In 2022, Indonesia Needs to Strive in Pursuing Energy Transition Ecosystem Readiness

press release

Jakarta, 21 December 2021 –  The unfavorable climate for renewable energy investment in Indonesia and inconsistent political commitments can hinder the achievement of the 23% renewable energy mix target by 2025. Until Q3 2021, the renewable energy mix is ​​still at 11.2%. The Institute for Essential Services Reform (IESR) views that the Indonesian government needs to thoughtfully prepare an energy transition ecosystem to accelerate the decarbonization of the energy system in Indonesia to achieve net-zero by 2050.

In 2021, renewable energy development in Indonesia is still running slowly and not on track to the target of 23% of the renewable energy mix in 2025. IESR, in its annual report Indonesia Energy Transition Outlook 2022, found that until September 2021, the total installed capacity of renewable energy only reached 10,827 MW or increased by about 400 MW. Meanwhile, to achieve the KEN and RUEN targets in 2025, renewable energy generating capacity is estimated to reach a minimum of 24,000 MW or around 2-3 GW of additional renewable energy capacity every year. However, to comply with the Paris Agreement, it takes at least 11-13 GW of renewable energy generation to decarbonize the energy system in Indonesia, which includes the power generation, transportation, and industrial sectors by 2050. Besides, solar energy adoption is also relatively insignificant, only increasing by 18 MW, dominated by rooftop solar power plants. It is so slow compared to the need for 10-11 GW of rooftop PV mini-grid each year to encourage zero emissions by 2045 in the electricity sector. IESR views PV mini-grid as an opportunity to maximize the contribution of the community and business entities to invest in the decarbonization process.

Endeavors to decarbonize the transportation system by adopting electric vehicles and biofuels are still far from the target set. Sales of electric vehicles are still below 1% of total vehicle sales. Only about 2,000 electric cars and 5,000 electric motorcycles are registered, while the total number of electric cars and motorcycles needs to reach 1.7 million and 100 million by 2030. Biofuels are still limited to biodiesel development which is still uneconomical and constrained by sustainability issues. The implementation of B40, previously B30, which is planned for 2022 is also considered as a constraint due to the current price of palm oil.

“The government should focus on strengthening its political commitment to decarbonization by revising the National Energy Policy (KEN) and the General National Energy Plan (RUEN) to align with the goals of Net-Zero Emissions (NZE). The government needs to improve the quality of regulations to increase investment attractiveness, reduce licensing barriers, and accelerate the development and utilization of renewable energy outside PLN by maximizing the contribution of the community and business entities to invest in renewable energy generation and energy efficiency. Thus, 23% of the renewable energy mix in 2025 can be achieved,” said IESR Executive Director, Fabby Tumiwa.

The decarbonization of the energy system in Indonesia requires the readiness of a supportive ecosystem. The Indonesia Energy Transition Outlook 2022 report assesses that its enabling ecosystem is still low. Using the Energy Transition Readiness Framework, IESR evaluates four indicators, i.e. policy and regulatory support, technology and economy, climate and investment realization, and social.

Ineffective energy policy and regulatory support in boosting the development of renewable energy in Indonesia are reflecting the government’s insufficient political commitment to renewable energy. Although in 2021, the government is committed to increasing the share of the renewable energy mix to 51% in the Electricity Supply Business Plan (RUPTL) and reviewing early retirement at 9.2 GW of coal-fired power plants, these efforts are not ambitious enough to achieve carbon neutrality by mid-century, unaligned with Paris Agreement. Furthermore, this commitment needs to be translated into a clear implementation plan in 2022.

“Indeed, in 2021, there have been several policy documents issued such as LTS and RUPTL, but we evaluate these targets are still far from sufficient to limit the increase in the earth’s temperature to below 1.5 degree Celsius. It is important to improve several regulations such as renewable energy tariffs, scheduled and transparent auction and procurement mechanism from PLN, so that these targets can be achieved,” said Julius Christian, Clean Fuel Researcher & Specialist and Lead Author IETO 2022 report.

Energy policies in Indonesia also have not provided a sense of security for developers to invest in renewable energy. MEMR Regulation No 10/2017 leaves the risk to the developer if there is a change in government policy. ESDM Regulation No. 50/2017 drives renewable energy projects as difficult unbankable projects. More than that, the delay in issuing the Presidential Regulation on new and renewable energy tariffs has caused uncertainty and hampered investment in renewable energy projects in Indonesia.

