Cheap competition: Barges loaded with coal in Indonesia. To date, renewable energy makes up just 13.9% of the country’s energy mix, thanks to the abundace of coal. — AP
JAKARTA: The Energy and Mineral Resources Ministry expects Indonesia to miss by a wide margin its 2025 target for renewable power generating capacity.
Experts blame uncompetitive prices and policies that support coal power.
Eniya Listiani Dewi, the energy ministry’s renewables director general, said Perusahaan Listrik Negara (PLN), according to its electricity procurement plan, would need to build renewable-power plants with a total capacity of 8.2 gigawatts (GW) by the end of 2025 to meet the target.
Projects in the pipeline include solar, hydroelectric, micro-hydro and wind power plants with a total capacity of 2.83GW, 1.7GW, 787 megawatts (MW) and 527MW, respectively.
The investment required for those plants was estimated at US$14bil, she added.
“Renewable energy in the national energy mix could roughly reach 21.2% if we secure the US$14bil investment,” she told reporters on Sept 9.
Big money
Putra Adhiguna, managing director at the Energy Shift Institute, said enough investors were keen to invest in renewable energy in Indonesia, but the country lacked credible projects with clear procurement timelines in the pipeline.
“There are too many large sums of investment targets flying around. The government should rather focus on the short-term targets, on what they can deliver in the next 12 to 24 months,” he told The Jakarta Post on Sept 13.
Indonesia has only attracted US$580mil in new and renewable energy investment as of August, just around 47% of the US$1.23bil target set for this year, according to Energy Ministry data.
To date, renewable energy makes up 13.9% of the national energy mix, with around 241MW of renewable electricity capacity installed since the beginning of the year.
Putra said pricing had long been an obstacle for renewable energy investment in Indonesia.
Electricity from renewable sources struggles to compete with artificially cheap electricity from coal-fired power plants.
The domestic market obligation (DMO) and domestic price obligation (DPO) give PLN ample coal supplies with a US$70-per-tonne price cap to feed its coal-fired power plants.
The government argues the policies are needed to ensure that Indonesia, the world’s biggest thermal-coal exporter, keeps enough coal in the domestic market to produce affordable power, making it difficult to create a level playing field between coal power and renewable-energy power plants.
Putra suggested that the government revoke the DMO and DPO and instead establish a fund managed by a public-service entity that would allocate funds to PLN to protect the company’s financial health when needed.
“Instead of the DMO, the government could establish a fund-pooling agency like that of the Palm Oil Plantation Fund Management Agency,” he said.
Under current conditions, coal-fired generation is typically far cheaper and is therefore the distribution monopolist’s preferred power source, according to a 2020 Asian Development Bank (ADB) report.
Fabby Tumiwa, executive director of the Institute for Essential Services Reform (IESR), noted that there were renewable-energy funding commitments from various sources, including the World Bank and ADB. “There is some funding, both domestic and international, but the funds cannot be disbursed,” he said.
Just one customer
He added that there were investment barriers to accelerating the construction of renewable-power plants in Indonesia, including high interest rates and country risk, which increased financing costs for renewable-energy projects.
“The country risk in Indonesia is high because PLN is the sole off-taker,” Fabby said, explaining that from an investor’s perspective, the state electricity firm’s duty to provide affordable electricity to the people, among other things, was perceived as a risk factor.
“PLN cannot increase its electricity tariffs. The margins are limited. So if I were to provide a loan to a project that would be developed by PLN, I would see that as a risk factor.”
A report published by the EU-Asean Business Council in April last year found that investment in developing regions like Asean inevitably carried higher risks, meaning project financing costs in Asean could be double the amount required in developed countries.
According to the report, investment costs in Asean must come down for green-investment mechanisms like the ADB’s Energy Transition Mechanism to be feasible, because lower investment costs would translate into a lower levelised cost of electricity (LCOE) from newer renewable-energy sources, which means more competitive utility prices for electricity generated from renewable sources compared to fossil fuels.
“Thus, de-risking green projects is critical to achieving success in Asean’s energy transition.”
Hendra Iswahyudi, the energy conservation director at the Energy Ministry’s Renewables Directorate General, said the government was working to improve the profitability of clean energy and to minimise the cost of funds to attract investors and disburse the existing funding commitments, including those under the Just Energy Transition Partnership.
“The funding will help strengthen the grid in South Sulawesi, and then in the projects list we have the Ijen geothermal project. We are pushing for disbursement of the funds,” he told reporters in Bandung on the sidelines of an event hosted by the Energy Ministry on Sept 12. — The Jakarta Post/ANN
