BY: CLAYTON CHENEY
Indonesia is the largest economy in South East Asia with a GDP of $932 billion in 2016 and an annual economic growth rate of five percent. The unique geographic characteristics of Indonesia present certain challenges to energy security in the country and they make the country particularly vulnerable to the harmful impacts of climate change. Energy security refers to “the uninterrupted availability of energy sources at an affordable price,” and, in the long term, includes “timely investments to supply energy in line with economic developments and environmental needs.” As an island nation, the ability of the Indonesian government to ensure that the entire population has access to a reliable energy source is difficult, but can be achieved through innovative solutions and embracing a diverse energy mix. Currently, 30 million Indonesians, or 12 percent of the population, lack reliable access to a modern electricity source. Due to domestic energy demand and consumption growth, Indonesia became a net importer of oil in 2013 and will become a net importer of natural gas by 2023, which increases energy insecurity and harms the economy. It is crucial that measures implemented by the government to improve the nation’s energy security takes into the account the specific climate vulnerabilities of the nation.
Energy Mix and Growing Energy Consumption
In 2013, Indonesia’s energy supply totaled 1.61 billion barrels of oil equivalent, with the vast majority of the energy being supplied by fossil fuels, specifically 46.08 percent from oil, 30.9 percent from coal and 18.26 percent from natural gas. Meaning less than five percent of the energy supply came from renewable sources. Indonesia’s “economic success, rising living standards, population growth and rapid urbanization have increased energy consumption rapidly.” The Ministry of Energy and Mineral Resources estimates that domestic energy consumption in the country will rise by seven percent per year, with electricity demand tripling between 2010 and 2030. In order to address growing demand, the government created a National Energy Policy, which established an energy mix target of 25 percent oil, 22 percent gas, 30 percent coal and 23 percent renewable energy by 2025. While the targets are commendable, especially efforts to increase the use of renewable energy sources, the maintained reliance on coal poses economic and environmental risks. Indonesia should minimize its reliance on large-scale coal power facilities for energy production and increase its use of diverse and decentralized sources of energy production.
Current Approach to Increasing Energy Access
In May 2015, President Joko Widodo announced that the government would raise $75 billion to add 35 gigawatts of electricity generating power, 20 gigawatts of which would come from building 117 new coal-fired power plants. This ambitious target, which sought to provide electricity to the entire population in Indonesia, was later reduced to adding 15 gigawatts of power by 2019. However, this coal-fired approach to increasing access for Indonesians to a reliable electricity source will come with significant economic and environmental costs. A report released by the Institute for Energy Economics and Financial Analysis, argues that this plan would cost Indonesia nearly $76 billion over 25 years. The report explains that, in order to attract the investment to construct these coal power plants, the government would have to enter into power purchase agreements in the form of capacity payment for power availability, which requires payment for power generation whether or not it is actually used.
That approach could result in de-incentivizing the shift from coal-generated power to renewable sources because these long-term contracts will lock Indonesia into payments for the increased production capacity from the coal power plants. The significant investments in large-scale coal power plants also risk becoming stranded assets when Indonesia ultimately does shift away from coal as its dominant source of energy for electricity. In contrast, “Electric plants that rely on wind, solar, geothermal and small hydropower dams are easier and cheaper to build and operate.” In this sense, it is not only environmentally sound, but also economically prudent, for the government to move away from centralized large-scale coal power plants to smaller-scale renewable power sources to increase access to electricity in Indonesia.
The Asian Renewable Energy Hub and Diverse Domestic Renewable Energy Sources
Recently, a consortium of renewable energy companies announced plans to construct a solar and wind hybrid power plant in northwest Australia with the sole purpose of exporting the energy generated to Indonesia. The project, named the Asian Renewable Energy Hub (AREH), will be able to produce six gigawatts of energy for export to Indonesia via subsea electrical cables and is projected to be fully operational by 2029. As can be seen in the chart below, because the power plant will be harnessing both wind and solar generated energy it will be able to provide an uninterrupted stream of energy for transmission to Indonesia.
AREH will increase Indonesia’s energy security by providing it with a substantial amount of sustainable energy generated by a renewable source, allowing the country to reduce its reliance on coal-generated electricity. The government should begin efforts to construct the infrastructure that will be needed to transmit the energy imported via AREH in order to meet the electricity demands of the highly populated islands in the country. The use of imported renewable energy will supplement domestically produced renewable energy and this will allow Indonesia to meet or exceed its target for the percentage of renewable energy used in its energy mix. By exceeding its renewable energy generation targets, Indonesia could reduce its greenhouse gas emissions, which coal power plants significantly contribute to, and it would also allow the country to avoid the economic harms of entering into the long-term capacity contracts for coal-generated power plants it is currently considering. Additionally, a reduced reliance on coal and natural gas for electricity generation would have the economic benefit of allowing the increased export of these resources to other countries in the region.
