Rp 1.4 Quadrillion Investment Needed for Clean Electricity

Indonesia will need Rp 1.4 quadrillion (US$107 billion) to meet its clean electricity target while developing the country’s large new and renewable energy potential, government estimates show.

The hefty investment would be needed to reach the government’s 23 percent target of national electricity being produced using clean energy, according to the Energy and Mineral Resources Ministry’s Directorate General for New Renewable Energy and Energy Conservation.

Directorate general secretary Dadan Kusdiana said an attractive investment climate must be developed in order to encourage foreign investment, as it was impossible for the government to amass such a large sum of money.

“What we’re trying to do now is create a good investment climate. For example, we are trying to set prices that will encourage investment. Right now, all geothermal permits are processed by the BKPM [Investment Coordinating Board]; it’s all done in one place,” he said on Monday afternoon.

New and renewable energy sources have been neglected throughout the years in favor of fossil fuel despite the potential large reserves in the country.

However, government commitment to cleaner energy has been pledged again amid the depletion of fossil fuel reserves and rising awareness of the need for environmental conservation. At last year’s Paris climate talks ( COP21 ) the government pledged a carbon emission reduction target of 29 percent by 2030.

Investment in new and renewable energy amounted to $870 million in the first half of this year, 63.5 percent of the total target of $1.37 billion. The biggest chunk of that investment at $560 million went into geothermal energy.

Furthermore, non-tax revenue from new and renewable energy sources reached Rp 283.25 billion during the first six months of the year, less than half of the full-year target of Rp 630 billion. Revenue so far has been solely from geothermal energy projects.

A Rp 1.2 trillion subsidy has been approved for the Energy and Mineral Resources Ministry in next year’s budget to plug any gaps between the price of electricity from renewable sources and conventional sources that state-owned electricity company PLN cannot cover.

Despite the government’s efforts, however, the future of clean energy sources in the country looks a little bleak. In its most recent 2016 to 2025 electricity procurement business plan (RUPTL), the 23 percent target of 2025 has been decreased to 19.6 percent as it was deemed unachievable unless 3.6 gigawatts were procured from nuclear power plants.

Moreover, the ministry also announced that it would slash Rp 900 billion from its budget this year, the biggest cut being in the allocation for the Directorate General for New Renewable Energy and Energy Conservation, which will be left with Rp 1.7 trillion.

Institute for Essential Services Reform (IESR) executive director Fabby Tumiwa said the government could not rely on investment alone to boost development. The government also needed to increase efficiency efforts, he said.

“In order to save energy, we need better technology. However, we are still highly reliant on new and renewable energy technology from abroad. On top of that, our current regulations have not been implemented well to allow for more use of these new technologies,” Fabby said.

PLN Set to Expedite 35,000 MW Project

State-owned electricity company PLN expects to speed up the signing of development contracts for the remaining half of the projects in the government’s 35,000 megawatt (MW) electricity procurement plan in an effort to push for the on-time completion of the ambitious program.

Experts and government officials alike had previously criticized PLN for slow progress in the project, which is set to be completed by the end of 2019. Most of the criticism has stemmed from the fact that only 195 MW, or 1 percent of the project, had reached its commercial operating date or was already in operation.

However, the latest data from the company shows that it is gearing up to get things done. PLN’s data show that, as of Aug. 4, the company had wrapped up development contracts for power plants with a combined capacity of 16,515 MW.

PLN hopes to complete the signing of the contract for the remaining 18,485 MW power plants by year-end. Up to 11,730 MW comprises power purchase agreements (PPA) while the remainder are PLN’s engineering, procurement and construction (EPC) contracts. Furthermore, the same information shows that PLN is optimistic that financial closure will be reached for projects amounting to 8,705 MW.

PLN director for corporate planning Nicke Widyawati said that although reaching the government’s target was important, maintaining a daily peak demand reserve of 30 percent throughout the process was of equal importance.

Furthermore, PLN was concerned that the growth of electricity demand was not growing as fast as the supply despite the government’s commitment to developing special economic zones.

“We are actually optimistic that we can deliver the 35,000 MW project, but what is more important is how to maintain a 30 percent load balance at the same time,” she said during an event on Thursday evening.

The ambitious project is aimed at increasing the nation’s electricity supply, which remains lower than any of its Southeast Asian peers despite being the largest economy.

