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Indonesia, which is aiming for net-zero emissions and a
fully-decarbonized power sector by 2060, could soon have a bespoke
legal framework to promote investments in renewable generation and
low-carbon energy sources.
Late last month, the Indonesian parliament
resumed discussions over the New and Renewable Energy Bill in the
hope of passing it into law before the G20 summit in November,
which will be held on the Indonesian island of Bali.
The draft legislation, which had been stalled for years, aims to
define how the Indonesia government can incentivize renewable and
low-carbon energy deployment to reduce emissions.
While detailed rules are yet to be ironed out, early reports suggest that lawmakers are
proposing subsidies for and export taxes on renewable projects, a
renewable energy fund, carbon trading fees for research, among
other fiscal incentives and support measures.
Indonesia, the world's 8th largest GHG emitter, has a lackluster
record of bolstering renewable investments, but some analysts
suggest the country might be able to play catch-up.
"Investors need policies that create clear, long-term investment
signals—to date, regulatory uncertainty has been a main barrier
to renewables development in Indonesia," said Jamie Wong, a policy
analyst at thinktank NewClimate Institute.
"The forthcoming bill on renewables and supporting regulations
provide a crucial opportunity to address these issues," Wong told
Net-Zero Business Daily by S&P Global Commodity
Insights.
Grand vision
Having revealed its ambition to reach net-zero by 2060 last
year, Indonesia plans to present a National Grand Energy Strategy
with detailed, long-term energy transition proposals at the G20
summit, the first to be held in the country.
In February, the Ministry of Energy and Mineral Resources unveiled several headline
renewable targets in an attempt to kickstart the transformation of
Indonesia's power sector, where half of the installed capacity is
based on coal.
The goal is to build a fully decarbonized power sector with an
installed capacity of 587 GW by 2060, including 361 GW of solar
facilities, 83 GW of hydropower, 39 GW of wind farms, 37 GW of
bioenergy plants, 35 GW of nuclear capacity, 18 GW of geothermal
facilities, and 13.4 GW of ocean currents power generation
systems.
Based on the ministry's blueprint, all power plants built in
Indonesia after 2030 will be renewables-based. Starting from 2035,
the country's renewables capacity additions will be dominated by
solar plants, then by wind farms and ocean currents power
generation systems. Nuclear power will enter the grid around 2049
to maintain system reliability.
Separately, the ministry said pumped storage capacity will enter
service in 2025 with a target of 4.2 GW in 2060. Battery storage
will be deployed at scale from 2031, with a goal of 140 GW in 2060.
The country plans to start producing green hydrogen in 2031, with a
target for electrolyzer capacity of 52 GW in 2060.
Those goals are widely seen as a tall order for Indonesia.
S&P Global figures show the country's installed renewable
generation capacity reached 8.5 GW as of March, or 11% of the
overall stack. Hydropower and geothermal plants accounted for
nearly 95% of that renewable capacity, while solar and wind power
together amounted to a touch under 260 MW.
For the interim period, the
government said in October 2021 it plans to add 21 GW of renewables
between 2021 and 2030, including 14 GW of hydropower and geothermal
plants, 4.7 GW of solar power, and 597 MW of wind. Of that interim
capacity, the government wants 11 GW to come online by 2025.
In 2020, Indonesia relied on coal and natural gas for over 80%
of its power generation, while renewables made up 15-16%. The
government is aiming for a renewables share of 23% in 2025 and 31%
in 2030.
In a note published in April, S&P Global's ENR analysts said
the government had yet to present solutions for some "fundamental
issues" related to Indonesia's renewables deployment, such as grid
reliability and stability, pricing mechanisms, among others.
Achmed Shahram Edianto, an electricity analyst at thinktank
Ember, said the government should ensure that the grid
infrastructure can accommodate the penetration of various renewable
sources.
"Reconfiguring the electricity system to address this issue is
important for investors. In addition, clear technology-specific
deployment targets, supported by dedicated policies and tailored to
the market segments are also essential to boost investor
confidence," Edianto told Net-Zero Business Daily.
Other observers suggested Indonesian lawmakers should seek to
revise the electricity pricing mechanism to make renewable power
more attractive in the draft bill.
Currently, the feed-in tariff (FIT) for large-scale renewable
projects is linked to the average price of energy generation in
each region. As miners are required to sell coal at a low price
domestically, renewable developers have struggled to compete with
coal-fired power generators in regions where coal has a high share
in the electricity mix.
"In this policy environment, the main opportunity for renewables
is in the displacement of expensive diesel-fired power in remote
areas," Bob Herrera-Lim, managing director at consultancy Teneo,
said in a blog post earlier this
month.
Vivi Fitriyanti and Massita Ayu Cindy, researchers at nonprofit
Purnomo Yusgiantoro Center, told Net-Zero Business Daily
in an email that a better FIT system would take into consideration
renewable projects' technologies, locations, and scales.
A disappointing track record
Even if Indonesia can establish a sound legal framework for
renewables and low-carbon investments, there remain worries over
the government's policy execution.
Critics say the country is prone to policy changes and delays,
often with little or late notice, and tends to cater to the coal
industry's interests. Indonesia is one of the world's largest coal
producers and consumers.
In a recent example, Indonesia was scheduled to impose a carbon
tax of Rp 30,000 ($2.02) per kg of CO2-equivalent on coal plants
from April. But the Ministry of Finance announced in late March that
the implementation would be delayed until July, citing inflation
worries.
"Implementation challenges are relatively common in the
electricity transition process. A thorough plan is needed to ensure
these challenges are addressed properly," Edianto said.
In its 2060 blueprint, the energy ministry said no more coal
plants will be built, aside from those with firm financing and
under construction.
State-owned utility Perusahaan Listrik Negara will retire its
coal plants with accelerated amortization schedules, while those
owned by independent power producers will be closed once their
power purchase agreements expire, the ministry said.
But coal-bed methane, liquefied coal, and gasified coal are
categorized as "new energy" alongside hydrogen and nuclear power in
the draft bill, and could enjoy the same financial incentives and
state support as renewables.
Fabby Tumiwa, executive director of thinktank Institute for
Essential Services Reform, told an industry forum last month that the
bill's ambiguity will increase the potential for stranded assets
and will not significantly reduce emissions.
"This bill is heavily influenced by the interests of the status
quo," Tumiwa said.
In its current form, the bill allows fossil fuels and "other
harmful energy" to be associated with renewable energy, nonprofit
Bersihkan Indonesia Coordinator Ahmad Ashov Birry said.
"This can be an unclear signal for the international community
that wants to support Indonesia in solidarity with its transition.
There is still an opportunity for change, and the government must
take bold steps to change it," Birry said.
Posted 17 June 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.