Study on Fundamentals for Successful RE Deployment Strategy in Indonesia
Specific Focus: Photovoltaic and Bioenergy
In 2014, the government of Indonesia set the target of 23% of renewables in the energy mix by 2025 and 31% by 2050 as part of its plans to reduce greenhouse gas emissions in line with the objectives of the Paris climate agreement.
Indonesia NDC targets at reducing 314 Mt CO2e emissions by 2030. According to REmap – the global roadmap from the International Renewable Energy Agency (IRENA) – Indonesia could feasibly exceed its current targets and deploy even more renewables. Thus, the potential of solar energy and bioenergy can definitely meet the Government’s RE targets of 6.5 GW of photovoltaic power and 5.5 GW of bioenergy power by 2025. In fact, the country could reach its 2050 target two decades sooner – by 2030. The benefits of such accelerated uptake would greatly outweigh the costs as compared to current plans and policies, it would cut net energy system costs and avoid air pollution and carbon-dioxide emissions. The biomass target can reduce CO2 emissions by about 18 Mton CO2 per year and the solar PV target by about 7.4 Mton CO2 per year.
To support Indonesia with the targets and challenges mentioned above, the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH started a joint project in 2012 together with the Directorate General for New Renewable Energy and Energy Conservation (EBTKE) entitled “Promotion of Least Cost Renewables in Indonesia” (LCORE-INDO). This project aims at helping to empower Indonesia’s policy makers in devising and implementing practical and achievable policies to expand the use of RE. The following Study on Fundamentals for a Successful RE Deployment in Indonesia is one outcome of many different projects of this years-long cooperation. The study focuses specifically on photovoltaic and bioenergy deployment in Indonesia to achieve the 2025 targets.
Key results of the Study on Fundamentals for a Successful RE Deployment in Indonesia are:
- Indonesia needs to stimulate an accumulated investment of approx. 13-14 bn USD, mainly through IPP to implement the number of required RE projects. International funding is available but subject to the existence of an investor friendly environment.
- Past Ministerial Regulations already contributes to stimulating investments in RE. Yet, significant additional measures are necessary in order to achieve the national target. The current BPP calculation basis reflects marginal cost of current OPEX, consumables like fuel or coal, labour and depreciation of older plants, if there is any. The study proposes to calculate the BPP not on the basis of old rather than “new versus new” power plants. New power plants mean to compare the cost of new coal power to new RE plants, both at full cost including interest rates at market level and including hidden subsidies. It is assumed that the full cost won’t even be necessary to support RE, because renewables are less costly once the full economic cost of fossil fuel powered plants are applied.
- Indonesia can benefit from the global photovoltaic market development within the scope of energy cost reduction and creation of national welfare. This applies analogously to bioenergy. Both may contribute up to USD2.1 bn p.a. in 2025. In other words, the payback period for investments in bioenergy and PV solar is expected to be between 6 and 7 years depending on the market price for diesel and coal.
- RE development and operation will create up to a hundred thousand of direct jobs and support the founding of multitudes new companies across the country. Thus, there is the need to foster this new entrepreneurial spirit to stimulate market growth and penetration.
- The provincial and national governments are to identify RE sources and the respective development plan. The study points out for example provinces like Bangka & Belitung, West Kalimantan or Riau and highlights that the economic potential can indeed meet the requirements of new power plants to be built to comply with the increasing demand and be at the same time, less costly than conventional power supply, proved by a detailed study made for Belitung.
- For solar photovoltaic (PV), the Government of Indonesia set the target of 6.5 GW of installed capacity by 2025. However, there is a significant discrepancy between the Government´s targets and the actually planned projects listed in the Electricity Supply Business Plan for the years 2016 to 2027 (“RUPTL”). Indonesia will fall short of meeting the 2025 solar PV target by more than 6 GW in case the current BPP calculation will not be adjusted.
- For bioenergy, the Government of Indonesia set the target of 5.5 GW of installed capacity by 2025. The installed capacity in 2016 was approx. 1.9 GW. Many of these bioenergy power plants unfortunately do not perform according to the specified data. The installations necessary will be at least 3.6 GW by 2025. Indonesia will fall short of meeting the 2025 bioenergy target by more than 3.3 GW in case the current BPP calculation will not be adjusted.