Unfavorable policies had an insignificant impact on renewable energy investment, only reaching USD 1.17 billion compared to 2020 of USD 1.12 billion. This amount is very small compared to the investment needs for decarbonization of energy systems according to the IESR study, as much as USD 20-25 billion per year by 2030.

From a technical and economic point of view, globally, both renewable energy technology and costs have become increasingly competitive in recent years. The results of the last solar PV auction was electricity cost of USD 0.04/kWh, lower than the average coal power plant, which costs USD 0.05-0.07/kWh. The requirements for subsidies and government regulatory support for coal-fired power plants are allegedly making the cost of coal-fired power plants low. If using the actual market price, with a coal price of USD 150/ton (September 2021), the cost of generating electricity from a coal-fired power plant (CFPP) could reach USD 0.09-0.11/kWh.

Although renewable energy projects have become more economical, renewable energy investment is still considered less attractive.

“The main thing that needs to be highlighted is the unfamiliarity of local banks and investors to the risk of renewable energy projects which are lower than fossil energy projects, considering the price of technology in a declining global trend. The length of the permit process and the complexity of the procurement mechanism are also seen as two things that often make the financing costs of renewable energy projects higher than planned. These drive developers difficulties to determine the exact and definite number of investment needs to be submitted to funding institutions, “said Handriyanti D. Puspitarini, Renewable Energy Senior Researcher, IESR who is also involved in writing IETO 2022.

Meanwhile, from a social perspective, based on the results of a survey conducted by IESR on 1000 respondents, there is an increase in awareness and support for the energy transition to clean energy. A total of 56% of respondents (strongly) agree that Indonesia should stop using coal for power generation. The three highest renewable energy sources that receive the highest public support are solar (68%), water (60%), and wind (39%).

IESR in the IETO 2022 report encourages the Indonesian government to capture positive sentiments from the Indonesian people towards renewable energy through collaboration with the private sector, industry, and provincial governments in Indonesia. Several provinces in Indonesia, such as DKI Jakarta, Bali, Central Java, can serve as references and lessons for other provinces in developing a larger portion of renewable energy.

The focus in 2022 can be on policies and regulations that increase the transparency of the renewable energy auction process, identify clear risk allocation through standardization of Project-Based Learning (PJBL), and improve the bankability of renewable energy projects with derisking instruments. A more efficient and punctual licensing process and lower interest rates for project loans are also important factors for reducing initial funding costs and improving the investment climate. 

Indonesia Energy Transition Outlook 2022 report can be downloaded at: s.id/IESR_IETO2022

Indonesia’s Energy Transition Overshadowed by Government Uncertainty

Jakarta, December 21, 2021 – Closing 2021, the Institute for Essential Services Reform (IESR) has launched its annual report entitled Indonesia Energy Transition Outlook (IETO) 2022. Since 2017, IETO – previously called Indonesia Clean Energy Outlook (ICEO), has consistently explained the development of the energy transition in Indonesia in various sectors as well as provided projections of Indonesia’s energy transition in 2022. For the second year in a row, IETO has specifically analyzed Indonesia’s energy transition readiness.

At a global level, 2021 was marked by some important events such as the Climate Summit hosted by the US president, Joe Biden, who called for the whole world to take more ambitious steps to tackle the climate crisis. The G20 Summit and COP 26 reiterated that the commitments and actions to mitigate the climate crisis of all countries are still not sufficient to suppress the increase in the global average temperature of 1.5 degrees Celsius. More ambitious and aggressive climate mitigation actions are needed.

Although not yet in line with the Paris Agreement, Indonesia has begun to show a quite progressive political commitment by setting a net-zero target by 2060 or earlier, plans to retire 9.2 GW  coal-fired power plants early, and the issuance of a new RUPTL which gives the share of renewable energy up to 51.6%. According to IESR, this commitment can be seen as a breath of fresh air for the development of renewable energy in Indonesia. However, this still has not been able to accelerate Indonesia’s energy transition, and achieve the Paris Agreement target of achieving carbon neutrality by the middle of this century.

Julius Cristian, the lead author of the IETO 2022 report, saw some uncertainty from the government.

“For example, although the latest RUPTL has accommodated about 50% of renewable energy or around 20 GW when compared to the need for decarbonization which reaches 130 GW, this plan is certainly far from what is needed. In addition, the government is still relying on strategies that we think are not feasible, such as the use of nuclear and CCS which are more expensive than renewable energy,” he explained.

