Facing the Escalation of the Iran-Israel Conflict: Challenges and Solutions for Indonesia’s Energy Stability

Direktur Eksekutif Institute for Essential Services Reform (IESR), Fabby Tumiwa

Jakarta, April 24, 2024 – The escalation of the conflict between Iran and Israel has created tensions that could destabilize the global economy, including in Indonesia. The significant issues of concern are likely supply disruptions and an increase in oil prices, particularly since the Strait of Hormuz in Iran is a crucial trade route for global oil exports. These concerns were shared by Fabby Tumiwa, the Executive Director of the Institute for Essential Services Reform (IESR), during the KBR Public Space Talk Show on Wednesday, April 24, 2024, titled “World Oil Prices Rise: What’s Up Electric Vehicles?

“For this reason, we need to be aware of the dynamics of fossil energy prices by reducing the risk of crude oil imports and finding ways to diversify energy imports. Furthermore, the depreciation of the rupiah exchange rate vis-a-vis the US dollar is a significant factor that may impact the cost of producing fuel oil (BBM) in Indonesia,” Fabby said.

Reflecting on this, Fabby emphasized that the Indonesian government should be more aggressive in encouraging renewable energy development to substitute fuel. For example, diesel power plants in Disadvantaged, Frontier, and Outermost (3T) areas can be replaced with renewable energy plants. Indonesia can also increase the use of biofuels (BBN) by paying attention to environmental sustainability in its production. 

“Indonesia has abundant sources of biofuels, including palm oil, jatropha, sampling, kemiri sunan, and microalgae. The country is currently working on developing bioethanol as a fuel mixture with gasoline. If Indonesia succeeds in this endeavor, it will help to decrease the need for fuel imports,” Fabby said. 

However, Fabby said several challenges are faced in developing renewable energy. First, the interest factor from certain circles. Second, various inconsistencies in policies and regulations make businesses hesitate to invest in renewable energy. For example, renewable energy is constrained in the electricity sector because only PLN can buy electricity from Independent Power Producer (IPP), and the IPP cannot sell it to consumers. Third, the business aspect of renewable energy by considering risk. 

“Overcoming the challenges of transitioning to renewable energy requires a strong political will from governments and other involved parties to prioritize and develop renewable energy more aggressively. This transition is crucial to achieving the net-zero emission (NZE) target set in the Paris Agreement by 2060, or even earlier,” Fabby said. 

Media Indonesia | Iran-Israel Conflict, World Crude Oil Prices Could Break US$100 per Barrel

Executive Director of the Institute of Essential Services Reform (IESR) Fabby Tumiwa explained that around 21% of the world’s crude oil is shipped through the Strait of Hormuz, which is a strategic strait for Iran and even world trade. The war between Iran and Israel is feared to affect the production and distribution of world crude oil.

Read more on Media Indonesia.

When Geothermal Energy Illuminates the Land of Sriwijaya

Palembang, February 29, 2024On Thursday morning, the Jelajah Energi South Sumatra group arrived at the Geothermal Power Plant (PLTP) in Lumut Balai, Muara Enim, South Sumatra, owned by PT Pertamina Geothermal Energy Tbk (PGE), after a long and winding journey that took about 4 hours from Muara Enim City. The group was welcomed with cold weather due to the plant’s location on a hill. Despite challenging geographical conditions, PLTP Lumut Balai Unit I, located at least 2,055 meters above sea level, has become a silent witness to the wonders of geothermal energy.

Acting General Manager of PT Pertamina Geothermal Energy Tbk (PGE) Lumut Balai Area, Aris Kurniawan, explained that the company is committed to providing reliable, affordable, clean energy access to all Indonesian people. The Lumut Balai Unit 1 PLTP, which has an installed capacity of 55 MW, has been supplying electricity to around 55,000 homes in the PGE working area since 2019. Moreover, it has helped reduce greenhouse gas emissions by 300,000 tons of carbon dioxide (CO2).

