Indonesia Energy Situation

Overview

Republic of Indonesia
Flag of Algeria.png	Location Algeria.png
Capital	Jakarta (6° 10′ 30″ S, 106° 49′ 42″ E)
Official language(s)	Indonesian
Government	Unitary Presidential Republic
President	Susilo Bambang Yudhoyono
Vice-President	Boediono
Total area	1,919,440 km2
Population	237,556,363 (2010 census)
GDP (nominal)	$670.421 billion (2010 estimate))
GDP Per capita	$2,858
Currency	Rupiah (IDR)
Time zone	UTC+7 to +9
Calling code	+62

Energy situation

The primary energy supply in Indonesia is mainly based on fossil fuels like oil, gas and carbon. In 2009, 43% of Indonesian energy consumption was based on oil, 19% on natural gas and, 34% on coal. Renewable energy, particularly hydro and geothermal have a share of 4%, but statistics do not cover the traditional use of biomass as energy for cooking, lighting and process heat in rural areas, which is estimated to comprise 21% up to 29% of the total energy demand. The focus on fossil fuels was caused by the low price of oil in the past due to own oil sources and prolonged price subsidies. In the meantime, the oil reserve decreased significantly. Considering the existing average production rate, it is estimated that the reserve oil will be exhausted in around 20 years. Indonesia, which had been a founding member of OPEC, but left the organisation in 2009, is now importing larg quantities of oil. On the other hand, Indonesia is still a net exporter of natural gas. That’s why the national utility PLN is switching now power generation from expensive oil to gas and coal of which Indonesia has large reserves.
The total power generation in Indonesia is around 50 GW. Around 30 GW has been installed by the utility PLN. The remaining consists largely of captive power for the manufacturing industry. Diesel generators account for approximately 60 % of captive power capacity, while cogeneration plants provide approximately 25%. 80% from the 30GW are coming from oil, gas, and coal, 18% from hydropower, and 2% from geothermal. However, hydro and geothermal power plants generate a higher share of the electricity as the capacity of the other plants is not fully used. Electricity makes around 10% of of the total energy consumption. About 80% of the electricity is consumed on Java und Bali alone. In recent years consumption of electricity has increased by 7 per cent annually. It is calculated that for every 1 percent increase in GDP the energy demand increases by 1.8 percent. Indonesia failed to meet this demand growth with adequate system investments which has resulted in increased frequency and duration of power outages which prove costly to local industries. These factors have sharply put the need for diversification of supplies into focus and Indonesia has an ambitious plan for renewable energy and in parallel are advancing plans for the use of nuclear energy.
Subsides to the energy sector are one of the biggest items on the national budget. The combined fuel and electricity subsidies accounted for IDR 111.9 trillion in 2010. In the same year the government allocated IDR 57.46 trillion ($6.37 billion) for the fuel subsidy and the rest went to the state utility - PLN - as an operating subsidy in compensation for being compelled to sell electricity at below cost. Average generation cost in Indonesia are around 1200 IDR/kWh and reach up to 3000 IDR/kWh for diesel generated power in remote areas. Average selling price is around 700 IDR/kWh.
In spite of abundant hydropower resources hydropower is only used to a small extent. According to a Hydro Power Potential Study conducted by PLN in 1982, the total potential capacity of hydropower resources in Indonesia is 75 GW. Yet, in 2008 the country had installed a total of 3,504 MW hydropower capacity, which represents a mere 4.7% of the technical potential and only 7.2% of the total Indonesian electricity generation capacity. The development of new hydropower plants for electricity generation remained slow. The contribution of hydropower towards the Indonesian energy mix has been falling steadily in the last years; from 13% in 1998 to 7.2% in 2008.
Indonesia has a comparatively low overall rate of electrification for a middle-income country. Figures and interpretations diverge, but as much as 30- 35% of the population representing 75 million people does not have access to electricity. Around 50% of un-electrified people in Indonesia are actually living in (already) electrified areas and would need grid densification programmes. The costs are estimated to be US$ 290 per connection. The other half is living in non-electrified villages, which are mostly found in remote rural areas. Such areas can either be targeted through grid extension or dedicated off-grid solutions. The World Bank Regional Electrification Master Plan for Indonesia made some estimation about least cost options coming to the following conclusions:
• Grid expansion is the least-cost means of electrification up to distances of around 7 km where good micro-hydro resources are available (assuming that sufficient grid-connected generation capacity is available)
• Where this is not the case, grid expansion is least-cost up to distances of around 16 km, where biomass isolated grids become lower-cost
• In cases where good micro-hydro, biomass (and geothermal) resources are not available, then grid expansion remains least-cost at distances up to 28 km, where diesel isolated grids are to be preferred
• Household level solutions are only to be preferred where practical constraints on access prevent the use of isolated grids or for smaller villages where it is not economic to install isolated grids.
Villagers in non-electrified areas rely on candles, kerosene lamps, dry cells and car batteries to satisfy part of their energy needs. Rural households typically spend a significant share of their income on these energy sources – despite the inconvenience and the environmental and health hazards associated with them.
Whilst the application of MHP technology is not new to Indonesia, only a small proportion of the country’s huge mini and micro-hydro power (MHP) potential has been exploited so far. Unfavourable framework conditions for stand-alone systems and on-grid schemes, lack of specialist know-how and a basic lack of awareness of the available potential have been the main reasons for this sluggish progress in the past. However, in remote rural areas, hydro power is now becoming increasingly competitive compared to fossil fuel-powered alternatives, due to the high energy prices (which can be trice as high as in the centres) that neutralise the still existing fuel subsidies by the Indonesian Government.
Other renewable energy technologies like Solar Home Systems, small wind turbines or biogas plants and other bioenergies are spread to a different extend in rural areas, but lack for the technical maturity or sustainable operation and service models that are necessary for large scale dissemination.

