Indonesia: Trading off electrification and climate change

Indonesia: Trading off electrification and climate change

Indonesia celebrates National Electricity Day on Oct. 27, marking the date
when President Sukarno established the Electricity and Gas Bureau soon after
our independence.

At that time, the power supply capacity was only 158 megawatts (MWs). After
70 years of independence, the supply capacity has reached 53,000 MWs. Yet
more than 10 million Indonesian households still do not have access to
electricity.

The government takes this problem seriously. In 2006, then president Susilo
Bambang Yudhoyono's administration launched phase one of the 10,000 MW
fast-track program (FTP-1), followed by another 10,000 MW program (FTP-2) in
2010. Five years later, Jokowi set an even more ambitious target, to
complete building 35,000 MWs worth of power plants by 2019.

Despite its great benefit to society, the provision of electricity has
consequences for the environment. The electricity production directly leads
to emission of carbon dioxide ( CO2 ), one of the greenhouse gasses
responsible for global climate change.

According to the Inter-Governmental Panel on Climate Change (IPCC), 25
percent of global CO2 emissions were the result of electricity and heat
production.

In Indonesia, the power sector is highly dependent on fossil fuels.
According to the Electricity Supply Business Plan 2016-2025 (RUPTL), 89
percent of electricity production in 2016 is sourced from fossil fuels. This
results in more than 200 million tons of CO2 emissions.

At the same time, as an archipelagic country with extensive low-lying and
small islands areas, Indonesia is highly vulnerable to the adverse impact of
climate change. Indonesia is included as one of the 30 countries at "extreme
risk" due to climate change.

The risks include the increased mean of wet season rainfall, increased
length of the dry season, increase in the intensity and frequency of extreme
events such as El Niño, the increase of floods during the rainy season, as
well as the increase of drought in the dry season. All these will affect a
wide range of activities in Indonesia.

There seems to be a dilemma between electrification and mitigation of
climate change. But do we really need to choose one over the other? First,
let us see from the policy perspective. The National Energy Policy 2014
(NEP) aimed at nearly 100 percent of electrification by 2020.

The NEP also aimed at a mixed energy use with 23 percent coming from new and
renewable energy by 2025. Hence, the NEP promotes renewable energy for
electrification. This will result in lower carbon emissions compared to the
business as usual. Based on this we can conclude that policy framework is in
place to address low carbon electrification.

Second, let us take a look from the implementation perspective. The draft of
the National Electricity General Plan 2015-2034 (RUKN) translates the NEP
into long-term power sector planning. The RUKN promotes the development of
renewable energy and the use of clean coal technology (CCT) as the measures
to reduce CO2 emissions.

Nuclear power is also considered as an option.

Taking RUKN as a reference, the RUPTL provides more pragmatic planning and
covers a shorter period. The RUPTL confirms that it is achievable to have
nearly a 20 percent share of renewable energy in power generation mix by
2025. Accomplishment of this plan will reduce 22 percent of CO2 emissions
compared to the business as usual scenario. Hence, we can conclude that low
carbon electrification is realistic.

However, low carbon electrification leads to higher costs. The RUPTL
estimates a cost of US$110 billion to achieve 20 percent share of renewable
energy in the power generation mix. Furthermore, adding the renewable energy
share up to 25 percent will increase the cost to $160 billion.

The question is then, who will pay for these costs? Business-wise, the
independent power producers (IPPs) aim to gain profit from producing
electricity. Hence, they sell electricity to PLN at its economic price.

Referring to feed in tariff policies, state power operator PLN is obliged to
purchase renewable energy at determined ceiling prices. The policies'
intention is to attract more IPP investment in renewable energy. However,
the electricity generation costs from renewable energy are generally higher
compared to the electricity rate paid by the consumers. Since PLN is wholly
owned by the government, it is up to the government to decide whether they
will increase the electricity subsidy or increase the electricity rates.

Most consumers would be reluctant to pay more for electricity. However, in
some countries such as the Netherlands, consumers voluntarily sign up for a
green electricity product. This product sets a higher price for electricity.
With this price, an energy utility company ensures that they produce the
electricity from renewable energy sources.

This kind of product is not available in Indonesia. However, it does not
mean that we as consumers cannot participate in reducing carbon emissions.
There are alternative measures such as changing the way we consume
electricity and using energy-saving electric appliances. The former action
is relatively easy and free and includes unplugging non-used electric
appliances, turning off unneeded lighting and setting the air conditioner at
25°Celsius instead of 20°Celcius. The latter action may be costly at the
beginning but it will be paid off through the reduced amount in monthly
electricity bills.

Installation of solar panels on the rooftop can be an option for consumers
who have enough capital. They can consume the electricity produced by the
solar panel and thus lower their monthly bill paid to PLN. We can learn from
Germany's experiences about citizen involvement in energy transition. German
households and citizens are able to cover half of investments required for
the country's transition to renewable energy.

Low carbon electricity may seem costly, but dealing with the adverse impacts
of climate change will be even more costly. If we act now, we prevent the
worst impact of climate change. But if we do not care, our future
generations will bear a higher fare.

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Ref:
http://www.thejakartapost.com/news/2016/10/27/trading-electrification-and-cl
imate-change.html

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com