Can Indonesia's energy path be nudged away from coal?

Can Indonesia's energy path be nudged away from coal?

Is Indonesia missing out on the global renewable energy revolution? Looking
at Indonesia's plan to boost coal-fired power generation, the answer may
unfortunately be yes. Indonesia is at risk of locking into a high carbon
power sector when other major economies are beginning to favour clean energy
in pursuit of lower greenhouse gas emissions. But there are things that can
help nudge Indonesia onto a cleaner energy expansion path, and other
countries can help.

Power shortages, as Indonesia often experiences, raise the cost of doing
business. The Jokowi government is pursuing aggressive expansion of power
generation capacity. It wants to add 35 GW by 2025, out of which 20 GW or 55
per cent is to come from coal-fired power plants. Only 2.9 GW or 8 per cent
is to be sourced from renewable energy sources.

The share of coal in total electricity production climbed from 36 per cent
in 2007 to 41 per cent in 2015. Only recently the government announced that
future plants must use supercritical technology to increase efficiency and
reduce emissions, but even this technology is behind the state of the art in
coal fired power plants.

Reliance on coal power makes it difficult to meet Indonesia's commitment to
reduce carbon emissions by 29 per cent from business-as-usual levels by
2030. While emissions from land use change and forestry are on a long term
declining trend, energy-related emissions are on the rise, with coal based
power playing a large role. Latest available data from IEA show that coal
accounts for one-third of energy-related emissions. The trend is for a
rising share and these power plants are long-lived, creating carbon
liabilities for decades to come.

Like in other countries, high-level pledges to global goals often do not
align with political realities on the ground. Currently, a priority for the
Indonesian government is to push infrastructure development. Paired with
resource nationalism, the use of abundant coal reserves to fuel electricity
production looks like a non-negotiable issue in parliament.

So how could Indonesia's energy path be nudged in a direction that is less
reliant on coal-fuelled electricity?

If the target is to enable large-scale investment into renewables, then the
state-owned electricity company Perusahaan Listrik Negara (PLN) needs to be
given incentives to do so. The national utility monopolises the grid where
it is the sole buyer of electricity generated by independent power
providers. But it is not allowed to charge cost-reflective consumer tariffs
and depends on subsidies to fund its loss-making operations. As long as
coal- and gas-fuelled generation technologies are cheaper than renewables,
PLN will opt to buy the former. This is despite the existence of feed-in
tariffs or above-market rate payments for power from most renewable sources.

Constitutional amendment to curb PLN's monopoly are a political non-starter,
so what matters most is to reduce PLN's financial risk of the switch to
renewables. This can involve subsidies for projects, going either to PLN or
independent power producers that sell electricity to PLN, to bridge the
viability gap between coal and renewables.

Here, other countries can help in several ways.

First, they can support the capacity of Indonesian institutions to access
innovative funding mechanisms. International financial mechanisms like the
Green Climate Fund are ready to channel money into clean energy projects,
but Indonesian organisations need to obtain accreditation first. With the
necessary accreditation, Indonesian organisations can take up a 'broker'
function between domestic developers and international capital.

Second, governments should increase funding for renewable power plants,
especially under domestic financial mechanisms that support public-private
partnerships. The Indonesian Infrastructure Guarantee Fund and the
Indonesian Infrastructure Company are vehicles to get infrastructure
projects going, but coal plants remain on the agenda. Donor efforts to
signal the withdrawal from future coal power projects are already underway.

Third, donors can strengthen domestic capacity to develop and assess
projects. There is plenty of money available to fund renewable energy
investment, but well-designed projects are hard to find. Donors can also
help banks in adequately assessing risks associated with renewable energy
projects.

Finally, donors should continue to support analysis and strategic planning
to feed into Indonesia's energy policy. Big ideas and concepts matter. Not
all of them will be implemented, but they contribute to processes within
government that shape regulatory incentives. Analysis on green fiscal
policies, geothermal development and green growth strategies have helped
Indonesian policymakers in shaping energy policies.

The United States and China have announced ratification of the Paris Climate
Agreement and this will give further boost to a growing global renewable
energy industry. China and India are already spearheading the global wind
and solar power industry. Indonesia, having for so long followed a
labour-intensive manufacturing and then a resource-exporting model, may be
able to enter an innovation-and technology-driven growth path. The move
toward a green economy represents an opportunity to move up the
technological ladder, and reduce the extent of lock-in to high carbon
infrastructure.

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Ref:
http://www.eastasiaforum.org/2016/09/26/can-indonesias-energy-path-be-nudged
-away-from-coal/?utm_source=newsletter&utm_medium=email&utm_campaign=newslet
ter2016-09-25

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com