Discussing Indonesia’s key priorities within the renewable energy sector, Rida Mulyana, Director General for New and Renewable Energy & Energy Conservation (NREEC), also looks at the nation’s development progress, particularly towards ensuring energy security and essential infrastructure.
How would you assess so far the impact of the policy packages announced by the President to tackle existing challenges and improve the business environment?
The President of the Republic of Indonesia, Joko Widodo, targeted the gross domestic product (GDP) growth rate to reach 7% year-on-year by 2019. To reach this goal, the Government of Indonesia established policies that are expected to boost economic expansion. In September 2015, the President released his first installment of policy packages that focused on improving industrial competitiveness through reducing red tape.
Indonesia’s economic growth is expected to rebound as consumers and private investors respond favorably to the government’s public investment and structural economic reform efforts. The government’s ongoing policy reforms are expected to further stimulate private investment, particularly over the medium term. The government has unveiled 13 reform packages since September 2015. These facts, together with higher public capital spending, are steadily improving the country’s investment climate.
How is the Directorate General working with other governmental authorities, namely the coordinating ministries?
Today, renewable energy accounts for a small but growing portion of Indonesia’s electricity portfolio. The Government of Indonesia has announced a mid-term target for increasing the share of renewable energy in the total energy mix to 23% by 2025. This means that massive new investment in renewable-based power generation capacity is being developed. Indonesia is also planning to significantly increase investments in the energy sector, including in the renewable energy.
The direction of renewable energy development in Indonesia has been mandated in the National Energy Policy. The government, under the coordination of the Coordinating Ministers, is responsible for providing a platform for potential investors to understand the key development issues of investing in Indonesia’s renewable energy sector.
The government is also responsible for information dissemination so that potential investors could get updated on the new market directions, opportunities and economic priorities of Indonesia’s renewable energy sectors, while at the same time building potential business networks with local authorities and industry players.
One of the most compelling challenges Indonesia’s government is facing is energy security and development. How is the government addressing this issue?
Data gathered by our Ministry’s Data Center shows that energy demand nowadays has been increasing faster than economic development and population growth. Total energy demand is growing by around 7-8% per year, as the transport and industrial sectors grow, and households become more affluent. A large proportion of this demand has been met by fossil-based energy, mainly oil. As a consequence, since 2004 Indonesia has become a net-importer of both crude oil and refined products.
On the other hand, more than 30 million people—about 12% of Indonesia’s 250 million inhabitants—lack access to electricity. These people mostly live in rural areas and outer islands. In 2015 for instance, around 12,569 villages or rural households still had no electricity, and the electrification ratio was only 88.3%. Electricity is heavily subsidized and customers pay for electricity at far below market price. The state-owned electricity company, PT. PLN, however, is required to buy energy at the market price.
Subsidies, both on oil and electricity, have various economic implications. The Coordinating Ministry for Economic Affairs admitted that indiscriminate fuel subsidies have been a poor way to pursue welfare enhancement, because the wealthiest 40% of households get 70% of the subsidies. Moreover—and very relevant to the issue of climate change—subsidies lead to over consumption of energy because the actual cost of that energy is not reflected in the price that consumers pay. Many reports suggest that subsidies discourage energy efficiency measures and the development of renewable energy sources by way of low electricity tariffs. However, eliminating fuel subsidies has never been an easy task. The majority of Indonesians hate the idea of paying more for fuel, electricity and related services. Throughout the years, the government has had some success at whittling away these subsidies but the issue remains politically contentious.
The decentralized system of government and the resulting division of power between Central and Local government s also impedes national coordination in delivering a policy of transition to renewable energy. Under decentralization, Local governments have been given the rights and responsibility to issue concessions and licenses for renewable energy. However, most local governments have very limited capacity or understanding of the implications of various energy scenarios. Policy framework has to be established through which to encourage local governments to pursue renewable energy initiatives.
Could you tell us about the importance of delivering clean energy projects within the country?
Today, clean energy projects—especially renewable energy projects—are viewed not only as tools for improving energy security and mitigating and adapting to climate change, but are also increasingly recognized as investments that can provide direct and indirect economic advantages by reducing dependence on imported fuels, improving local air quality and safety, advancing energy access and security, propelling economic development, and creating jobs.
How are sources of renewable energy ensuring even development across the archipelago, especially in remote provinces?
