I

ndonesians know all about brownouts and blackouts. These rotational power interruptions are a frustrating daily experience that adversely affect the growth and development of all economic sectors.

This shortage of electricity supply is particularly disappointing considering that our nation is endowed with plentiful energy resources.

How can we do a better job of supplying our power generation requirements while also addressing the important goal of limiting CO2 emissions?

Indonesia should implement a strategy that I call “green growth” that will address both the short-term problem of electricity shortage and long-term challenge of sustainable generation and minimizing our national carbon footprint.

Indonesia’s electricity production is among the most expensive in the world because it is dominated
by oil and therefore exposes the government to price spikes in the oil market.

Although it costs the utility company, PT PLN, about 12 US cents per kilowatt hour, they receive about 6 US cents per kilowatt hour subsidy to shield consumers from the costly fuel source.

This subsidy equates to roughly US$5 billion per year and is a major drain on tax revenues that would otherwise be spent on education, health, housing, law and order, and transportation infrastructure — and it simply is not sustainable.

To address the supply shortage and shift to a more optimal energy mix, the government of Indonesia has launched a 10 GW “fast track” program of building coal-fired plants.

Even though it will add roughly 60 million tons of carbon emissions annually, these new plants are imperative for reducing the electricity subsidy and sustaining our economic growth.

Yet, it is unclear how much this new power generation capacity will reduce the average cost of electricity and the huge annual electric subsidy.

Our nation’s electricity sector has long suffered from a lack of capital investment due to heavy regulation and monopoly.

Without renewed capital investment, PT PLN will continue to suffer from extremely poor peak load management, inadequate maintenance systems and overloaded transmission lines, all of which work together to give us brownouts and blackouts.

Yet, other countries have worked their way out of this problem. Turkey has recently overcome many of these same challenges and improved on its past history of extensive brownouts by implementing market-based laws governing electricity supply.

But, the effort put forth by the Indonesian government to introduce fair and healthy competition in our electricity sector has been a limited success.

The gradual introduction of fair and healthy competition is the ultimate solution to building up and modernizing our power generation capacity.

The Indonesian government should actively determine which fuel source is optimal for our future electricity needs: coal or natural gas. The movement of coal prices has largely synchronized with oil prices in recent years.

The rapid expansion of the coal chemical industry and coal-derived liquid fuels in China has placed coal in direct competition with oil.

A new coal-fired power plant is built every two weeks in China to sustain its rapid 9.5 percent economic growth.

With strong demand for coal that is continuing to build up, coal is now more expensive than natural gas in East Asia on a BTU basis. We should expect constantly rising coal prices and assess the implications: Coal-fired power plants may lose their economic advantage.

Alternatively, electricity generation using natural gas is smart for both environmental and economic reasons, and PT PLN should increase investment in this area.

As a significant percentage of Indonesia’s current gas production is under long-term export contract and despite the potential of our untapped natural gas reserves, Dahlan Iskan (CEO of PT PLN) is forced to shop around internationally — all the way to Iran. It is vital that we invest in exploration and development of new domestic natural gas fields to support our own electrical needs.

Geothermal energy reserves are our best opportunity for clean power that does not add to our greenhouse gas footprint. The prospects look good: Indonesia has an impressive 28 GW potential capacity and a recent presidential decree allows for the development in protected forest areas.

Even though geothermal energy is comparatively more expensive than natural gas and coal, more international resources are becoming available to facilitate deployment.

Without international compensation, the higher comparative cost of geothermal electricity will create an unworkable burden on the already tight state budget.

For instance, the World Bank has been redirecting money it gives to coal-fired plants so that it can fund more geothermal projects.

Indonesia offers an optimal scenario for deployment and we can make a strong case that a little financial compensation can deliver big results for geothermal power and the international drive for clean energy.

Indonesia is rich in energy. We should craft a smart power strategy to harness these resources and help sustain our electricity supply, support rapid economic growth and take care of the environment.

The strategy will also allow us to power our cities, extend our electricity coverage, and keep our carbon emissions in check without busting our budget.

The writer is an economist focused on energy and the environment at the Nicholas Institute for Environmental Policy Solutions at Duke University in North Carolina.