The Jakarta Post
Indonesia’s readiness to shift toward a clean energy economy took another step back last year because of fossil fuel subsidies and faces a monumental hurdle this year as a result of the coronavirus pandemic.
Indonesia’s ranking fell seven places to 70th out of 115 countries surveyed in this year’s Energy Transition Index (ETI), down from 63rd last year. The index is compiled annually by the World Economic Forum (WEF) think tank, which also described this year as a period of historically “unmatched economic instability” due to COVID-19.
Going forward, the pandemic-led collapse of fuel prices and energy demand further risks Indonesia’s energy transition unless the government intervenes, WEF told The Jakarta Post.
Vijay Singh, WEF project head for the future of energy and materials, said Indonesia's slip in the latest index was mainly driven by setbacks in economic development “specifically due to the distortions created by the presence of energy subsidies”.
“The effect of energy subsidies, such as reducing incentives for efficient consumption and being more beneficial for higher-income consumers, are well documented,” he said via email.
He also said Indonesia had progressed in terms of energy access and stagnated in terms of environmental impact. The latter may change over the years as coal plants continually dominate power production in the growing economy.
WEF’s index report acknowledges the necessity for governments to prioritize spending on health care, social welfare and business continuity amid the pandemic but also argues that “the risks to the future of human civilization from climate change remain”.
Energy economist Alloysius Joko Purwanto separately said that coal and oil-related subsidies were likely the main contributors to Indonesia’s energy transition setback. Oil is mainly consumed by the transportation sector and coal by the power sector.
Indonesia introduced in January last year a domestic coal price ceiling at US$70 per ton, well below the $90 market price that month. The price cap, which has been extended to this year, is expected to boost domestic coal consumption by 12 percent to 155 million tons in 2020.
The government also set this year’s subsidized fuel quota at 26.87 million kiloliters (kL), up 3 percent from last year, after domestic consumption exceeded last year’s quota.
However, the Economic Research Institute for ASEAN and East Asia (ERIA) economist said that collapsed oil prices and reallocated spending also presented an opportunity to boost Indonesia’s energy transition. The WEF holds a similar stance.
“We can pull out energy subsidies and we can redirect economic stimuli to develop renewable energy,” Joko said.
Joko also concurred with WEF over Indonesia’s energy access progress, saying that the government’s ongoing 35 gigawatt power plant development program helped bring electricity to many neighborhoods.
Indonesia’s electrification ratio — the portion of neighborhoods that can turn on a lightbulb — reached a historical high of 98.89 percent last year, even though observers and politicians pointed out that multiple field problems remain.
“The government’s position is to protect the people’s purchasing power and ensure business continuity,” the Energy and Mineral Resources Ministry’s acting oil and gas director general, Ego Syahrial, previously told reporters.
The ministry’s director general for renewable energy, Sutijastoto, was not available for comment over the WEF report.
Solar producer Nick Nurrachman, chairman of the Indonesian Solar Panel Producers Association (APAMSI), said coal-generated cheap electricity had always deterred investment in solar photovoltaics (PV) in Indonesia. The recent oil price crash has further deterred investment.
“People looked for renewables because oil prices were rising. With oil prices decreasing, demand for renewables, including solar panels, decreases,” he said.