Energy is one of the basic needs in Indonesia and its availability greatly affects the economy and community development. Indonesia as the largest archipelagic state in the world has around 17,000 islands, with about 6,000 islands inhabited. Unfortunately, many of those islands, or around 12,659 villages (16%), do not have access to electricity. Some factors, such as transportation and geographic conditions, are known to be the main reasons why it is difficult to provide electricity access to people in those areas using the “conventional” method (diesel engines).
In that matter, the Directorate General of NREEC initiated the Bright Indonesia Program (Program Indonesia Terang), which aimed at increasing the electrification rate in the eastern part of the archipelago (mainly in Papua, West Papua, North Maluku, Maluku, East Nusa Tenggara and West Nusa Tenggara) using local energy resources. We know those areas have such abundant renewable energy potential (i.e. hydro, wind, solar and marine energy), therefore the program will utilize those sources to generate the power.
The people living in remote and isolated areas do not have to depend on the very expensive diesel engines (genset) or hoping that someday PLN will expand the electricity grid to their areas. The Bright Indonesia Program in particular, and the Renewable Energy Development Program in general, can become a feasible and realistic way to provide the electricity access to those people using their own resources.
Hopefully, by meeting the basic needs of electricity (such as house lighting), we can provide more support for their economic activities and community development in the future.
With the goal of developing infrastructure and boosting economic growth the government is aiming for the 35 GW program. How is the directorate general contributing towards the achievement of this project?
In general, the 35,000 MW Project is a strategic planning for electricity generation in 2015-2019. The project opens market opportunities on renewable energy in Indonesia. From the 35.000 MW power plant target, 25% of it (8,750 MW) should be based on renewable and it needs USD 30 Billion of total investment. To achieve this target, the government needs to initiate and introduce various incentives to attract investors. We are currently preparing Feed in Tariff (FiT) Regulation for Wind and Rooftop Solar as well as drafting the energy fund. Geothermal Power Plant and Hydro Power Plant will provide the largest contribution to achieve the 8.750 MW target.
What are your key priorities as the Director General for New and Renewable Energy & Energy Conservation (DGNREEC) for 2016-2017?
The Directorate General of NREEC has high commitment to increase the utilization of clean and renewable energy in Indonesia, as stated by Indonesia’s law, namely Energy Conservation (to increase energy efficiency on supply and demand side) and Energy Diversification (to increase the share of new renewable energy use in the primary energy mix).
Through energy diversification, it is projected that in 2025, our NRE share in the National Energy Mix will be 23% (based on National Energy Policy).
To achieve this target, the government has set up various programs such as:
i. The construction of 35,000MW additional power capacity, and 25% of it should be based on renewable energy power generation.
ii. The mandatory implementation of B20 on biofuel, which started in 2016 (particularly in the transportation and power plant sectors).
iii. Enhancing the development of NRE-based power plants by releasing FiT. So far, the Directorate General of NREEC has released FiT regulation for (mini and micro) hydropower plants, solar photovoltaic power plants, biomass and biogas power plants, and municipal solid waste power plants. The FiT regulation for wind and rooftop solar are currently still in progress, and hopefully will be released this year.
iv. The Directorate General of NREEC continues to develop rural energy and rural electricity based on renewable energy, particularly through the Bright Indonesia Program (Program Indonesia Terang).
v. The DGNREEC is currently drafting the energy fund that will be allocated for renewable energy development.
How is the Directorate General collaborating with the private sector and what are your prospects for PPPs?
The key for a successful development of renewable energy in Indonesia is the holistic approach between consciousness of present boundaries, visions of the future existence, and innovation to overcome possible challenges. Thus, sustainability will require new leadership skills and mindsets in all development components; and solving sustainability challenges will require public and private sector collaboration. Many Indonesia-based companies have made tremendous progress in becoming more eco-efficient in terms of energy, water and resource use. Progress in eco-efficiency may have to give way to radical changes in business systems. This is the reason why innovation in policymaking is urgently needed as much as the technology innovation itself.
What are the key investment opportunities for foreign investors and what is the role of the Invest in Remarkable Indonesia program?
Invest in Remarkable Indonesia is a worldwide campaign launched by BKPM (the Investment Coordinating Board of Indonesia) around 2010 to attract foreign investment in Indonesia. The Indonesian Trade Promotion Center and/or Indonesia Investment Promotion Center in many of Indonesia’s partner countries all carry a mission to facilitate and to promote foreign investment in various sectors in Indonesia.
This campaign emphasizes that Indonesia is a remarkable destination for investment in trade and tourism. Indonesia is not only diverse in its culture; our land is also blessed with diverse renewable energy resources. In a way, we may say that Indonesia is a remarkable place to invest in renewable energy, because the opportunity is wide open for future developers.