Energy transition is a ‘priority’ for Indonesia, but coal sector must be protected, say officials

Indonesia will still be using coal by 2060, alongside emerging energy sources such as hydrogen and ammonia, policymakers said at an event in Jakarta. Indonesia has the potential to be a regional renewables powerhouse, but barriers such as fossil fuel subsidies are slowing the transition.

Java 9 10 construction
An aerial view of ongoing construction for the Java 9 and Java 10 coal plants in Indonesia in mid-2022. Image: Melvinas Priananda, Trend Asia.

While pressure is building on Indonesia to transition away from coal, the fossil fuel will likely remain a fundamental part of the nation’s energy mix for the foreseeable future.

It is currently unfeasible to “completely remove coal” from the energy system, according to Idris Sihite, assistant minister for strategic planning at the Ministry of Energy and Mineral Resources.

“We have 99.2 billion tonnes of coal. We have to take care of the coal industry,” he said, noting that Indonesia is “always seen as the bad guy” at international climate conferences because of its heavy reliance on the polluting fossil fuel.

Sihite was speaking at the Indonesia edition of the Asia Pacific Energy Talks in Jakarta, hosted by energy technology firm Siemens Energy. 

The cost of decarbonisation in Indonesia also remains “too high”, warned policymakers, who are wary of a hasty retreat from fossil fuels. This is despite the transition to cleaner energy sources being a priority for the nation’s government, amid increasing emissions and more frequent climate-induced extreme weather events in the country. 

Rachmat Kaimuddin, chair of the national energy transition taskforce, said that the value of Indonesia’s vast fossil fuels assets needed to be managed as the country transitions to greener energy sources and emerges as a regional trader in renewable energy.

Indonesia relies on coal for 60 per cent of its electricity, has a young fleet of coal-fired power stations and is the world’s largest coal exporter. The country also has abundant renewable resources that are underexploited, noted Kaimuddin, who is also deputy coordinating minister of maritime affairs and investments in infrastructure and transportation.

“Indonesia is a large exporter of energy, but mostly fossil fuels. As we transition, we want to ensure that Indonesia is energy secure and can be an exporter [of renewables] too,” he said.

The “bottom line” for making that happen is a reliable transmission system that can cope with the intermittency of renewables while ensuring that clean energy generates economic benefits and replaces jobs lost in the fossil fuels sector, Kaimuddin said.

Indonesia is blessed with huge renewables potential, but there’s no market for it yet.

Eka Satria, chief executive, Medco Power Indonesia

Currently, Indonesia is realising less than one per cent of its solar potential, with renewables comprising just 13.1 per cent of the country’s energy mix in 2023. 

Kaimuddin said that a “made-in-Indonesia” domestic solar supply chain, including the development of storage infrastructure, was needed to enable the country to lock in the benefits of a clean energy economy.

Power-sharing deals with neighbouring Singapore show the early promise of Indonesia’s renewables ecosystem, while the Just Energy Transition Partnership (JETP), a funding package financed by wealthy donor nations and private investors, could be used to build transmission lines and renewables plants, he said.

Coal production in Indonesia has increased by 558 per cent between 2000 and 2021, largely to electrify the archipelago. Indonesia alone was responsible for more than half of the decline in the number of people without electricity in Southeast Asia since 2000.

Sihite said that achieving its national target to reduce emissions to net zero by 2060, which would involve retiring coal plants, depended on investment that was currently “lacking”.

A 2021 study by Indonesia’s planning ministry projected that decarbonising Southeast Asia’s largest economy would cost US$150 billion to US$200 billion per year between 2021 and 2030, or 3.4 per cent to 4.5 per cent of GDP.

Edwin Nugraha Putra, president of the board of directors for state utility PLN, said that the country would still be using coal, which is cheap and abundant, through to 2060, in combination with other lower-carbon technologies such as biomass, hydrogen or ammonia.

“It’s unrealistic to expect a sudden phase-out of coal in the near term; we’ll see a phase-down approach,” said Gary Steward, regional head of service operations, Asia Pacific, Siemens Energy. “Natural gas wil play a key role in Indonesia’s transition; it ticks boxes of security, affordability and sustainability. Renewables will kick in at a later date,” he said.

