Indonesia Energy Transition Outlook 2023 - IESR

Tracking progress of energy transition in Indonesia: striving for energy security in the time of transition. Indonesia Energy Transition Outlook 2023: Tracking Progress of Energy Transition in Indonesia: Striving for Energy Security in the Time of Transition.

Executive Summary

Local funding used in the development of renewable energy in Indonesia has shown a promising increase. Worth mentioning for next year's growth in renewable energy is the increase in the installed capacity of geothermal, hydro and solar power plants.

Energy Security in the Era of Energy Transition

The genesis of the global energy crisis is due to a series of events in 2020-2022.

Indonesia is relatively isolated from the global energy crisis due to heavy subsidies on fossil fuels and electricity.

Indonesia is relatively insulated from the global energy crisis due to heavy subsidies on fossil fuels and electricity

Using the current reserve of primary energy sources is not a final solution to face Indonesia's energy crisis.

Using the current main energy sources reserve is not a final solution to cope with Indonesia’s energy crisis

Renewable energy plays a critical role in making energy more affordable and reducing subsidy spending

Energy Transition Trends

Despite relying heavily on the residential sector, SMEs have helped Indonesia achieve its energy intensity goals

The increase in investment targets was not supported by sufficient regulatory changes, including delays in the enactment of the New and Renewable Energy Act and the Presidential Ordinance on Renewable Energy Tariffs, resulting in low realization rates of renewable energy investments . The New and Renewable Energy Act has been passed to the government by parliament and the government has responded, but its issuance will be further delayed due to disagreement over several clauses.

Delays in policy and regulatory upgrades cause a stagnant improvement in renewable energy investment

The IEA (2022) proposed an even higher additional investment need of USD 35 billion per year in the electricity sector until 2030 to comply with the 1.5°C pathway. However, this requires policies that help lower the production cost of renewable energy, as it is the largest contributor to green hydrogen costs.

Green hydrogen projects are emerging, but commercialization will remain difficult without policy support

The cost of producing green hydrogen is still prohibitively expensive due to a combination of the high cost of the electrolyser and renewable electricity and the low capacity factor of renewable energy. The cost of green hydrogen production in Indonesia is estimated to be around USD 3-12/kg, depending on the technology and project location (IEA, 2022; IESR, 2022).

Unabated methane emissions from coal, oil, and gas extraction could hinder the opportunity to slow global warming

Government’s new pricing scheme could prolong coal utilization and dependence, hampering the country’s efforts to meet its

The government is still struggling to find the right formula to set the coal price for DME to be economically viable

Some underperforming projects should raise the concern of developing new CCS/CCUS projects in the oil and gas industry

There is a growing appetite amongst fossil fuel companies to diversify their portfolio towards green businesses

Transition in the power sector is becoming more prominent;

Power sector’s emissions will peak beyond 2030 as a consequence of coal-fired power plants domination

Presidential Regulation No. 112/2022 mandates the creation of a roadmap for the early retirement of CFPP

The failure of 90% of CCUS projects in the power sector worldwide should raise concerns about PLN’s NZE strategy

The high cost issues and technological immaturity limit the utilization of nuclear power plant in NZE plan

Heavy reliance on hydro, geothermal, and biomass is holding back the fulfillment of the 23% RE target, while solar actually

Heavy reliance on hydro, geothermal and biomass is holding back the 23% renewable energy target, while solar energy is actually. Indonesia wants to use biomass co-firing in the existing CFPP to meet the RE target, but cost remains a challenge.

Indonesia is aiming to leverage biomass co-firing in the existing CFPP to reach the RE target, but price remains a challenge

Several new technologies may present opportunities to increase the RE share, especially tidal sources

New pricing regulation improves the bankability of RE projects, but still depends on PLN’s implementation

In 2022, solar energy finally made its way into much of Indonesia's net-zero-emissions routes. Several studies and analyses, including MEMR, IEA, IRENA and IESR, have shown that solar energy will play a key role in Indonesia's deep decarbonisation by 2060 or mid-century. In its modeling of the net-zero electricity sector to 2060, for example, MEMR predicted that solar energy would account for at least one-third of total electricity generation in 2060, with about 420 GW of installed capacity (about 60% of total installed capacity). .

The IEA, under an official collaboration with the MEMR, reported similar findings that solar, along with wind, will play an important role in Indonesia's deep decarbonization. Solar and wind will together provide about 55% of electricity generation and maintain a similar share from 2040 to 2060. Likewise, IRENA has projected that in all scenarios it has developed, solar power will play a key role in Indonesia's path to net zero -emissions by 2050.

Solar is set to play a vital role in Indonesia’s deep decarbonization

In the third quarter of 2022, solar deployment in Indonesia has reached only 0.2 GWp*, with a share of electricity generation of less than 1%. The first phase of the program aims to convert 212 MW (out of 499 MW) of diesel plants at 183 sites into solar+storage projects using site clustering (8 clusters), while the remaining 287 MW will be be performed in a specified time frame. The RFP originally expects PPA signing of the two clusters by October 2022, but appears to be delayed.

