electricity generation is mainly based on fossil fuel. The increase in fuel consumption was also relatively high, marked by the rise in motorized vehicles.

“Since the last ten years, Indonesia has replaced fossil fuels with biofuels. Until 2021, the proportion of fuel substituted for biofuels has reached 14%. Thus, the use of low-carbon fuels needs to be increased to 40-60% in 2040. This means we need to encourage the use of synthetic fuels other than biofuels,” said Fabby Tumiwa.

Energy and Mineral Resources Minister, Arifin Tasrif, said business entities are expected to be involved in accelerating the energy transition. For example, they apply energy efficiency throughout the business chain and develop technological innovations and clean industries. They are also expected to mitigate the impact of the energy transition in the business sector and supply chain.

“To overcome the obstacles to the energy transition, synergy between stakeholders, the government, the media, NGOs, and the private sector is needed to achieve zero emissions,” said Arifin.

IESR: Renewable Energy Integration in Electricity Plan Can Reach 129 GW by 2030

Jakarta, 24 November 2022- To be aligned with the GHG emission reduction target according to the Paris Agreement, the government and PLN need to achieve a renewable energy mix of up to 41% in the electricity system by 2030. However, until today the Indonesian government has only targeted 25% of the renewable energy mix by 2030. Technological innovation, competitive prices for renewable energy, and the potential for coal-fired power plants (CFPP) to become stranded assets are qualified factors for higher renewable energy penetration in eight years.

The Institute for Essential Services Reform issued its latest report entitled “Enabling high share of renewable energy in Indonesia’s power system by 2030” which analyzes the 2021-2030 electricity development plan (RUPTL), technological advances and prices, changes in fuel prices, and projections of electricity demand to provide more opportunities towards the integration of renewable energy into the electricity network in Indonesia. This study is based on the scenario of Indonesia’s energy system achieving net zero emissions in 2050, which is aligned with the target of limiting temperature rise below 1.5°C per the Paris Agreement. In this scenario, electricity growth is assumed to reach 4.5% and added to the additional electricity demand from accelerated electrification in the transportation and industrial sectors (heating).

Using a similar power system optimization model with PLN, IESR found that the capacity of renewable energy in the power grid in 2030 could be increased to 129 GW of renewable energy with 112.1 GW coming from solar energy, 9.2 GW hydropower, 5.2 GW geothermal, 1.5 GW wind turbine, and 1 GW of biomass in the combined Java-Bali, Sumatra, Kalimantan and Sulawesi systems. The renewable energy mix in the electricity sector is also projected to reach 32%, 35%, 35% and 51% respectively in the Java-Bali, Sumatra, Kalimantan and Sulawesi systems. Solar energy is dominant because of its highest potential, cheapest cost, and fastest installation period in any area, either on a roof or floating.

Meanwhile, the electricity mix from coal-fired power plants will significantly decrease to only 39% in the same year. Moreover, to overcome the variability and intermittency of renewable energy and maintain system reliability, Indonesia can optimize gas-fired power plants and build energy storage (batteries).

The findings from this study are far greater than the renewable energy in the 2021-2030 RUPTL, which only targets 20.9 GW.

“The results of this IESR study are very relevant to the Just Energy Transition Partnership (JETP) agreement that was announced at the G20. The target of JETP is a 34% renewable energy mix in 2030. Through this study, it is shown that the penetration of renewable energy generators in our electricity system is possible without impacting system reliability and electricity production costs,” said Fabby Tumiwa, Executive Director of IESR.

The results of the IESR analysis show that even with high penetration of renewable energy, the reserve margin (the percentage of additional installed capacity to annual peak demand) remains at PLN’s ideal limit of at least around 30%. This study also conducts a power flow analysis and analysis of system frequency stability in the Java-Bali and Sulawesi electricity systems in 2030. As a result, it requires upgrading several substations so that power can be distributed properly. However, this need can be minimized by distributing the development of renewable energy generators. Frequency stability was still achieved and complied with Indonesia’s grid code.

One of the keys to integrating renewable energy is increasing the flexibility of network operations, including implementing a flexible CFPP operation.

“Renewable energy’s intermittency is a challenge, but there are many strategic options that can be studied to be implemented in Indonesia. For instance, by using energy storage such as batteries and also more accurately forecasting renewable energy. System operations need to be changed to accommodate this,” said Akbar Bagaskara, Main Author of the Enabling high share of renewable energy in Indonesia’s power system by 2030 report.

The capacity of the transmission and distribution network also needs to be increased to ensure a smooth supply of electricity from renewable energy, especially in the Java-Bali and Sulawesi systems.

IESR views that higher integration of renewable energy in the electricity system needs to be encouraged by policymakers in Indonesia by issuing regulations that support the acceleration of renewable energy development, accelerate electrification in the industrial sector, stipulate flexible PLTU operating regulations, and support the development of the domestic solar panel industry.

Furthermore, PLN as an electricity utility company needs to actively develop infrastructure and network operations to become more flexible network operations to enable high integration of renewable energy.

“There is a need to change the operating paradigm of the electricity system to flexible operation, no longer baseload. Of course, it is necessary to develop an operating framework for an electricity system that can provide incentives for assets that can provide services to maintain network reliability or ancillary services. The design of this framework needs to be prepared from now on so that it is ready to be implemented when the renewable energy mix begins to grow rapidly,” explained Deon Arinaldo, Manager of the Energy Transformation Program, IESR.