The current operating power plants under the 35,000 MW project mostly consist of mobile power plants, including one with a 25 MW capacity in Lombok, West Nusa Tenggara. In June, President Joko “Jokowi” Widodo inaugurated a 100-MW gas-fired power plant in Paguat, Gorontalo, the first realization of the mega electrification project.

Nicke noted that the largest obstacle PLN faced in the 35,000 MW project was still land acquisition despite the company managing to acquire approximately 50 percent of land needed for the program by August.

The mega power plant project in Batang, Central Java, finally reached financial closure in June this year after facing years of land-acquisition problems, and will start operating in 2020. The project is touted to be the largest in Southeast Asia.

Meanwhile, Cirebon Electric Power (CEP) director Heru Dewanto suggested the government solve the land-acquisition problem by renting out any government-owned land to electricity companies wanting to participate in the 35,000 MW project.

“If land acquisition is so crucial, maybe the government can try to create an inventory of land owned by the central government, local administrations, state-owned companies and even the military before lending it out for power plants through a cooperation scheme,” he said.

CEP constructed the country’s first steam powered plant utilizing super-critical technology with a capacity of 660 MW. The company plans to expand the power plant and will start operating in 2020.

Committee Suggests New Coal Price Formula for Power Plants

The Energy and Mineral Resources Ministry should make changes to a ministerial regulation on coal prices for mine-mouth power plants to appease both the government and state-owned electricity company PLN, the National Exploration Committee (KEN) has said.

The ministry and PLN have been at loggerheads over the regulation, issued earlier this year, over the pricing formula for coal delivered to mine-mouth power plants, which included a margin of 15 to 25 percent of the total production cost.

As a compromise, KEN has suggested a number of revisions to the regulation, which include allowing large-scale mine-mouth power plants with 100 megawatt (MW) to 1000 MW capacity to set prices based on a business-to-business system.

“However, the control over conservation should remain in the hands of the Energy and Mineral Resources Ministry so that our reserves will not be depleted due to cheap prices that are advantageous for companies,” KEN chairman Andang Bachtiar said on Tuesday.

Meanwhile, small-scale power plants with a 7 MW to 25 MW capacity should be allowed to buy coal with a 15 to 25 percent margin as they have a small demand of only 35,000 tons to 125,000 tons per annum. However, Andang also suggested that the power plants be given an additional fee set by an independent consultant in order to ensure transparency.

Fear of overselling coal is one of the reasons the government has insisted on the 15 to 25 percent price margin. The Energy and Mineral Resources Ministry’s coal and mineral director general, Bambang Gatot Ariyono, said if the prices were reduced further, then Indonesia’s reserves could be depleted within a short period of time.

“We have to consider our reserves. If we continue to reduce the prices then our reserves will disappear. Is there any guarantee that the change will allow our reserves to be there for the next 50 years? We need a margin,” he said, adding that there were no plans to change the price margin.

PLN has claimed that margins have resulted in prices that are too high considering the low coal price experienced throughout the year. President director Sofyan Basir said the margin could be reduced even further to a maximum of 15 percent.

Coal prices continue to remain sluggish amid overproduction and slow demand from major coal importer China.

Reuters reported that the price of Asian benchmark Newcastle thermal coal went up to US$62.23 per metric ton by mid-July from its 2016 low of $47.37. However, this is still less than half the post-2008 recession peak of around $136 per metric ton in February 2011.

Meanwhile, Indonesia’s coal reference price (HBA) for July also rose to $53 per metric ton from $51.81 per metric ton the previous year.

Settling the conflict while also preserving the country’s reserves is crucial to the government’s energy plans, especially for the ambitious 35,000 MW electricity procurement project, which will rely on coal for 55.6 percent of its energy source.

Government data suggests that Indonesia had around 32.2 billion tons of coal reserves in 2014.

However, another study by the Indonesian Mining Association and PricewaterhouseCoopers shows that declining prices have made only 7.3 to 8.3 billion tons of coal economically viable to mine. The preliminary projection indicates that these reserves will be depleted within the next two decades, forcing the country to start importing coal by 2030.

KEN also emphasized the importance of hiring an independent consultant to fix the prices as this would ensure transparency between all parties.

“There must always be transparency surrounding price-fixing between the ministry, PLN and coal suppliers,” Andang said.