by: Abhista Sarwabhaswara & Bayu Arif Ramadhan
Indonesia and China are the two largest consumers of coal amongst many countries in the world by 25.6 million tonnes and 507 million tonnes of coal usage respectively until mid-2020. On the other side, these two countries also have set their ambitious targets within Renewable Energy (RE) development. Even though China's coal consumption could be considered rising, in parallel China has been developing its RE significantly as well. It is proven by China’s RE installed capacity that reaches 728 GW. This comes as contrary to Indonesia’s RE installed capacity which only reached 9.861 MW. This shows that China is one step ahead from Indonesia and therefore it’s interesting to know and understand several things that can be learned by Indonesia from China in order to develop RE.
China is targeting its RE allocation to 20% within its national energy mix by 2030 through the 13th Five Year Plan on Renewable Energy Development. While Indonesia has RE target within the national energy mix to 23% by 2025 through Government Regulation No. 79/2014 regarding National Energy Policy (KEN). Indonesia’s target is supported by its RE potencies from various sectors such as solar, hydro, wind, geothermal, bioenergy, and tidal. Therefore, cumulatively RE potencies in Indonesia have reached 443 GW. Nonetheless, these potentials are facing several challenges.
Photo by: Shutterstock/Fotoldee
Indonesia still needs to implement regulations that accelerate and support RE development. Such as reimplementing Feed-in-Tariff (FiT), technology development, subsidy, and, not limited to, licensing. Even though by this time Indonesia has supported electricity-based RE development by the imposed change on Build, Own, Operate, and Transfer (BOOT) scheme to Build, Own, and Operate (BOO) through Ministerial Regulation of Energy and Mineral Resources (ESDM) No.4/2020. Simplistically, BOOT is a cooperation scheme between Independent Power Producer (IPP) with State Electricity Company (PLN) that oblige IPP to transfer its RE generator to PLN shortly after its usage period. This scheme halts the developer in securing a bank's loan because the project cannot be taken as the bank's guarantee. The change imposed on the BOOT scheme to become the BOO scheme therefore can be said as a relief to one of the challenges recently faced by the developers.
For the issue regarding the terminated FiT scheme which once had been implemented, the government returned to use a reference price based on Basic Costs of Supply (BPP) that constitutes the average price of the fossil fuel energy sector and RE sector by a certain area. Indonesia still needs to wait for the release of Presidential Regulation to re-implement the FiT scheme which is scheduled to be released this year. From the technology development issue, the production capacity of domestic components, especially on the solar power plant, is only accounted for 40% in which this number can’t fulfill the industry needs for domestic components and consequently makes developers import other required components. On the other challenge, there was found a licensing problem in Papua in which the developer faced difficulties to obtain licensing when they are about to expand solar energy project development due to the impact of bureaucratic challenges. The issues regarding the RE sector, have the potential to halt the investment as well as to disrupt RE development targets in the national energy mix by 2025.
Investors are really sensitive towards any regulation relating to RE project development, especially tariffs. Tariffs in Indonesia still face a profound challenge such as lack of competitiveness on electricity tariff from RE compared to coal because at this moment electricity tariff from RE is still based on BPP. Therefore it makes the complexity of RE development even worsens, as the RE tariff hasn’t been well-valued since in BPP the coal and RE tariff are put in the equal average amount of Rp 1,025/kwH based on Ministerial Decision of Ministry of Energy and Mineral Resources (MEMR) 1772/2018 which therefore is narrowing RE developer margin profit. This matter is contrary to China which implements the RE tariff in the amount of Rp 500-1.000/kwH through the application of FiT scheme and various government initiatives. Whereas if Indonesian government differentiate the tariff between certain RE sector and the more advanced coal, the investors will get feasible profit and thus improve Indonesia position in Renewable Energy Country Attractiveness Index (RECAI) which now stands outside the top 40 countries after recorded 38th position previously.
Along with the rapid RE development in China, there are various regulations that can be emulated by Indonesia. First, by giving subsidies to RE projects that reached US$ 8.6 billion in 2012. This effort ignites the acceleration of RE development which aims to achieve the national RE energy mix target by giving the developers, investors, and manufacturers confidence in constructing RE projects. Hence, that incentive led to the second point thereby significant technological advancement. In 2016 China had owned 150,000 patents regarding RE technology and 60% of solar panel technology that was used all over the world came from China. This achievement could benefit China in two ways: other countries need to partner with China if they want to enhance their RE technologies and attract investment regarding research and development. The availability of RE development targets in China and government subsidies were contributed to support the technology and RE projects growth because the industry and developer could see the government’s serious efforts in developing RE. Third, the implementation of FiT scheme by China government which gave subsidies in the amount of US$ 0,06/kwH for RE sector such as solar energy and also an incentive in the amount of US$ 0,40/kwH for every surplus power they have generated therefore makes RE investor like solar energy project owners are estimated to reap capital profit up to 20-50%. This evidences of government’s support, therefore made China look more advantageous from the economy, environment, energy security, and even geopolitical sector.
Loads of challenges regarding RE development in Indonesia are affecting the development of RE projects and therefore resulted in their minimum optimization. This condition certainly threatens Indonesia Paris Agreement and Sustainable Development Goals (SDGs)’s target as well as target to secure national energy availability in the future. Bear in mind that fossil fuel energy reserves such as oil, gas, and coal are constantly depleting. Indonesia needs to learn from China on how they urge the RE development by accelerating regulation implementation and incentives that can optimize RE development. Because by implementing any regulation either incentives which can benefit RE development, then Indonesia can wish to attract more RE investment to support domestic RE development thus gradually resulting in, environmental and social welfare preservation, and national energy security to maintain state sovereignty. As the sovereignty here means if Indonesia will not at least, become wholly dependent on other countries in the energy sector. With that being said, those benefits can only be achieved by Indonesia if they act quickly to implement any required initiative in the RE sector. Indonesia with its ambitious targets still needs to reflect, learn, and adopt from China’s best practices that can support RE sector development.