The IETO 2022 assesses that Indonesia is capable of achieving net-zero by 2050. To achieve this, Indonesia must reach peak emissions before 2030, and after that start reducing them. One of the implications of this is that Indonesia is no longer allowed to build CFPPs and must immediately start retiring old CFPPs.

Considering the potential and availability of resources, solar PV will be the backbone of Indonesia’s decarbonization. However, its growth in 2021 was only around 18 MW, even though the demand will reach 108 GW in 2030, or an average increase of 10 GW per year.

Handriyanti Diah Puspitarini added that there has been a slight improvement in terms of policy quality and social (public acceptance) regarding the energy transition, but commitment from the government and the renewable energy investment climate still needs a lot of improvement.

“We need to see how the implementation of various regulations that will come and have been issued will be implemented. The government must also realize that the public has begun to be aware of this issue and support the energy transition, so the government should also support this already high public support,” explained Handriyanti.

Herman Darnel Ibrahim, a member of the National Energy Council (DEN), stressed the importance of renewable energy to grow exponentially to meet electricity demand and meet international agreement targets. Although throughout 2021 there is a momentum for growing awareness to transition Indonesia’s policy direction, it is still uncertain where it will go.

“For example, RUED, ​​although the regions already have RUED, ​​the authority to execute is centralized in PLN and Pertamina, so these regions have RUED but cannot affect the results,” said Herman.

Faela Sufa, Southeast Asia Director of ITDP, sees that the transportation sector can be one of the drivers of the renewable energy ecosystem in Indonesia.

“For example, for the electrification of public transportation, we need to synchronize together and identify what incentives need to be given so that it can be more tangible in energy use and coordination with various sectors related to renewable energy for electrification,” explained Faela.

Yusrizki, Chairman of the Standing Committee of the Indonesian Chamber of Commerce (KADIN) for New and Renewable Energy, said that KADIN has declared it will become a net-zero organization in 2060 and is actively encouraging its members to have a-net zero target.

“In the 2022 G20 summit, we are expected to have 100 Indonesian companies that have pledged a net-zero target and this is a very ambitious target. We start from education, assisting -helping them to make their agenda-, to pledge their commitment,” Yusrizki explained.

Meanwhile, Arief Sugiyanto, Vice President of PLN’s RUPTL Control, explained that his party is currently trying to meet the energy mix target of 23% by 2025.

“The target of 23% NRE in 2025 is indeed a formidable challenge. One of PLN’s strategies is to change diesel power generators in isolated areas gradually with NRE generators available in those locations,” said Arief.

Indonesia Energy Transition Outlook (IETO) 2022

IETO 2022 will be launched in a webinar that is also intended to obtain views/perceptions from policymakers and actors on the trends that will occur in the coming year in the energy transition. Discussions at this meeting will focus on the energy transition readiness framework in Indonesia’s electricity sector as well as various lessons learned in 2021 to overcome the challenges of encouraging the energy transition in 2022.

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The development of the electric vehicle ecosystem needs to be accelerated. Fiscal incentives for electric two-wheelers and restrictions on conventional vehicles are key to successful EV development in Indonesia

Despite the Ministry of Industry targets to increase annual electric vehicles (EV) sales to 400,000 units (passenger cars) and 1,760,000 units (motorcycles) by 2025, the current EV adoption rate is still low, writes Idoan Marciano, one of the authors of the Indonesia Energy Transition Outlook (IETO) 2021. By 2020, electric cars only reached 0.15% (229 units) of the 150,000 units sales/production target while electric two-wheelers at 0.26% (1,947 units) of the 750,000 units sales/production target. Looking at this trend, “it would be very challenging to hit the targets”, says Idoan. 

In order to achieve the targets, it is important to build the electric vehicle ecosystem, which consists of five aspects: (a) charging infrastructure; (b) electric vehicle model availability and supply; (c) public awareness and acceptance; (d) supply chain for batteries and electric vehicle components; as well as (e) supporting policies (including incentives) from the government.

In 2020, derivative regulations of the Presidential Regulation 55/2019 were issued at both the national and municipal levels to provide fiscal incentives and support for charging infrastructure development. This is in line with what the author emphasizes in the report that to increase demand for EV, fiscal -as well as non-fiscal- incentives such as exemptions of VAT, income tax, and import duty or subsidies will be critical. Furthermore, financial incentives such as direct subsidies for developers of public charging stations (SPKLU) and public battery exchange stations (SPBKLU) are also needed to expand charging infrastructure networks in the country.

