Published by Strategic Review.
Indonesia has huge potential geothermal resources, but development has been slow and speeding it up is considered a herculean task. The high cost of investment and lack of government capacity are often cited as hindrances to development, along with familiar concerns from the era of decentralized government about unclear regulatory and institutional frameworks.
Finding solutions to these issues is critical to further unlocking this indigenous, clean and renewable source of power. Success could bring positive benefits to the country’s energy security and climate change mitigation efforts.Indonesia can no longer depend on fossil fuels, particularly oil, to power its economy. Soaring global oil prices have placed considerable strain on the economy. According to the Finance Ministry, energy subsidies – from both fuel and electricity – in 2012 cost the government $18.55 billion (17 percent of government expenditures). This is a significant increase from $9.78 billion in 2010, as shown by several studies (see Figure 1).The figure could even be higher since it reportedly underestimates the actual global oil price.
With Indonesia’s projected gross domestic product growth to remain steady at 4-6 percent and industrial production to slightly increase over the next couple of years, several studies, including from the National Council on Climate Change (NCCC) and the Energy and Mineral Resources Ministry (MEMR), have estimated that the power sector is projected to grow from 120 tWh (terawatt-hour) in 2005 to 970 tWh by 2030. If Indonesia continues to depend on oil, rising electricity needs would lead to the depletion of Indonesia’s domestic oil reserves sooner than expected. A 2012 statement from the energy ministry estimated that the country’s remaining 10 billion barrels of oil reserves will be exhausted in the next 20 years should no new reserves be found. In fact, the country has been a net importer of both crude oil and refined products since 2004.
Too much coal
The formidable task of meeting rising electricity demand requires a fundamental change in Indonesia’s energy policies, programs and actions. The country could opt for an easier solution, such as utilizing its abundant coal reserves. According to a 2009 World Bank report, the central government already has initiated a “crash program” to bring 10,000 MW (megawatt) of coal-fired power plants online as stipulated in Presidential Decree No 71.
Many critics, however, argue that while coal-fired power plants can alleviate short-term supply problems and reduce dependency on imported oil, the approach fails to address energy security goals and more importantly casts a shadow on the government’s pledge to tackle climate change and reduce emissions. Key Indonesian stakeholders interviewed in 2011 believed that the new coal power plants – purchased at low cost from China – were mostly dirty and inefficient, according to the paper, “An Environmental Perspective on Energy Development in Indonesia” included in the 2012 book “Energy and Non-Traditional Security in Asia.” If the use of coal continues to dominate the power sector, many experts predict that increased CO2 emissions from electricity generation by 2030 could reach 810 million metric tons of CO2 equivalent (CO2e), an increase of nearly seven times the amount in 2005 (see Figure 2A and 2B).
For many years, the underutilization of geothermal energy resources was partly blamed on pricing disagreements between PLN, the state-owned electricity company, and the government. A newer tariff was eventually introduced in January 2011 by PLN – an 18 percent tariff hike ceiling compared to the previous one and in line with MEMR Regulation No 7 of 2010 – as a temporary measure to resolve tariff discrepancies. Since 2011, Indonesia’s feed-in regulation has brought a relatively higher tariff for geothermal power, 9.7 US cents/kWh (cents per kilowatt-hour), although the scope was limited to geothermal fields included in the second-phase “crash program.”