“The Lumut Balai geothermal plant continues to move forward. By 2024, the target is to complete the construction of unit 2 of the Lumut Balai PLTP and proceed to the commissioning stage. Unit 2 has entered the EPCC (engineering, procurement, construction, commissioning) stage for the plant’s construction. In December 2024, it is expected to enter the commissioning phase until commercial operation (commercial on date). The project is still on track,” said Aris.

Aris stated that the Lumut Balai geothermal power plant is located in the Lumut Balai and Margabayur geothermal working areas (WKP), South Sumatra, with a mapped potential of 270 MW. With the development of the LMB Unit-2 Project, the installed capacity for the Lumut Balai Area will increase to 110 MW, equivalent to lighting 110,000 homes.

“Through our projects in Lumut Balai, we aim to mitigate climate change risks and support Indonesia in achieving 23% of the national grid mix from renewable energy sources by 2025. With a focus on innovation and efficiency, PGE is committed to reducing carbon emissions even further in the future to support Indonesia Net Zero Emission 2060,” said Aris.

Aris highlighted that, alongside the success of the energy transition through the optimization of geothermal development as a green energy source, PGE is also prepared to contribute to the carbon exchange initiative. This initiative serves as a tool that can encourage effective emission reductions and incentivize companies to participate in efforts to mitigate climate change.

“As of September 2023, PGE has contributed to the domestic carbon market by issuing 864,209 tons of CO2 equivalent (CO2eq), and this is the first geothermal carbon project on the carbon exchange,” Aris said.

Faricha Hidayati, Coordinator of the Industrial Decarbonization Project, Institute for Essential Services Reform (IESR) stated that among the geothermal working areas (WKP) established by the government, WKP Lumut Balai is one of the leading ones because it has geothermal potential of more than 300 MW, of which 55 MW has been operating since 2019 and other units are under construction and will be completed in December 2024. If this geothermal potential is properly utilized, Indonesia will be able to have 23.7 GW of clean energy and achieve net zero emissions by 2060, or sooner.

“Unfortunately, not many people are aware of this abundant potential, and many still choose energy from fossil fuels. Therefore, IESR in collaboration with the Energy and Mineral Resources Agency of South Sumatra held this Energy Tour to disseminate this information to the public. Hopefully, the Indonesian people will become wiser in using electricity and the like, and can then jointly oversee government policies in encouraging Indonesia’s energy transition to become greener and more sustainable,” Faricha explained.

South Sumatra Journalists Form Energy Transition Journalist Network

press release

Palembang, February 20, 2024 – The Alliance of Independent Journalists (AJI) Palembang together with the Institute for Essential Services Reform (IESR), a leading think tank in Indonesia that focuses on energy and the environment and the Society of Indonesian Environmental Journalists (SIEJ) took the initiative to form the “South Sumatra (South Sumatra) Just Journalist Network” to build public awareness of the energy transition through quality journalistic work.  Through this Just Journalist network, it is hoped that there will be more quality news related to the issue of energy transition so as to increase public understanding and trigger the acceleration of the transition from fossil energy to renewable energy at the regional level.

Based on data in the report “Insights on energy transition news in the electricity sector in Indonesia from 2020-2022” published by CASE Indonesia in 2023, national media dominated the news about energy transition in the electricity sector. Meanwhile, regional media has yet to make a significant contribution. IESR views that optimizing the role of media in the regions is crucial to reach public participation in supporting the energy transition process and greater use of renewable energy.

Chairman of AJI Palembang, M. Fajar Wiko, said that journalists who are members of the South Sumatra Just Journalist Network can shape public opinion on energy transition, identify challenges and opportunities in covering complex issues related to renewable energy, and identify the economic, social and environmental impacts of the energy transition program effectively to communicate to the public.

“The establishment of this Network is expected to clarify the role of the media in providing explanations about renewable technologies, government policies, and private sector initiatives in the energy transition, as well as encouraging better public understanding to actively participate in supporting the energy transition, and encouraging the role of stakeholders to create a more favorable environment for renewable energy, to motivate collaboration between the media, government, private sector and society to design the best solution,” said Wiko. 