Policy framework, laws and regulations

The energy sector in Indonesia is dominated by key policies and objectives related to the following:
• Diversification: A key objective of the GOI is to reduce dependence on oil by expanding the use of coal, gas and renewable energy sources. Specific targets are set for each energy source in 2025. For renewable energies the target is to increase its share to 25%
• Rational Energy Pricing: The GOI recognizes that it can no longer sustain uniform pricing for electricity and petroleum products.
• Energy conservation
• Energy Sector Reform: more transparency, more coordination; among other things it was planned to make the utility PLN a fully independent and financially viable company but due to legal disputes such a decision has not been taken.
• Rural electrification: The current National Energy Management Blueprint identifies ambitious short- and long-term developmental objectives for the electricity sector including the increase of the electrification level to 90% of all households by 2020 and to 100% of all villages by 2010.

For Renewable Energy the Ministerial Decree on Renewable Energy Resources and Conservation (Ministerial Decree No. 002/2004) pursues such objectives as optimising and improving the efficiency of renewable energy resources, securing sustainable, environmentally compatible forms of power generation, increasing public awareness and improving consumer behaviour with regard to energy conservation. The Ministerial Decrees No. 001/2006 on biofuels and No. 005/2006 on the national energy program until 2025 increased the targets for renewable energies. However, the fiscal policy of the government is not favouring the use of renewable energies. Importers of renewable energy technologies have to pay about 10% customers duty, 10% VAT and 2.5% import income tax, making imported products relatively expensive.
The Coordinating Ministry of People’s Welfare is responsible for the development and administration over poverty reduction policies and programs in Indonesia. In the last years government programs have been consolidated in 3 major clusters focussing on (1) individual assistance and social protection (subsidised staple food and scholarships for the poorest), (2) national program for community empowerment (PNPM) and (3) strengthening of small and medium enterprises (mainly by providing cheap credits). As a core element of the national poverty reduction strategy PNPM has been up-scaled in 2009 covering the whole country with a budget over 2 billion US$. The PNPM follows the philosophy of community driven development (CDD), providing institutional training and support to communities, who then can apply for funding for self-defined community development projects. The core PNPM cycle is foreseen to be implemented for three consecutive years building the institutional base in the villages for later intervention of other sector programs. As communities are free to define their priorities they can also opt for local energy infrastructure projects like hydro powered mini grids.
Energy policy for rural electrification is developed by the Directorate General for Electricity and Energy Utilisation (DGEEU) of the Ministry for Energy and Mineral Resources (MEMR). A rural electrification program is jointly implemented by the DGEEU and the Indonesian electricity utility PLN. The strategy pursued by PLN for the future electrification of rural areas is based on the following principles of (1) empowerment of the rural population to secure electricity according to their own conceptions, (2) utilisation of local energy resources, in particular renewable, and (3) increasing the involvement of the private sector and of rural cooperatives. Part of that strategy is the “community-based rural energy development” concept, according to which cooperatives, municipal institutions, non-governmental organisations and/or private actors, with the technical assistance of PLN, serve as power providers in rural areas. PLN provides assistance at two different levels: either for establishing a stand-alone (isolated) grid including power generation, or for establishing a village network for connection to the PLN-operated central power grid. However, the program has been criticised as inefficient and too bureaucratic.
Rural electrification is generally not financially attractive to PLN because Indonesia’s off-grid areas are sparsely populated, have very low load factor, and are dominated by low-end household consumers who are charged a heavily subsidized tariff (average revenue for household consumers was about IDR 628 kWh in 2006. Most off-grid regions are supplied by diesel power plants that consume high priced diesel oil. This increases PLN’s cost of production far above IDR 2000 kWh.
In 2002, MEMR issued a new regulation for small renewable energy projects interested in selling power to PLN known as PSK Tersebar. The regulation requires PLN to purchase electricity generated from RE sources by non-PLN producers for projects of up to 1 MW capacity. Institutions eligible to participate are cooperatives, private companies and government-owned companies. Purchase tariffs are calculated at 80% for medium voltage and 60% for low voltage of PLN’s announced Electricity Base Price, which is supposed to be its marginal production cost at the location, where the plant is to be built. The ministry also introduced some benchmark tariffs on the cost of power production by area subsystems.
An additional program to foster rural energy supply is the Energy Self-sufficient Villages program (DME), set-up by Indonesia’s president in 2005. All rural energy related activities by Indonesian ministries are considered under this program if they result in a village’s energy self-sufficiency of at least 60%. Because the ministries do not receive extra funding, ongoing activities are integrated into the DME program. Pilot projects under the DME mainly focus on biofuels based on Cassava, Nyamblung and Jatropha. The implementation of the DME is significantly delayed and the target for 2009 was not reached. The DME program was supported by a small project of the Environment and Climate Protection Program financed by the German Ministry for Environment (BMU).
The Government of Indonesia has made a voluntary commitment to reduce the GHGs and pledges to reduce around 26 percent of Business as Usual emission in year 2020 by unilateral finance and it could be increased to 41 percent with international finance supports. To reach this target, the energy sector must play a role at least by reducing greenhouse gasses emission by 6% of the total emission reduction target.
Since recently the GOI has also established a new allocation fund for rural electrification called Dana alokasi khusus DAK. The DAK was approved by the ministry of finance. The technical guidelines have been worked out by the DGEEU and have still to be approved by the MEMR. The current budget of DAK is 15 Mio US$. It will increase to 100 Mio US$ per year. DAK is providing 200,000 to 800,000 € to local governments. These governments can use the money to construct new MHPPs, rehabilitate MHPPs, extend the grid of MHPPs or install solar systems. The districts have to contribute at least 10% of the costs. Funds can only be used for hardware. The local governments have to design and construct the plant. Consultant activities are not included, but can partly be financed by the MEMR.