“Charging infrastructure development is paramount to overcome range anxiety issues. To date, the number of both SPKLU and SPBKLU is still limited, far from the targets. It is also worth noting that the current SPKLU target set on the roadmap will only give a 1:70 ratio (meaning 1 charger to serve 70 EV), much higher than what IEA recommends at 1:10 ratio (or lower when a country is still in its early stages of EV adoption). Responding to this, “the government should aim for a ratio lower than 1:25, emulating what has been applied in high-EV penetration countries such as China, the United States, and Norway”, says Idoan.  

In addition, the author also underlines that the development of the local supply chain is necessary to ensure a self-sustaining EV development. Specifically, local production of lithium-ion batteries -the main component of EV- will be vital to help lower production costs of EV in Indonesia. Currently, the country has been building several production facilities for raw materials extraction and refinement of lithium-ion battery precursors. These facilities are scheduled to start their operations in the next 1-3 years. However, slow progress has been made in the battery cells and packs segments with local companies (including MIND ID, PT Aneka Tambang, PLN, and Pertamina) are still planning the development.

 Production facilities of raw materials extraction and refining process to produce batteries

 Located in the Morowali Industrial Area (IMIP) Located in Weda Bay Industrial Area (IWIP)
CompaniesPT. QMB New Energy Materials
A JV between China (GEM Co, Ltd. and Brunp Recycling Technology Co.,Ltd., Tsingshan, Indonesia (PT IMIP), and Japan (Hanwa)
PT. Huayue Nickel Cobalt
A JV between five Chine companies
ProductionNickel and cobalt compounds
Annual Production Capacity
150 kilotons nickel sulphate, 20 kilotons cobalt sulphate, 30 kilotons manganese sulphate, and 50 kiloton nickel hydroxide

60 kilotons nickel and 7.8 kilotons cobalt

240 kilotons of nickel sulphate and 30 kilotons of cobalt sulphate
Total InvestmentArround USD 1 billionArround USD 1.2 billionAround USD 1 billion

Meanwhile, despite the issue of a used battery shortage, the establishment of a local battery recycling facility should be appreciated. “The facility is expected to help bring about cost-efficient EV production while mitigating the environmental impacts that EV development may cause.” 

 

The author further stresses the importance of local EV production, considering that “currently, all electric cars in the Indonesian market are imported as no local automakers have started EV production.” Recent commitments made by some of the global automakers to investing in EV production in Indonesia, however, bring the hope of establishing the EV industry in the country.  

By contrast, at least there are 15 companies with a total production capacity of 877,000 units producing electric two-wheelers. However, demand for electric bikes is currently too low to match the supply. “The government, therefore, needs to provide necessary incentives to increase demand”, notes Idoan. 

Domestic electric vehicles manufacturers

 Four Wheelers (or more)Two or Three Wheelers
Local Producer1 company15 companies
BrandMAB (e-bus)
Viar, Gesit, Selis, MIGO, United,
Tomara, ECGO, Volta, Unifly, Electro, Sunrace, Artas, Gelis, Benelli, Keeway, Kymco
Production Capacity1,200 unit/year877,000 unit/year

 

The report also underscores the importance of raising public awareness of EV, its advantages, available incentives, and other useful information such as charging locations to help increase demand for such a new technology. “Demonstration and promotion projects need to be increased through cooperation and partnerships between the government, automakers, transportation companies, and charging infrastructure developers”, says Idoan. 

Finally, outlooking the EV development from 2021 onwards, the report proposes three actionable recommendations for the government. First, “the government needs to prioritize the development of electric two-wheelers as their adoption will be relatively easy due to price compatibility with conventional two-wheeled vehicles.” Additional fiscal incentives or direct subsidies to consumers, and other operational incentives are then necessary to help lower the total cost of ownership.

Second, “to see a significant increase in EV adoption in the country, the government should start restricting the use of conventional cars and motorcycles in major cities”. Lastly, “seeing the growing appetite from international investors, the government needs to ensure technology transfer will take in place through tight collaborations with foreign automakers. At the same time, the government should facilitate cooperation between domestic EV manufacturers and R&D institutions for the commercialization of domestically-made electric vehicles”, he concludes. 

 

Read the full report:

Author: Idoan Marciano (IESR Energy and Electric Vehicles Technologies Specialist) 

Editor: Pamela Simamora 

Contact: idoan@iesr.or.id