China’s Belt and Road Initiative Opportunities in Accelerating the Energy Transition in Indonesia

FT

Beijing, March 27, 2023 – The Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, highlighted that the Belt and Road Initiative (BRI) allowed China to play a role in accelerating the energy transition in Indonesia. He mentioned this as a guest speaker promoting green and low carbon transition in BRI participating countries and  CCICED particular policy study on green BRI workshop on Monday (27/3/2023).

“Indonesia must increase its ambition to make emission reductions compatible with the Paris Agreement. Under the current plan, Indonesia will achieve the energy sector’s net zero emission (NZE) after 2060, but the electricity sector will reach zero in 2050. For this reason, we need more efforts to decarbonize the transportation and industrial sectors,” explained Fabby.

He also underlined that Indonesia needs a cumulative investment of around USD 1.3 trillion spread across various technologies in the push for decarbonization. Under these conditions, Fabby said, China could play a role in supporting the energy transition in Indonesia through technology, manufacturing, and investment cooperation, considering that there is market potential in increasing demand for renewable energy in Indonesia.

“Solar power will play an important role in Indonesia’s energy transition. Based on the 2021-2030 Electricity Supply Business Plan (RUPTL), PLN plans to add 3.9 GW of solar energy in 2025. For this reason, BRI’s investment in 2023 needs to be focused on financially feasible projects, such as scalable solar and wind power plants, said Fabby Tumiwa.

On the other hand, the existence of BRI can enable investment in the renewable energy component industry. This can be done by considering the complexity of the supply chain. Fabby emphasized that industrialization in Southeast Asia accompanied the push for the energy transition, such as energy storage, electric vehicles, and solar panels.

“Currently, Indonesia has started to develop the battery and electric vehicle industry because of its great nickel content. Low production costs and availability of resources are several opportunities to develop the local solar module industry in Indonesia,” said Fabby.

On the same occasion, Deon Arinaldo, Energy Transformation Program Manager, Institute for Essential Services Reform (IESR), explained various power system plans and projections expected to accelerate the spread of renewable energy in Indonesia. For example, the latest power system energy planning stipulates around 20.9 GW of renewables to be built in 2030. This number will increase by at least 5-6 GW if Indonesia considers the Just Energy Transition Partnership (JETP) target of 34% renewable energy mix in 2030.

Deon Arinaldo, Manajer Program Transformasi Energi, Institute for Essential Services Reform (IESR)
Deon Arinaldo, Energy Transformation Program Manager

“To achieve the national policy target in 2025, the IEA projects an additional solar energy capacity of 17.7 GW above that planned in the RUPTL. Meanwhile, based on the IESR scenario, the power generation capacity based on renewable energy must be boosted to 140 GW to limit global warming to 1.5°C,” Deon explained.

However, said Deon, historically, the installed capacity of renewable energy has only grown around 500 MW per year. This happened because there were several main challenges, including excess capacity at the Java-Bali power plant. Moreover, the domination of coal power plant capacity with a take-or-pay mechanism needs to make room for the integration of renewable energy. Another challenge is the renewable energy procurement process and the requirements for using local content, which places unnecessary risks in developing renewable energy.

Developing Indonesia’s Geothermal Power for Energy Transition

FT

Jakarta, February 24, 2023 – PT Pertamina Geothermal Energy Tbk (PGE) is ready to hold an initial public offering (IPO) worth Rp9.8 trillion on the Indonesia Stock Exchange on Friday (24/2/2023). With these funds, PGE will develop a geothermal power plant (PLTP) with a capacity of 600 megawatts until 2027. Responding to this, the Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, explained two urgencies in the IPO process for PGE shares. First, Indonesia’s target is to develop renewable energy and make an energy transition. Therefore, Indonesia needs to take advantage of all its renewable energy sources. Moreover, Indonesia also needs to gradually reduce the operation of coal-fired power plants until 2050.

“The second urgency is that PGE has a business strategy, and this company will transform from an oil and gas company to an energy company. One of them will be encouraged by the development of renewable energy, such as geothermal,” explained Fabby.

Fabby said that Pertamina has large geothermal reserves, and the quality of the resources is quite good because Pertamina has been exploring since the 1980s. Thus, Fabby assessed that it could not be developed optimally due to several factors. One of the factors is funding. Bearing in mind the development of geothermal resources requires a sizable investment because they have to carry out exploration (drilling) and ascertain what percentage of these reserves can be used for electricity operations.

“In Indonesia, the cost of drilling just one well requires funds of around USD 3-5 million. With a success rate of 30% and when we drill three wells, we can get one well that is successful at generating around 30-50 megawatts (MW) of electricity, and we have to spend USD 15 million for the drilling. It envolves infrastructure and so on. This process takes a long time from drilling to turning it into a power plant,” said Fabby.

Fabby mentioned that Pertamina needs to optimize the potential of existing geothermal reserves. For that, Pertamina needs funds. One way to get these funds is through an IPO of shares. The IPO is the right step for Pertamina’s future development.

“Indonesia has the largest geothermal potential in the world, a total of around 28 gigawatts (GW) or 28 thousand megawatts (MW), of which less than 10% has been utilized until today. If we can develop this, it is hoped that renewable energy will be more competitive, especially electricity from geothermal, which can be cheaper,” stated Fabby.