Forum Jurnalis Sumsel

Marlistya Citraningrum, the Program Manager of Sustainable Energy Access, IESR, mentioned that the energy transition is happening in various parts of the world, including Indonesia has diverse contexts at the regional or subnational level. The shift from fossil fuel to renewable and more sustainable energy systems is demonstrated by the trend of retiring and early retirement of coal-fired power plants around the world – as well as in Indonesia under the Just Energy Transition Partnership (JETP) plan. This will have a direct impact on Indonesia’s coal-producing provinces and districts, particularly in the economic and development sectors. Subnational governments need to anticipate this trend in advance, including to boost the alternative economy sector and optimize the use of renewable energy. The media can play a role in educating the public to immediately switch to low-emission energy.

“IESR’s studies in several coal-producing regions show that although regional income depends on the coal economy, the economic multiplier effect is not directly enjoyed by surrounding communities in the form of infrastructure, economic improvement, or basic services such as education and health. In Muara Enim, around 78% of profits are absorbed by mining companies, in addition to local laborers working more freelance for contractors or vendors of mining companies instead of professional workers in the company,” said Marlistya.

Aryansyah, Head of Energy Division, Energy and Mineral Resources Agency of South Sumatra Province, said that the province has a renewable energy potential of around 21,032 MW with an installed capacity of renewable energy of around 989.12 MW or around 4.70%.

“In the future, the utilization of clean energy based on renewable energy in South Sumatra can be further developed to all levels of society. Some of the strategies we carry out to encourage the use of renewable energy, including providing energy for regional needs by increasing exploration of the potential for new renewable energy, utilizing new renewable energy such as solar energy, water, geothermal and others, as well as conserving and diversifying energy,” said Aryansyah.

Kompas | The Inevitability of Oil and Gas Companies in the Midst of the Climate Change Regime

The day before the opening of the 28th Climate Change Conference or COP28 in Dubai, United Arab Emirates (UAE), Thursday (30/11/2023), a press release circulated regarding the resignation of the current President of COP28 this, Sultan Al Jaber, from the position of Chief Executive of Abu Dhabi National Oil Company (ADNOC), the UAE’s national oil company.

Read more on Kompas.

Driving Low-Carbon Industry Through an Industrial Decarbonization Roadmad

Jakarta, October 25, 2023 – The Institute for Essential Services Reform (IESR) and the Lawrence Berkeley National Laboratory (LBNL) have released a roadmap and policy recommendations for industrial decarbonization to achieve net zero carbon emissions (NZE). This report focuses on five industrial sectors: cement, iron and steel, pulp and paper, ammonia, and textiles, which are expected to experience a significant increase in GHG emissions if no decarbonization measures are taken. According to the Ministry of Industry, from 2015-2022, the industrial sector contributed 8-20% of national emissions. Referring to IESR’s modeling, total industrial GHG emissions are predicted to continue to increase by 3-4 times by 2060 without any intervention (Business as usual, BaU).

Deon Arinaldo, Energy Transformation Program Manager at IESR, stated that implementing decarbonization in the industrial sector, as the main driver of the Indonesian economy, is a precondition to ensure high economic growth and to make Indonesia an advanced yet low-emission country. Industries with low-carbon products will become the most competitive industries.

“Indonesia can implement the pillars of industrial decarbonization, which include improving energy efficiency, electrifying energy needs, transitioning to low-carbon fuels such as renewable energy, and enhancing material usage efficiency. Each industry is unique, so it’s necessary to anticipate the specific situations and contexts when developing the roadmap and supporting regulations,” Deon said in his address at the Dissemination Workshop of Indonesia Industry Decarbonization Roadmap and Policy Recommendations organized by IESR in collaboration with LBNL and supported by the ClimateWorks Foundation.

IESR and the Lawrence Berkeley National Laboratory (LBNL) view that decarbonizing the industrial sector can be achieved before 2060. According to IESR’s data, among the total of 17 business entities analyzed in these five sectors, each company has set different proportions of decarbonization targets, although only the pulp and paper industry has specific decarbonization targets.