Institutional set up in the energy sector, Activities of other donors

The central governmental actor for mini and micro hydro power is the DGEEU which is supported by GTZ through the MHPP. The DGEEU sees its role in guiding facilitation for the hydro power sector development by providing regulation and standards. The private mini and micro hydro power sector is small but evolving. Several NGOs are also involved, particularly in the aspect of community development and set-up of management and operation systems for MHP plants in villages.

The Green PNPM is managed by the Worldbank and jointly financed by Australia, Canada, Denmark, and the Netherlands and provides for MHP earmarked grants of approx. 25 Mio US$. This will be the by far largest intervention in the field of MHP, funding about 250-350 schemes until 2012. Different other actors as UNDP (Integrated Microhydro Development and Application Program - IMIDAP), EU (Contributing to poverty Alleviation trough Regional Energy Planning – CAREPI), the Netherlands (Indonesian-Dutch Energy Working Group – EWG) and the Support Office for Eastern Indonesia (SOfEI) are also active in MHP.

MHPP has established working relations with most relevant actors in the MHP sector. For GTZ involvement under EnDev 2, one component is to provide a technical support unit for MHP implementation funded by the Green PNPM. Therefore all activities will be closely coordinated with the relevant actors and follow PNPM guiding principles. The other component supports DGEEU in defining its role as regulator of the heterogeneous MHP sector and will started with a joint capacity needs analysis focussing on specific fields for consolidation.

GTZ activities

GTZ’s involvement in the sector through MHPP initially focused on the introduction of simple technology enabling local engineering workshops to build and construct micro hydro village electrification schemes. Effectively starting from scratch in 1991, the project has built up local capacities in the MHP-sector through a sustained approach of technical backstopping towards technology transfer. Equipment manufacturers, contractors and institutions active in planning, design and implementation of projects were the main target group. Today a niche industry is established that is capable of providing a broad range of services to both the local and international micro hydro power sector.

The MHPP partner institution DGEEU demanded for joint activities to institutionalise the experiences made by MHPP in the Indonesian hydro power sector. Parallel a new “green” block grant facility (Green PNPM) has been established under the country-wide PNPM. For this special fund the World Bank acts as trustee via the PNPM Support Facility (PSF). The objective of this facility is to provide additional funding to PNPM for activities contributing to the sustainable management of natural resources (NRM) and implementation of renewable energies. A large component of Green PNPM is the provision of funds for building MHP schemes supporting rural electrification and providing energy access for remote villages. Because of its long term experiences, the GTZ has been asked to provide a technical support unit for MHP (MHP-TSU) implementation under the Green PNPM.

Even though there is already a market for small and micro hydropower plants for rural electrification, this market does not yet serve all regions in Indonesia nor is capable to expand on its own. In addition, grid-based hydropower schemes are not suited for places where electricity is  needed, for households living in isolated places and for locations with less favourable hydrological conditions. Additional, municipalities, village organizations and service providers active in village infrastructure development need assistance to successfully implement rural electrification projects in areas that will not be connected to the central grid.