- A real challenge of RE deployment is the high number of individual small plants, some 1,000 new bioenergy plants and some 10 thousand new photovoltaic plants to match with the requirements of the grid development and integration, be it on the smaller outer islands or the main islands of Indonesia. These high numbers create specific challenges on regional development in terms of capacity building from project planning to implementation and operation of all stakeholders involved: new entrepreneurs and investors, administration and finance sector and the key player PLN for grid integration, operation and planning.
- It is a specific quality request that RE must be developed and operated at the international standard and level of responsibility for utilities. Only when RE are deployed at reliable quality and economic viability they become a pillar of the national energy supply and capacity planning. Subsequently, bioenergy must prove its potential for bulk power supply and the capacity to substitute coal power, and photovoltaic its potential of fuel saving e.g. in combination with diesel gensets (DGS) or other conventional power.
- The RE deployment as laid out in the study is a challenge to be integrated into the energy system of Indonesia, national and provincial level. The institutions and authorities, banks and PLN, private companies and investors, all together, lack the capacities necessary in terms of human resources. An education programme is needed to prepare the different stakeholders on different levels for this demand.
The Study on Fundamentals for a Successful RE Deployment in Indonesia provides an outlook on measures needed to finally achieve the targets set. The PERMEN can be used and developed for future RE to meet economic requirements: the current calculation methodology of the BPP can be adjusted to up to the LCOE of new coal power plants, so RE cost can be met. Though it is not necessary to apply more than 90% of the LCOE of new coal power plants for every technology and province. The study explains that the BPP can - starting today - be developed on basis of the potential and cost. Currently, there is a discrepancy between inner and outer provinces due to higher BPP: the same PV or bioenergy installations are economically feasible in the outer islands but not on the main provinces. For the main provinces where the main RE potential is allocated, the economic feasibility can be created following the schemes explained.
The Study on Fundamentals for a Successful RE Deployment in Indonesia closes with a list of recommendations for various fields of activities and sectors. The following topics are addressed: Policy Making, Institutional Landscape, Financing Policies and Mechanism, Monitoring and Evaluation, as well as RE Grid and System Integration.
Renewable Energy Deployment Simulation (REDS) Tool
As a part of the current LCORE Project E. Quadrat developed an Excel based calculation methodology, "Renewable Energy Deployment Simulation (REDS) Tool", to simulate the potential future deployment of RE in a given province in Indonesia. The objective of the methodology is to provide advice to the Government on necessary promotions schemes stimulating and supporting the energy market in order to finally achieve RE targets.
The REDS Tool accounts for:
- Levelized Cost of Energy (LCOE) of photovoltaic and bioenergy starting immediately and anticipating future market development of CAPEX and OPEX and potential energy yield in the given area;
- Prevailing FIT being defined by a political process as a reference for potential investments;
- Calculation of economic feasibility subject to LCOE and FiT as basis for an investor friendly environment and thus, investments into RE;
- Simulation of a market growth rate in a given area showing how fast the deployment may take place - assuming certain international or local conditions - and how fast targets can be achieved;
- Simulation of a potential deployment path assuming that an economic viable initial status can be created;
- Calculation of benchmarks on current or future cost of conventional energy (e.g. small or large coal power, diesel gen sets, CO2 emission charge) serving as reference for RE;
- Consideration of various additional measures (e.g. increase of FIT, soft-loans, tax reduction) stimulating the market;
- Summing all results in an interactive graph showing when economic viability will be given for a particular area and how much deployment can be expected;
- Possibility to compare different scenarios of political measures to deployment targets;
- In an excurse (outside the tool), the macro-economic figures on potential fuel cost savings can be calculated, to support political decision making;
All in all, the calculation methodology serves as a tool which supports governments in estimating the impact of political instruments with regards to future market behaviour.
Full report (ENGLISH) is available Here
Full report (BAHASA) is available Here