Indonesia has around 17,000 islands, with about 6,000 islands inhabited. Some 12,659 villages on them do not have access to electricity, though. So to tackle the issue, the New and Renewable Energy & Energy Conservation organisation started the Bright Indonesia Program (Program Indonesia Terang) in November 2016, aimed to increase electrification in the eastern part of the archipelago using local renewable energy resources. And in February, Indonesia’s Ministry of Energy and Mineral Resources (ESDM) announced new regulations to back the development of renewable energy, replacing the original feed-in tariff (FIT) system that was introduced in 2009.
“Investors have now had time to digest and fully understand the implications of the regulations,” Yulanda Chung, energy consultant at the Institute for Energy Economics and Financial Analysis told PE. “The regulation actually incentivises Indonesia’s state-owned energy company PLN to sign a power purchase agreement with new and renewable energy producers.”
In the past, PLN has been reluctant, she added, since NRE tariff has been set higher than average of what PLN is capable of paying. So the company had to rely on government subsidies, and “has been unable to raise consumer tariffs. The upshot is that there is no clear avenue for cost recovery for PLN. The regulation has changed this dynamic,” said Chung. Investors also welcome the fact that the regulation requires PLN to operate NRE plants up to 10 MW as a must-run, she added, which means the tariff stipulated in the power purchase agreement will be a take-or-pay, giving investors much needed assurance on returns.
International developments
These initiatives seem to be doing their job, as recent months have seen a flurry of renewable energy projects being announced in the country. At the end of March, France’s Engie revealed plans to invest up to $1 billion to develop photovoltaic and biomass power plants in Sumatera and Eastern Indonesia with PT Sugar Group over the next five years. The projects, which will have with a total power generation capacity of 500MW, will significantly contribute to the national programme to cut greenhouse gases, with an estimated carbon avoidance of 1.5 million ton of CO2e per annum.
One venture relates to the construction in Indonesia one of Engie’s first high temperature geothermal power generation plant in the world, Muara Laboh, and it’s also the group’s first renewable project in the country. “The projects will be a significant step towards Indonesia’s goal to reduce the country's dependence on fossil-based energy sources, and to provide 97% of the population with electricity by 2019,” said Engie Group’s executive vice-president Didier Holleaux. “Our strategy is to work through an ecosystem of partners to co-develop and scale renewable energy and innovative low-carbon technology solutions to meet the country’s unique energy challenges.”
Meanwhile, DCNS Energies and PT AIR have recently signed a Letter of Intent designed to deliver a roadmap for the engineering, industrial development and commercial ramp-up of a tidal energy industry in Indonesia. The companies, who have been working together for the past two years to access the most suitable sites for tidal energy projects, will analyse and assess the commercial and economic conditions required to build a tidal energy industry.
“Over the past years, Indonesia has also done a massive effort to develop a legal framework adapted to the development of marine renewable energy projects, in particular by establishing solid processes for the procurement of permits, consents and authorisations,” a spokesman for DCNS told PE. “The next step to allow the concretization of these projects would be the definition of a clear pricing policy for marine energies which does not exist yet.”
Local governments are very supportive to develop pilot marine renewable projects, he added, but still need the visibility of federal authorities on pricing policy to launch them. “In the future, the development of this new industry would have economic and social benefits for local states,” he said.
Also in the tidal energy market, UK-based Atlantis signed a preferred supplier agreement with SBS International for the supply of turbines, engineering services and equipment for a 150MW tidal-stream array located in Lombok, an Indonesian island east of Bali and west of Sumbawa. SBS has been awarded exclusive development rights to three offshore sites around Lombok and Bali, and have a combined ocean energy capacity of 450MW. Front End Engineering and Design (FEED) and Environmental Impact Assessment (EIA) for Phase I (12MW) are expected to commence this year.
Atlantis also hopes to establish a local facility for turbine assembly, testing and maintenance and a local turbine manufacturing facility once aggregate orders for turbines exceed 100 units in Indonesia. “Indonesia has clear potential for commercial-scale tidal power and the support of PLN shows there is also the demand and support for the development of tidal power in remote island locations across Indonesia,” said Atlantis chief executive Tim Cornelius.
Geothermal energy is taking off in the country as well. Japan’s Toshiba Corporation and US-based Ormat Technologies recently announced that the first unit of the Sarulla geothermal power plant, located in Indonesia's North Sumatra, has started commercial operation.
The 110MW power plant, which combines flash and binary technologies to provide a high efficiency power plant and 100% reinjection of the exploited geothermal fluid, is operated by Sarulla Operations. As participants in the project, Toshiba supplied the geothermal steam turbines and generators for the flash systems, while Ormat provided the conceptual design of the Geothermal Combined Cycle Unit power plant and supplied its Ormat Energy Converter, which serve as the condensing units for the steam turbines and utilise the separated brine for maximum resource exploitation and maximum power output.
Domestic initiatives
Meanwhile, the country’s domestic green energy companies are attracting overseas interest. PT Pembangkit Jawa-Bali has caught the eye of Czech company Doosan Škoda Power – a manufacturer and supplier of equipment for power stations and machines related to steam turbines. It is interested in the Indonesian firm’s proposed initiative to build power plants that make energy from garbage and waste.
Also in recent weeks, Indonesia's Terregra Asia Energy unveiled plans to raise up to $14.9 million from its upcoming stock market listing. The company said it will use the proceeds to fund four hydropower projects worth $70-$90 million. They are planned to start construction this year, according to a recent report in Jakarta Globe, which cites sources from the company. Overall, Terregra has a pipeline of 12 hydropower projects totalling 490MW. The company, which also has a solar division, currently has 72MW of installed hydropower and solar power plants in the country.
And state-owned electricity company PT PLN (Persero) signed agreements with six developers to build PV projects throughout the Southeast Asian nation.
Although Indonesia still has a long way to go to meet its renewables target, it appears that its government regulations and initiatives to attract foreign investment and expertise are working, and soon there might be energy for all in the archipelagic state.