“Large-capacity industries such as cement, iron and steel, textiles, pulp and paper, and ammonia have a strong motivation for decarbonization. There are still challenges regarding high energy consumption, dependence on fossil fuels, waste management, and GHG emissions in processes and value chains, as well as the high costs and economic benefits of decarbonization efforts. Furthermore, the existing regulations have not improved much for the industry, advanced industry, and consumers to drive industrial decarbonization,” explained Farid Wijaya, Senior Analyst at IESR.

Hongyou Lu, Environmental/Energy Technology Researcher at LBNL, emphasized that the Indonesian government needs to develop different national strategies for each type of industrial sector. For example, the iron and steel industry can focus on implementing electric arc furnaces as a process electrification step for a short-term strategy, along with energy and material efficiency. Meanwhile, in the cement industry, decarbonization strategies could include increasing the use of substitute materials for clinker materials (supplementary cementitious materials), implementing material efficiency and energy efficiency measures (short term), and switching to low-emission fuel sources (medium-long term). Furthermore, the government should also create a national strategy for green energy production, such as hydrogen and ammonia, cross-sector technologies like heat pump applications, and Carbon Capture Storage (CCS) for residual emissions that cannot be decarbonized.

“To implement these various industrial sector decarbonization strategies, the Indonesian government needs to coordinate planning with various stakeholders in the development of low-carbon infrastructure, such as pipeline networks, storage facilities, and electricity transmission and distribution systems, enabling industries to access renewable energy,” explained Hongyou.

Furthermore, Hongyou Lu added that industrial decarbonization is unavoidable and involves many aspects. Decarbonizing the industry has the potential to develop new industries, boost the local economy, reduce air pollution, and enhance Indonesia’s competitiveness in the international market. This is necessary to ensure that Indonesian industrial products can still comply with stricter environmental regulations for imports and effective carbon pricing mechanisms in some export destination countries, such as the European Union.

Nationwide Synergy and Investment for Indonesia’s Renewable Energy

Jakarta, 6 February 2023 – Indonesia’s journey to net zero emission is still a long and winding road. One of the government’s actions in realizing this target is to make regulations to encourage the implementation of renewable energy. In reality, targets, regulations and implementation are often unaligned.

Fabby Tumiwa, Executive Director of the Institute for Essential Services Reform (IESR), in the Market Review segment on the IDX channel (24/01/2023), stated that in 2022, Indonesia’s target for renewable energy development of 1000 MW has not been fully realized.

“There are several factors why this target was not fully realized, the first is the economic weakening which has caused unoptimized growth of electricity demand. Another factor is the pandemic, which caused delays on several renewable energy projects,” explained Fabby.

Furthermore, Fabby explained that Government Regulation no. 79/2014, which was more thoroughly mandated in Presidential Decree 22/2017, has set a target of a national renewable energy mix of 23% by 2025. To achieve this target, Fabby estimates that there needs to be a renewable energy growth of 3-4 Gigawatts per year. In fact, since the Government Regulation in 2014 was enacted, the average renewable energy increase rate is only 15% from 3-4 GW, which is around 400-500 MW.

This problem is also rooted in the country’s energy infrastructure itself. Indonesia’s energy source still depends on fossil energy, which accounts for 86%. To change this structure, it is also important to consider the growth in energy demand in Indonesia. Indonesia must then strive to use renewable energy to tackle this increasing energy demand. According to IESR calculations, energy transition efforts in Indonesia require around 1.4 billion dollars in funding. This fund covers renewable energy and energy infrastructure upgrades.

Regarding people’s economic perceptions, Fabby assesses that fossil energy is still seen as more economic because currently coal is still subsidized by the government. The Domestic Market Obligation Act in 2017 capped coal prices at $70/ton even if global prices are higher. This kind of incentive should also be given to the development of renewable energy. However, the incentive was also hampered by the Domestic Component Policy Level (TKDN).

“Solar PV has become the most efficient source of renewable energy, but in Indonesia it has become expensive. Compared to 10 years ago, the price of solar PV has decreased by 90%. The TKDN policy is actually a disincentive that can prevent investors from investing and make solar PV more affordable,” concluded Fabby.