Transition barriers

Indonesia invested more in renewables than any country in Asean in 2023, according to an analysis from Bain, a consultancy. However, numerous obstacles are slowing clean energy development, including subsidies for fossil fuels, which eat into the state budget for funding the transition, said Kirana Sastrawijaya, partner at Umbra Strategic Legal Solutions, a law firm.

This has put renewable energy projects in Indonesia at a competitive disadvantage compared to traditional energy sources such as coal, oil and natural gas. Fossil fuel subsidies in Indonesia have totalled US$12 billion this year so far. 

Indonesia’s monopolistic energy market structure , where PLN is the sole trader in energy for the entire country, has also made it difficult for renewables to proliferate. Consumers and businesses have limited ability to purchase energy directly from renewables developers, as they must go through PLN, and investment in the clean energy sector depends largely on national renewables procurement planning, Sastrawijaya noted.

Ever-evolving energy market regulations have increased the perceived risk and uncertainty for foreign investors looking to fund renewables projects, while regulations have struggled to keep up with the pace of change in new technologies such as hydrogen, green ammonia and battery storage, she added.

Local content requirement regulations, which require components for solar panels and other renewables technologies to be manufactured in Indonesia, have also increased the relative cost of renewables, slowing the transition to clean energy.

Despite recently downgrading its 2025 renewables target from 23 per cent of energy mix to 17 to 19 cent, the country has increased its 2050 clean energy target from 30 per cent of the energy mix to 58 to 61 per cent and 70 to 72 per cent by 2060.

A Siemens Energy power plant in Indonesia. Image: Siemens Energy

Siemens Energy technology transmits 40 per cent of Indonesia’s power. The country is aiming to build a super grid to better connect renewable energy sources across the archipelago. Image: Siemens Energy

What businesses want

Salman Baray, Indonesia country director for ACWA Power, an energy and water treatment firm, said that financing was readily available for renewables projects in Indonesia, but a “clear plan” was needed from the government to boost renewables adoption, including more large tenders for renewables projects that would help push prices down.

“The technology is there and the business models are there – it’s just about the execution,” he said.

Indonesia should be adding a minimum of 4-6 gigawatts (GW) of renewables every year to achieve its 2060 net zero target, he added.

Indonesian power generation firm Medco Power Indonesia has been working on optimising fossil fuel plants to reduce emissions as well as pursue clean energy projects amid the structural constraints of Indonesia’s energy transition.

The company has worked with Siemens Energy to convert the Panaran II Power Plant in Batam into a combined cycle turbine, which means no additional fuel is needed and electricity tariffs decline.

“Indonesia is blessed with huge renewable potential, but there is no market for it yet,” said Eka Satria, Medco Power Indonesia’s CEO.

Medco, which has committed to achieving net zero emissions across Scope 1, 2 and 3 by 2060, is aiming to increase its green energy capacity to at least 35 per cent by 2025, with a focus on solar, geothermal and hydropower, Satria said.

The firm inked a deal with Singapore’s energy authority to export renewable energy to the city-state last year.

Satria said there was a need for a price on carbon to help Indonesia realise its huge renewable energy potential and hasten the energy transition. 

Indonesia plans to introduce a carbon trading system for coal-fired power plants next year. The first stage of the system covers 99 coal plants with an installed capacity of 33.6 GW.

Indonesia’s regional energy sharing potential

Indonesia’s plan to build a “super grid” to better connect the archipelago’s electricity network could help to reduce intermittency issues and support the country’s ambition to become a major regional trader in renewable energy.

Evy Haryadi, chairman of non-profit Indonesian Electrical Power Society (MKI), said Indonesia has the opportunity “to lead by example” in clean energy, but must first use increased renewables capacity towards the country’s Nationally Determined Contributions (NDCs) to the Paris climate accord.

Indonesia’s latest NDC committed to a 31.89 per cent unconditional reduction in greenhouse gas emissions and a 43.2 per cent reduction that is dependent on international help – including funding.

“We understand that Indonesia needs to transition. But affordability remains the key challenge,” said Medco’s Satria.

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