Energy dynamics in Indonesia and Malaysia

Energy dynamics in Indonesia and Malaysia

At 30 million, Malaysia has a much smaller population than neighbouring
Indonesia which has a population of 250 million. In spite of that, it is the
third-largest economy in Southeast Asia and the third largest energy
consumer in the region with energy requirements growing at an average rate
of 2.2% every year.

Likewise, Indonesia is one of the success stories of the region, quickly
recovering from the Asian Financial Crisis to become the largest economy in
Southeast Asia and a member of the G20. A report by Transparency Market
Research indicates that Indonesia's electricity demands will more than
double to 442.5 Terawatt hours (TWh) by 2022.

"10-15% of global energy demand currently comes from Southeast Asia, where
Indonesia and Malaysia are the main drivers and is projected to continue to
increase in the future," says Almo Pradana, Energy Manager - Indonesia at
the World Resources Institute (WRI). "However, both Indonesia and Malaysia
are experiencing a dramatic slowdown in oil exploration, especially in
Indonesia (a major oil importer) where oil productions in old oil fields are
already long declining," he adds.

Both countries are heavily dependent on fossil fuels and that is not going
to change any time soon. This may not have been a major problem if both
countries were not relying on antiquated grid supply systems, ageing
infrastructure and obsolete technology, all of which cause inefficiencies in
power generation and transmission. Both governments have plans to fix the
problem. Indonesia aims to add 35 Gigawatts (GW) to its installed capacity
by 2019. But there are hurdles that need to be overcome.

"Land access, regulatory challenges, difficulty in obtaining funding, and
increasing private sector participation are some of the persistent
challenges," says Noor Miza Muhamad Razali, an energy analyst at the IEA.
"The plants' operators should also look at options to upgrade plant
equipment as necessary if this can translate to efficiency improvement," she
adds.

Rationalising exports and subsidies

There is also the fact that most energy reserves in the form of oil and
natural gas are located in areas far away from domestic demand markets. This
means that the bulk of these fuels are exported, especially to fast-growing
economies like India and China which lie closer to resource production
centres. For instance, Malaysia exports about 34 Billion Cubic Metres (BCM)
of natural gas every year, about half of its total product, making it the
world's second-largest gas exporter. Similarly, Indonesia is the largest
coal exporter globally, producing about 90% of the total regional output.
While this has ensured growth for Malaysia and Indonesia's domestic
economies, it also means that they are vulnerable to market fluctuations.

In the case of coal, major importers like India and China have initiated
policies to switch over to cleaner fuels, which could see demand dipping in
the long run. The fall in global oil prices has had an impact as well. And
then there is the challenge of subsidies. Both Indonesia and Malaysia have
extensive subsidy schemes in place to provide energy at low prices to
domestic consumers. While this is a by-product of a time when both countries
were net exporters of oil and gas than net importers, it has now begun to
place a heavy burden on the economies of both countries especially as
international demand rises.

The good news is that both the countries are taking efforts to address these
issues.

Are alternative energy sources the answer?

The key to securing the long-term energy requirements depends a lot on the
development of renewable energy sources. Thanks to its location, both
countries have significant advantages in doing this. For instance,
geothermal power is a great option for Indonesia to consider due to the
volcanic nature of its archipelago. The IEA estimates the total potential of
geothermal power at 28 GW, which is around 40% of the world's geothermal
potential. Wind power is another option that Indonesia is considering, with
a target of installing 970 MW of wind capacity by 2025. Meanwhile, Malaysia
has committed to double the share of renewables in its overall energy mix
with the government set on increasing the capacity of renewables to 2080 MW
by 2020 and 4000 MW by 2030.

Switching over to newer technologies will also enable power plants to
produce more energy while consuming the same amount of fuels. The resulting
energy will be cleaner, with modern equipment cutting down on emissions and
waste to a large extent.

Energy experts say the challenges facing both Indonesia and Malaysia can be
overcome to a large extent by upgrading existing transmission and generation
systems.

"Transmission and distribution grid need to be expanded and upgraded to
transfer renewable energy out to local demand centre or across long
distances," says Florian Kitt, Programme Manager - Southeast Asia at the
IEA.

Given the similarities in their challenges and opportunities, both Indonesia
and Malaysia can learn from each other in their quest to achieve energy
independence and security. Collaborating on tapping renewable energy sources
is one way the two countries can secure energy for their domestic needs
while emerging as net exporters of renewable energy.

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Link to Original Article:
http://www.wartsila.com/twentyfour7/environment/energy-dynamics-in-indonesia
-and-malaysia

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com