New and Renewable Energy
It is appropriate to highly appreciate the hard work of state electricity company PLN to meet electricity needs. In 2018 the company reached an electrification ratio of 98.05 percent. However, national energy policies in the electricity sector need to be evaluated for two reasons. First, Indonesia is bound by an international agreement to reduce carbon emissions so that global mean temperatures rise less than 2 degrees Celsius, compared to temperatures in the pre-industrial period. As President Joko Widodo signed the Paris Agreement in 2015 along with 196 other countries, Indonesia agreed to increase the use of new and renewable energy (EBT) by 23 percent by 2025.
New and renewable energy consists of two groups, namely power generation and energy sources consisting of hydro power, sunlight, wind, seawater, geothermal, biodiesel, ethanol and biomass (household and agriculture waste) that would replace fossils fuels.
In the 24th Conference of Parties (COP) in Katowice, Poland, on Dec. 4, 2018, a guideline for implementing the Paris Agreement called the Katowice Package was issued, essentially a road map to reduce carbon emissions globally. Indonesia was in the spotlight in the forum because of its counter-productive activities of building large coal-fired power plants (PLTU). Indonesia cannot possibly fulfill its target of reducing emissions by 29 percent (2.2 gigatons of CO²) and is to be recorded as a country that aggravates the threat of global warming.
Second, we need to increase electricity capacity, which on the one hand would meet the growing needs of the community and the aim of becoming an industrial country. On the other hand we need to reduce the balance of payments deficit and manage the national economy more efficiently.
Global trends
Based on data of the Energy and Mineral Resources (ESDM) Ministry, 95.8 percent of electricity produced in Indonesia is generated by plants that use fossil fuels and only 4.2 percent by EBT. This is not an ideal proportion for a country like Indonesia, which has abundant EBT potential. The geothermal potential is about 29 GW, which is only 4.9 percent utilized. The potential of hydroelectric generation is 94 GW, but only 7.4 percent is utilized.
By producing most of its electricity with fossil-fuel-fired plants, Indonesia is going against two global trends. First, the countries supplying PLTU technology (such as diesel generators) have themselves switched to cleaner energy, both new and renewable energy and nuclear. Second, many countries that succeeded in quickly switching to EBT include China, which in 2017 reached a 36.6 percent proportion of new and renewable energy with 400 GW, India with 33.3 percent (119 GW) and New Zealand, which reached a 83 percent ratio by using geothermal and hydro energy. There are even countries that have met almost all their electricity needs from new and renewable energy, such as Iceland (100 percent, sourced from geothermal and hydro energy), Costa Rica (99 percent, sourced from hydro, wind and geothermal energy) and Norway (98 percent, sourced from hydro energy).
Norway – one of the most prosperous countries in the world – is very clever. As an oil producing country, domestic electricity is generated by hydropower, which cannot be exported. It exports about 1.6 million barrels of oil per day and produces a lot of foreign exchange. We need to follow the example of Norway.
Statistics shows that over the past 10 years Indonesia exported coal and gas amounting to 1,887,366 barrels of oil equivalent (BOE) every year. In the same period, Indonesia imported 348,267,000 BOE, consisting of crude oil and fuel. We have exported gas that is relatively inexpensive and environmentally friendly for other countries\' energy use, while on the other hand we import oil and other fuels that are relatively expensive and not environmentally friendly to produce electricity.
In 2017, Indonesia was the world\'s third largest gas exporter after Qatar and Australia and the world\'s fifth largest coal exporter (after China, the United States, India and Australia). Coal has become a very large producer of foreign exchange for our country, with sales amounting to US$17.9 billion (16.1 percent of the value of the global coal trade).
In 2015 Indonesia was estimated to have fossil fuel resources amounting to 151 billion barrels, while reserves were calculated at 3.6 billion barrels. Natural gas resources were estimated at 487 TCF, while the reserves were calculated at 98.0 TCF. Coal resources were estimated at 120.5 billion tons, while reserves were calculated at 32.4 billion tons.
Seventy-five percent of Indonesia’s total coal production is exported every year. Only 25 percent is used domestically, mainly for power plants, which in 2016 amounted to 68.61 percent of the total electricity production of 462 million BOE. More than 70 percent of power plants on Java use coal, making coal our main fuel for producing electricity.
Meanwhile, the cost of fuel for diesel-fired power plants (PLTD) was Rp 35 trillion in 2015 and it dropped to Rp 22.8 trillion in 2016 with a total fuel consumption of 4.7 million kiloliters. In 2018, PLN still needed about 3 million kiloliters of diesel.
