Indonesia's Energy Transit: Struggle to Realize Renewable Potential

By Jeremy Wilcox, Contributor
14 September 2012 

 

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LONDON -- Indonesia's electricity market is moving from a monopoly fossil-fuel generation base to a more competitive structure with an increasing share of renewable energy. Or rather that is the transition the government seeks to promote, while the reality is somewhat different.

As with some other fast developing economies, Indonesia is characterized by economic growth and a widening middle class as social prosperity grows. But unless there is significant investment in its aging generation and transmission infrastructure the country could face an electricity crisis in this decade. Current conventional energy resources are unable to meet full base load supply, leading to daily blackouts in some parts of the country, and the government's target for 90 percent electrification by 2020 is woefully behind schedule and unlikely to be met. With annual electricity demand growth estimated at between 7 percent and 9 percent through the remainder of this decade the supply-demand imbalance will only widen further without investment in additional generation capacity. 

The irony of this situation is that Indonesia can, and should, be self-sufficient in energy supply, being blessed with abundant energy resources, both fossil and renewable, and once the transmission link with Malaysia is completed (scheduled by 2020) it will also have the potential to generate significant electricity export revenues. 

Renewable Potential

The energy potential is significant, as are the economic rewards, but policy-wise the government has been lethargic in harnessing these renewable resources, with energy policy still coal-centric. Since passing an energy law in 2007 with the goal of diversifying the country's energy supply, and increasing the use of renewable energy to reduce dependency on fossil fuels, the government mandated investment in 20 GW of new coal-fired capacity, supported by a new mining law in 2009, and is now looking to implement coal export quality thresholds to protect its domestic coal-fired market - both generation and extraction industry.