Incentives such as import tax reductions and feed-in tariffs could help lead Indonesia’s drive to boost investment in the country’s underachieving renewable energy sector.
Outlining plans for reviving investor interest in Indonesia’s renewable energy resources at an industry event in August, Sudirman Said, minister of energy and mineral resources, acknowledged that the removal of import duties on equipment for renewable energy projects could lead to an initial drop in state revenues. However, the plans would generate added value in the long term, helping boost renewable energy sources that currently account for just 5-6% of the country’s energy consumption.
“We need regulations that give more opportunities for investment, such as the elimination of import taxes for capital goods used for developing new and renewable energy,” the minister said at the conference.
The government also announced renewable energy development agreements at the event worth around Rp106.3trn ($7.5bn). Deals included five power purchase agreements, nine memoranda of understanding and 13 licences for geothermal power projects, in line with government efforts to boost renewable energy’s share of total power to 23% by 2025.
Attracting investors
The comments came on the heels of confirmation from Ministry of Energy and Mineral Resources (ESDM) officials in June that preparations were under way to set feed-in tariffs for solar and wind power as part of a bid to attract investors. Jakarta is also considering increasing the 2016 budget for renewable energy development five-fold to Rp11trn ($778m).
Although it boasts considerable renewable resources – including 40% of the world’s geothermal potential, according to official sources − Indonesia has become a net oil importer due to rising production costs and domestic consumption. The country is also losing ground in the drive to meet stringent environmental goals, with a current energy mix of 45% oil, 24% gas and 24% coal.
“I hope we can immediately put an end to our dependency on fossil fuels by taking concrete steps in utilising geothermal energy sources,” President Joko Widodo said in August.
To better exploit the country’s natural resources, including solar and hydropower, Rp402trn ($28.4bn) of investment is needed over the next five years, according to the minister of energy and mineral resources, with around Rp106.3trn ($7.5bn) channelled towards developing 2400 MW of geothermal capacity.
Overhaul on horizon
Speaking to local media, William Sabandar, a senior advisor to the ESDM, said achieving these targets would require major change. “We can’t go on with business as usual,” he said. “The breakthroughs are needed in policies, funding mechanisms, technology and capacity building.”
A number of new announcements underline the government’s commitment to renewable energy development. The EDSM has rolled out pilot plans aimed at reducing fossil fuel dependency for electricity generation across a number of provinces, including Bali, which could become 100% renewable as early as 2018. Jakarta’s plans for the island include activating a geothermal site in Bedugul and developing new and existing natural gas sites.
The ministry has also signed agreements with regional administrations in Central Kalimantan that will see a biomass energy project launched on 63,000 ha of mining land in the Pulang Pisau and Katingan areas.
Additionally, the government is looking to develop other renewable technologies, such as wind energy. In May Widodo launched the first on-shore wind turbine farm in Bantul, Yogyakarta, which will be undertaken by a joint venture between Binatek Energi Terbarukan and UPC Renewables Indonesia. The plant, which is scheduled for completion in 2019, is expected to cost around Rp1.5trn ($106m) and will include 33 wind turbines with a total capacity of 50 MW.
Difficult decisions loom
Despite the wave of activity, critics say promoting renewable energy in Indonesia will require deep structural adjustment and significant upfront investment.
“Adjusting prices and removing subsidies could promote better energy efficiency and conservation,” Fitrian Ardiansyah, former programme director for climate and energy at WWF-Indonesia, said in an article in late August. “The Indonesian government needs to stiffen its political resolve to phase out subsidies for fossil fuels. Actions to reform policy incoherence, remove structural impediments and promote investments in renewable energy are also needed.”
Critics have argued that previous incentives lacked clarity and were not implemented smoothly. Some have suggested that launching a more holistic strategy targeting both public attitudes and international investment could help the renewable energy sector achieve its full potential. The need to increase the role played by renewables in energy provision will become even more pressing as demand grows and fossil fuel resources dwindle.
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