Energy Transitions in Indonesia: Persist or Perish

The government of Indonesia demands renewables to be low-cost and price-competitive, but the demands may alienate those who most in need of reliable electricity. (Antara Photo/Wahyu Putro A)

By : Aretha Aprilia | on 10:11 AM May 03, 2018
Category : Opinion, Commentary

A majority of people would agree that the need for energy security while reducing the impacts of climate change has never been greater. Indonesia currently is the world’s fifth largest producer and the second-largest exporter of coal; and by 2050 fossil fuels will still provide well over half the primary energy supply (oil of less than 20 percent, coal 25 percent and gas 24 percent ‒ according to the country's commitment to the United Nations Framework Convention on Climate Change, or UNFCCC in 2016). So while security can be maintained, the impact on climate and subsequently people’s lives remains a question.

The times for dirty oil and gas, and coal industries, have passed. Most research and academic institutions agreed that we need to move to cleaner sources of energy. The days of simply pulling cheap energy from the ground have gone, and as with all extractive industries, we are going to run out of fossil fuel eventually. Global peak oil is estimated to occur after 2030, although the allegory is that peak oil is like death ‒ it will surely happen, no one can predict exactly when. This lack of clarity is not however an excuse to do nothing.

Given these circumstances, there is no other option but to shift the burden of energy demands to renewable sources. Indonesia has vast potential for renewables. Although at the moment they may seemingly cost more, these sources come with significantly lower environmental and public health impacts.

Electricity is arguably the most tangible benefit of industrialization. Indonesia's electrification ratio is reported to have reached 94.83 percent at the end of 2017, whereas the Central Statistics Agency (BPS) stated that the ratio is 97 percent. However there are questions as to whether those so-called electrified areas indeed have constant, reliable, and high quality power access. Yet, if the electrification rate is over 95 percent, then why are international donors and government agencies spending extensive efforts on rural energy access?

A clear definition of electrification ratio is required ‒ whether it considers the constant duration of electricity availability, or whether it accounts any kind of electricity access that was brought in at a point in time. Considering the evidence on the number of assistance programs that try to bring sufficient supply of electricity in rural areas, the actual electrification rate would have to be significantly lower than stated in the existing data.

Despite the responsibility of the government to provide the basic electricity access to all, their major concern is on the cost of such power. The government of Indonesia now demands renewables to be low-cost and price-competitive with subsidized fossil fuel to be considered "viable." They further stated that "it is better to leave the villages without electricity forever than give them electricity that they cannot afford," and further assert that "expensive electricity in remote areas suffering from a lack of infrastructure was unfair to the locals, who often could not afford the rates."

Those statements appear to imply that while the government has complete control over the sources or types of generation that are being used to supply existing PLN grid, villagers do not rate high enough to have similar levels of subsidy support they need to effectively and sustainably utilize power. However, factoring in the lost opportunity cost of not having power, this issue needs to be addressed honestly and comprehensively by the existing government agencies in charge. Perhaps a truly independent and empowered energy regulator is required to intervene on behalf of all of the Republic.

Although the government’s concern is on the supply of inexpensive electricity to grid connected customers, it is demonstrable that rural off-grid energy consumers are paying more for low quality (non-electric) power than they would pay for a properly configured RE-based local generation distribution system. There are cases in which villagers pay more for kerosene, which exceed the cost of equivalent electricity under a PLN tariff.

Therefore while the ability of a villager to pay may differ from one context to another, the fair tariff setting for all stakeholders concerned is essential. The government relying on the expansion of a grid that provides power at subsidized cost will perpetuate the lack of energy access to those communities that PLN will unlikely reach in the foreseeable future.

While the cost of electricity from renewable sources are being compared to conventional sources, these two are in fact incomparable. An article in Nature argued that the real cost of  energy considering externalities ‒ which is a characterization of a market failure in which the price of fossil fuel energy does not reflect its real cost to society and the environment, are not being factored into energy pricing. Meanwhile, the International Renewable Energy Agency stated that electricity from renewables will soon be cheaper than from most fossil fuels.

If we take into consideration the cost of externalities from fossil fuel energy, reasonable people will generally agree that renewable energy is a way to go in the long run. Indonesia needs to catch up with the rest of the world as the trend clearly suggests, from our neighboring countries such as Thailand and the Philippines, that there are abundant renewable sources of generation still to be brought online.

When it comes to rural electrification, the issue is in fact beyond tariff or costing, as willingness and ability to pay are demonstrable. There are investors who are hungry to invest in renewables in Indonesia, but they encounter many road blocks in getting power purchase agreements (PPAs) from PLN or approval for reasonable tariffs in areas not supplied by PLN. If the government is willing to work through the legitimate concerns raised by investors and private sector players, a real 100 percent electrification ratio under the scheme of public private partnership (PPP) would no longer be a fantasy.

Aretha Aprilia is an energy and waste specialist of CDM Smith, Jakarta, and a doctorate alumnus of Kyoto University, Japan. 

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