As of Q3 2022, there are at least three projects with a total capacity of 325 MWp in the pipeline (auctioned) and eight projects totaling 731 MWp that are still in the pre-development stage (not yet auctioned). Partnering with subsidiaries of PLN (PLN Indonesia Power or PLN Nusantara Power) under a 51:49 project equity structure appears to be the preferred style of project development in the future, although this may undermine the principles of a joint venture auction. open. *) Official MEMR statistics. Despite its growing importance in modeling the net zero energy sector, Indonesia's solar deployment remains small.

Despite its increased importance in net-zero energy sector modeling, Indonesia’s solar deployment remains minuscule

112/2022 offers more room to improve returns for developers, but the introduction of high LCR improves returns for developers, but the introduction of high LCR on PV modules is likely to become an obstacle in solar auctions. While the long-awaited presidential regulation is expected to provide more room to improve returns for developers, the imposition of high local content requirements on PV modules (presumably 60% from January 2019) is likely to continue to be a major obstacle in solar auctions. For a 100 MWac ground-mounted PV project, at 100% of ceiling prices (for both year 1-10 and year 11-25 tariff phase), projects using "TKDN" PV modules can only achieve a maximum equity IRR of 14% received , which does not leave much room for a competitive bid.

On the other hand, projects using Tier 1 PV modules can achieve a maximum equity IRR of almost 21%, which means there is still room for developers to offer more competitive bids (for example, when targeting an IRR 10-12% of own capital). . In general, the bankability of a project using "TKDN" PV modules is not considered "bankable" at all to obtain financing. It is still a big question mark whether or not the projects currently in the pipeline will use "TKDN" PV modules (certainly not in 60% of LCR PV modules, as there is not a single PV manufacturer that has achieved it yet).

MEMR 26/2021’s implementation has been stalled by PLN’s

Flexibility requirements of the future power grid should be addressed against the forthcoming integration of variable

Current PLN grid development is insufficient to accommodate the long-term power sector commitment to integrate high share of VREs

Harnessing potential flexibility resources and improving system operation can be an initial effort to provide VREs to the grid

Utilizing potential flexibility resources and improving system operation can be an initial effort to provide VREs to the network. Existing thermal power plants can contribute to improving grid flexibility and increasing VRE's share in Indonesia's power system.

Existing thermal power plants could contribute to enhancing grid flexibility and increasing VREs’ share in Indonesia’s power system

Operating CFPPs flexibly is a possibility; the financing mechanism of such an operation and the PPA T&Cs remain a challenge

Decarbonization of road transportation will aid VRE integration, increasing power system flexibility

Interconnection reinforcement will optimize the grid while providing a better foundation for renewables penetration

The need for early ESS adoption is supported by falling prices and increasing global market size, prompting the readiness

ESS implementations have progressed, but are still insufficient to support utility-scale VREs

Domestic EV battery industries will possibly fulfill the BESS demand in the power sector if they diversify the downstream industry

Electrification and clean fuels play important roles to decarbonize Indonesia’s transportation sector

EV adoption might remarkably increase next year; government’s involvement is needed to push the adoption more

EV usage could increase significantly next year; government involvement is needed to drive more adoption. The lack of charging infrastructure can create a psychological problem for consumers to adopt EVs, known as distance anxiety, which means that consumers do not feel confident about the distance traveled by EVs as they still have difficulty finding of charging infrastructure. Due to the G20 agenda, the number of charging stations and battery exchange stations has increased until November 2022, especially in the Greater Jakarta area and in Bali.

However, to meet the IEA recommendation of 1 charger for 10 EV, investment in charging infrastructure needs to be stepped up. Based on the IEA recommendation, Indonesia should increase its plug-in charging stations to 200 thousand for E4W by 2030. From an investment point of view, the battery swap station looks more attractive than the plug-in charging station.

A better strategy in charging infrastructure investment is needed to match with EV adoption growth

However, this is not the case in Jakarta, where private sector players including car dealerships, shopping malls and hotels have more charging stations than PLN. The current number of exchange stations cannot be used as a reference to reduce consumer range anxiety, as they are exclusive to a specific E2W brand.

National policy: incentivizing manufacturers is the viable option to reduce EV prices

The low energy density of batteries makes their use in heavy transport systems impractical on a large scale.

The low energy density of batteries makes their use in heavy-duty transportation systems impractical for large scale

With current biodiesel production over capacity, biodiesel blending need to increase to B40 to avoid idle capacity

Maximizing biodiesel consumption will financially benefit Indonesia when diesel price is higher than biodiesel

Despite a major breakthrough in the production of green diesel, its high price and inadequate capacity remain as barriers for green

Energy use, especially from heavy industries, contributes to the majority of industrial GHG emissions

The emission intensity of cement production is decreasing as the industry switches to alternative materials and energy sources.

Emission intensity in cement production declines as the industry switches to alternative material and energy sources

Interests in green ammonia technology as an alternative low-carbon technology are emerging among traditional ammonia producers.

Interests in green ammonia technology as an alternative low-carbon technology emerge among traditional ammonia producers

Emissions from iron and steel production will escalate in the next decade as carbon-intensive technologies are developed.

