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Jakarta Post

Lack of incentives, uncertain supply hamper progress on biofuels

  • Stefanno Reinard Sulaiman

    The Jakarta Post

Jakarta   /   Sun, January 20, 2019   /   11:00 am
Lack of incentives, uncertain supply hamper progress on biofuels Rida Mulyana is the new and renewable energy director general Ministry at the Energy and Mineral Resources. (JP/Stefani Ribka)

The production of biofuel from sources such as palm oil and sugarcane is prone to delays and vulnerable to fluctuating supplies and prices, the government has acknowledged.

The Energy and Mineral Resources Ministry’s director general for renewable energy, Rida Mulyana, said it was thus crucial for the government to ensure that the price of renewable energy for end users remained affordable, whether through incentives or other measures.

Pertamina's Green Fuel (100 percent palm oil fuel) project was a case in point, he said.

“When the price of CPO is much higher than that of crude, we must decide what kind of incentives the government should provide [to ensure continued development],” Rida said. 

“While it’s true that biofuels would cut our dependency on oil imports and [help keep the rupiah stable], in the end we are talking about [whether or not it’s] economical.”

The government had a number of incentives in mind, he explained, such as imposing a domestic market obligation (DMO) and capping the price of crude palm oil (CPO).

“If the price of CPO continues to increase, it would be positive for exporters but not for the domestic market. […] So, do we need to impose a DMO like we do for coal and cap the price [of CPO]? All of these [aspects] are still being discussed,” Rida said.

Green Fuel is Pertamina’s project to process a CPO derivative called refined bleach deodorized palm oil (RBDPO) with crude oil at its refineries.

Rida said renewable fuel was much more stable than B20 (a 20 percent biodiesel blend). However, the government only provides incentives for B20 and not for other types of biofuel.

Currently, under the B20 policy, the government plans to maintain the price of the biodiesel at the same level as Solar, Pertamina’s diesel brand.

An incentive is provided for biofuel producers, taken from the CPO export levy collected by the Indonesian Oil Palm Estate Fund (BPDP-KS).

Therefore, biofuel producers are able to sell biofuel at the same price as diesel fuel to producers and distributors, such as Pertamina.

Another renewable fuel project where commercial development has progressed at snail’s pace is sugarcane-derived bioethanol, because the supply is sought by other industries, such as cosmetics.

Energy and Mineral Resources Ministery Regulation No.12/2015 on the provision and utilization of biofuels stipulates that bioethanol must gradually be blended into gasoline, from 1-2 percent in 2015 to 20 percent in 2025.

Rida explained that, based on Pertamina’s calculation, the price of bioethanol was still much higher than the company’s RON-92 gasoline sold under the Pertamax brand.

“The BPDP-KS can’t provide incentives for bioethanol, and the state budget is also not an option, so we [cannot comply with the bioethanol obligation] for now,” he said.

Both the Green Fuel and bioethanol projects are part of the government’s drive to hike the share of renewable energy in the national energy mix to 23 percent by 2025. As of December 2017, the share was still below 10 percent; data for 2018 has not been published yet.

Latest data from the ministry show that overall efforts to increase the share of renewables have thus far been fruitless, as the consumption of dirty energy continues to increase, especially with state-owned electricity firm PLN’s ongoing development of coal-fired power plants this year.

"Renewable energy growth is overshadowed by the higher consumption growth of fossil fuel. Hence, the share of renewable energy [in the energy mix] is going nowhere," Rida said. 

Previously, the Institute for Essential Services Reform (IESR), a local energy think tank, criticized the government as being unfair to the green energy industry, as its incentives and policies mostly endorsed dirty energy, such as coal.

"The government is demanding that renewable energy compete with coal, [even though the latter] is backed by the government through policies and incentives," IESR executive director Fabby Tumiwa told The Jakarta Post recently.