In order to meet growing energy demand and enhance Indonesian energy security the government must pursue policies and upstream investments that promote the creation of diverse sources of domestic renewable energy generation, including hydro, geothermal and solar power. These forms of renewable energy, in combination with domestically produced and imported wind energy, can facilitate Indonesia meeting its target of 23 percent renewable energy sources in its energy mix by 2025. In addition to mitigating the harmful effects of climate change, a shift towards renewable energy sources will allow Indonesia to increase its exports of oil, natural gas and coal, which will benefit the country’s economic situation.
The largest source of installed renewable energy in Indonesia is hydropower, which currently is at 5.25 gigawatts. This capacity could be significantly increased through the development of small-scale hydropower plants, as the total hydropower potential in the country is 75 gigawatts. The unique geographical makeup of the Indonesia, with more than 6,000 inhabited islands, is ideal for small-scale decentralized hydropower plants, which require minimal transmission of electricity between islands. This approach would reduce the investment needed for transmission infrastructure in the country.
Indonesia currently has a geothermal energy production capability of 1.8 gigawatts, but it has a known geothermal production potential of 29 gigawatts, making it the country with the largest geothermal energy potential in the world. Tapping into this potential will require significant upstream investment, which is currently being sought through the private sector with risk mitigation support from the World Bank and the Indonesian government. Due to the high cost of geothermal exploration and economic risks associated with such exploration, the Indonesian government should increase its role in exploration for geothermal energy sources. The government has established a geothermal energy capacity target of 7.2 gigawatts by 2025, which it has sought to achieve through the use of subsidies and risk mitigation for geothermal exploration. This type of investment in a large scale and centralized energy production differs from the previously discussed coal-generated power plants in that these facilities are sustainable in the long term and do not involve the same risk of becoming stranded assets.
Domestic solar energy production is another renewable source that Indonesia needs to utilize to meet its ambitious renewable energy targets. There are indications that innovative new projects are underway to increase solar energy generation capacity in the country. In November 2017, Indonesia’s state-owned power company signed an agreement with Abu Dhabi’s Masdar to develop the world’s largest floating solar power plant in the Cirata Reservoir in West Java province, which will have a capacity of 200 megawatts. The reservoir also currently powers a one-gigawatt hydroelectric power station. Furthermore, the floating solar farm will “provide shading from the sun, reducing evaporation from the reservoir and limiting the growth of algae.” This will allow the floating solar farm to not only increase renewable energy production, but it will also act to improve water security in the area. The Indonesian government can continue to seek out innovative forms of renewable energy sources similar to the floating solar farm being developed in the Cirata Reservoir.
The combination of domestic hydropower, geothermal energy generation and innovative solar projects with the imported wind and solar energy from the AREH project would provide Indonesia with a diverse portfolio of renewable energy sources. Pursuing the development of these diverse renewable energy sources will enhance Indonesia’s energy security, will drastically reduce its greenhouse emissions and will be economically beneficial to the country through the increased exports of fossil fuels.
Climate Vulnerability and the Energy, Food, Water Nexus
Indonesia is a highly climate vulnerable nation, ranking 105th out of 181 nations ranked on the Notre Dame Global Adaptation Initiative (ND-GAIN). ND-GAIN is used to “examine risks exacerbated by climate change, such as over-crowding, food insecurity, inadequate infrastructure, and civil conflicts.” Because Indonesia is susceptible to the harmful impacts of climate change, it is increasingly important that it pursue energy policies that increase energy production in a manner that is environmentally sound. According to the Asian Development Bank, over the next twenty years in Indonesia the “largest increase in emissions will come from the power sector,” making it essential that the country shift to renewable energy sources for its power generation. Through investing in diverse renewable energy sources Indonesia can decrease its energy reliance on high emission emitting fossil fuels, especially coal, which produces the most greenhouse gas emissions of fossil fuels.
Indonesia’s ability to mitigate and respond to the impacts of climate change will also have important consequences for other forms of security. Specifically, as a result of climate change “Indonesia could experience food shortages particularly in its marine-based food supply,” and it “also introduces uncertainty to water management practices.” This illustrates the nexus between energy, food and water security, which highlights the importance of pursuing energy policies that have the least environmental impact as possible. In order to promote its food and water security, Indonesia should invest in diverse renewable energy sources to increase the sustainability of the energy used for its power generation.
With the fourth largest population in the world, a rapidly growing and urbanizing population and a geographic makeup of more than 6,000 inhabited islands, Indonesia faces unique challenges in enhancing its energy security. However, it is a country that is abundantly endowed with both fossil fuel and renewable energy resources. In order to maximize its energy security, as well as its food and water security, Indonesia should approach its energy production expansion in a sustainable manner. Through investing in diverse and innovative renewable energy sources and avoiding large-scale centralized coal power plant investment, the country can enhance its energy security, reduce its greenhouse gas emissions and improve its economic situation.
Clayton Cheney is an attorney and part-time student in the MS in Global Affairs program at New York University’s Center for Global Affairs. He has a background in international human rights law and his current studies focus on transnational security and energy issues.
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