The oil and gas trade deficit in 2018 (January to October) was Rp 58 trillion ($10.74 billion). Fuel consumption by PLN also drives the deficit, which in turn puts pressure on the rupiah exchange rate. By declining magnitude, excluding for electricity generation, energy is used by transportation, industry, households, commerce and other sectors, which all require 876,594,000 BOE each year.
Incentives are needed
The state\'s financial situation would be better if we export more coal, eliminate power plants that use fossil fuel (which we import) and we use gas that is cheaper and domestically produced and accelerate the use of new and renewable energy to produce electricity.
In Indonesia, the biggest producers of emissions are power plants (47.8 percent), transportation (24.71 percent), manufacturing and construction (14 percent) and other sectors (12.7 percent). Indonesia needs to show a higher commitment to global efforts to reduce CO² emissions with more environmentally friendly electricity generation in part because Indonesia is also vulnerable to climate
change. Global warming that raises sea levels can make Indonesia lose a considerable amount of territory because of the sinking of small islands and coastal cities.
So far, President Joko Widodo has paid great attention to plans to increase the use of the new and renewable energy as a future energy source. According to Vice President Jusuf Kalla, new and renewable plants are now supplying 6,516.3 MW of electricity. To reach the target of 23 percent new and renewable energy by 2025, an additional 2,000 MW of power generated by new and renewable energy is needed per year.
However, the government\'s determination in some respects was hampered by the government\'s own policies, primarily Energy and Mineral Resource Ministry Regulation No. 50/2017 because it bases the price of electricity from new and renewable energy plants on the local basic cost of supply (BPP). With a very low BPP, the economics of new and renewable energy plants is not feasible. There are also provisions for investment in new and renewable energy generators with a build, operation and transfer (BOT) pattern. As a result, banks and investors all state that investment in new and renewable energy power plants is not feasible and is high risk. I doubt the policy is the result of lobbying by investors in fossil fuels.
All parties understand that fossil fuels are soon running out. It is unfortunate that there has not been any massive effort to utilize the abundant new and renewable energy for electricity. It is true that the cost of building a new and renewable energy plant is more expensive than that of a coal-fired plant. However, the energy source is very cheap and cannot be exported so the operating costs are low compared to coal- and diesel-fired plants.
In the long run, new and renewable electricity is cheap, sustainable and environmentally friendly. Incentives are needed to stimulate massive efforts to develop new and renewable energy for electricity, including the following policies.
The one- to 10-year new and renewable energy electricity tariff is regulated so that it meets the new and renewable energy economics (there are incentives in it); the 11- to 20-year tariff is set to return the aforementioned subsidy. Beyond the 20th year, the tariff is set for a reasonable profit above operating costs. The assumption is that the new and renewable energy investment is returned in 10 years. This pattern can be applied to new and renewable energy investments for water, geothermal, wind, ocean waves, solar and others.
The BOT scheme is also not right. The capacity of new and renewable energy power plants is generally under 10 MW per unit. The concept of BOT is very obstructive because banks are reluctant to finance it. Moreover, whether PLN would be operationally ready and able to more efficiently manage thousands of small new and renewable energy power plants spreading throughout the country is questionable. The pattern of build, operate and own (BOO) would encourage thousands of small businesses in various parts of the country, spreading welfare to a wider community.
The development of new and renewable energy technology will continue. At one point – in the near future – in-situ solar power plants or other new and renewable energy plants would be necessary to meet the energy needs of one house, one factory, or one building. There would be no need for transmission networks, as electricity would be produced locally. PLN would immediately lose thousands of household and commercial customers and thousands of kilometers of electricity distribution networks would become useless. The government needs to examine whether PLN\'s monopoly status would have a good impact on the existence of PLN in a future that is dynamic and full of disruption. It
has become an economic law that monopolies are inefficient, slow, uncreative and willing to win by themselves.
Remember Telkom\'s brilliant policies that made Telkomsel. Now Telkomsel\'s income is greater than Telkom\'s. Instead, remember that water company PDAMs are always losing money and taking refuge
behind the law that states that the right to distribute water to people\'s homes belongs only to the government through PDAMs.
The structure of the Energy and Mineral Resources Ministry also needs to be reviewed. Perhaps the Energy and Mineral Resources Ministry needs to be split into those who manage mining with complex problems and an energy ministry that handles oil, coal and electricity and new and renewable energy. (Siswono Yudo Husodo, Chairman, Pancasila University Foundation)