Emissions from iron and steel production will escalate in the next decade as carbon-intensive technologies are being developed

In the last five years, the increase in the share of electricity in the construction sector has helped to limit the increase in the total energy demand of buildings.

In the last five years, increasing the share of electricity in the building sector has helped to limit the growth of total building energy demand

Public disinterest and incongruous sector targeting cause a modest growth of green building stock

The increased potential for space cooling rises the urgency to provide efficient air conditioning for homes

Potential energy savings of some energy efficiency strategy Proportion of energy consumed from household appliances. To address the issue of energy efficiency of appliances, MEMR uses energy labeling with multiple ratings for appliances, called MEPS (minimum energy efficiency standards). By using AC with an efficiency coefficient of 4.2, the building can obtain up to 21% of potential energy savings (corresponding to a reduction of up to 11,048 GWh of annual residential electricity consumption).

Further reductions in electricity consumption can be achieved through greater use of MEPS-labelled appliances in the home. Behavioral changes to achieve indoor thermal comfort is another energy-saving measure that can be implemented more cheaply and without significant changes to the building structure.

To increase MEPS effectiveness, better MEPS ratings and public awareness are required

Almost half of the RE targets in RUED are lower than the national target; subnational HER potentials need to be optimized.

Nearly half of the RE targets in RUED are lower than the national target; sub-national RE potentials must be optimized

Setting a more ambitious RES target in RUED and speeding up its implementation are key to achieving the goals by 2025.

Setting a more ambitious RE target in RUED and accelerating its implementation are crucial to achieve 2025 objectives

The government of Central Java has committed its public budget to the promotion of green recovery following the effects of COVID-19

Bali issued supporting regulations as catalysts to advance efforts to increase electric vehicle adoption

NTB is a frontrunner in the energy transition by aiming to achieve NZE 2050 earlier than the national target

Hydropower is one of the most potential renewable energy to be utilized as power source in West Sumatra

Energy Transition Finance Trends

Investing USD 20–29 billion annually in renewables supply, energy efficiency, energy storage, and network infrastructures by 2030

Global clean energy investment has reached a new high as the world diversifies its energy sources and accelerates

Public budget allocation remains high for fossil fuel subsidies;

Green Sukuk proceeds allocated to RE have only recently grown, and sovereign green bonds continue to support renewables

Indonesia’s sustainable financing is improving as the the banking industry invests more in renewable energy, but the country’s

Green Taxonomy could use some work

Indonesia's sustainable financing is improving as the banking industry invests more in renewable energy, but the country's.

Bilateral financing remains critical to Indonesia’s successful energy transition investment

Financing supports from multilateral development agencies for just energy transition have emerged, but achieving

The Energy Transition Mechanism (ETM) as a blended financing platform has few pilot projects to phase out coal to test its effectiveness.

The Energy Transition Mechanism (ETM) as a blended finance platform has few pilot projects of coal phase out to test its effectiveness

JETP could accelerate a rapid and fair energy transition only if the investment plan accelerates the phase-out of coal and rapid renewable energy.

JETP could catalyze a rapid and just energy transition only if the investment plan accelerates coal phase-out and rapid renewable

IESR’s Energy Transition Readiness Framework

The favorable environment for accepting the energy transition in the power system has not yet improved compared to last year.

Enabling environment to welcome energy transition in the power system is not yet improved from last year

Improvements on some of the promising policy and regulatory

Renewable energy dominates the additional capacity planned in the latest RUPTL, yet its competitiveness has not been thoroughly weighed

Renewable energy investment attractiveness can be improved by reducing risks, improving supporting regulations,

Public support for the energy transition has been consistently high, but there is still no clear strategy to prepare the workforce for it.

Public support for the energy transition has been consistently high, but there is still no clear strategy to prepare the workforce for the

Outlook for the Energy Sector

Regulatory support welcoming more renewable energy is expected to be established next year to accommodate JETP 2030’s targets

There will be more opportunities to increase renewable

More investment in renewable energy projects is expected due to international pressure and aid to reduce emissions by 2030

Study of Enhanced Flexibility of Coal Fired Power Plants for Optimal Grid Stabilization in the ASEAN Region. Full report analysis of the cash and carbon flows of Boundary Dam coal-fired power station. Flexible thermal power plant: An analysis of the operation of coal-fired power plants flexible to enable the high-level variable renewable energy in Indonesia's power system.

Center for Global Sustainability, University of Maryland, College Park, USA; Institute for Basic Services Reform, Jakarta. Indonesia Indonesia's green taxonomy walks a tightrope in balancing industries of the past and the future. 2022). Policy Brief: Implementing a partnership for a just energy transition in South Africa, lessons learned for civil society organisations.

Appendix A - ISFO 2023 and ISEO 2023

Appendix B - Status of CCS/CCUS Projects in Indonesia by August 2022

Appendix C - Energy efficiency regulations in building sector

Appendix D - Energy Transition Readiness Framework (1)

Appendix D - Energy Transition Readiness Framework (2)

Appendix E - RE developers’ perception survey results (1)

Appendix F - Public survey results (1)

IESR