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[ANALYSIS] Why is Indonesia so slow in transitioning to renewable energy?
High investment needed for renewable energy power plants has hampered the transition from fossil fuels to renewables.
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![[ANALYSIS] Why is Indonesia so slow in transitioning to renewable energy?](https://img.jakpost.net/c/2020/01/20/2020_01_20_84887_1579498326._large.jpg)
The 5 MW Sambelia power plant on Lombok Island in West Nusa Tenggara in one of seven such plants on the island that are expected to cover 8.5 percent of the island's daytime electricity needs, thereby cutting residents' reliance on more costly diesel-fired plants. (PLN/PLN)
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enewable sources are still not the main choice for energy in Indonesia. Coal still dominates in the energy mix for electricity, accounting for 66.3 percent of the total power generated in 2019. Meanwhile, renewable energy only contributed 15.6 percent in 2019, decreasing slightly from 16 percent in 2018. However, electricity generated from renewable energy sources increased significantly in the 2015-2019 period.
According to the Energy Balance report published by the Energy and Mineral Resources Ministry, the consumption of renewable energy in the electricity sector in 2019 reached 97.1 million barrels of oil equivalent (BOE), an increase of 64.9 million BOE compared to 2015. However, this increase was still lower than the increase of energy originating from coal, which reached 119.6 million BOE in the same period.
Why is Indonesia relatively sluggish in shifting to renewable energy? The foremost reason is that renewable energy power plants are more expensive than fossil-fuel power plants.
According to the Indonesian Private Power Producers Association (APLSI), renewable energy plants in Indonesia require relatively high investment at around US$2 million to $3 million per megawatt for hydropower, $2.5 million to $6 million per MW for geothermal and $1.5 million to $2.9 million per MW for photovoltaic facilities. Meanwhile, the cost of fossil fuel-based power plants is only between $1.5 million to $1.7 million per MW for coal, $1.1 million to $1.7 million per MW for oil, and $1.5 million to $1. 8 million per MW for gas.
The consequence of this is that investors in renewable energy power plants require a higher electricity selling price than those building fossil-fuel-based power plants. Meanwhile, Energy and Mineral Resource Ministry Regulation No. 50/2017 states that the selling price of electricity from renewable energy to state-owned electricity firm PLN must be lower than PLN’s production cost. Currently, PLN mostly uses coal-fired power plants that are cheaper than renewable energy power plants. As a result, PLN’s purchase price for electricity from renewable energy power plants is not attractive to investors.
Currently, the government is drafting new regulations on the electricity purchase price from renewable energy power plants to make investment in such plants more attractive to investors. However, implementing the regulation could have undesirable consequences for the state. Selling electricity generated from renewable sources to PLN at a higher price will increase PLN's production cost, which will ultimately increase the government’s electricity subsidy.
Will the government be able to bear the increase in the electricity subsidy? If the government is unable to bear the cost, it will increase electricity prices for consumers.
