Indonesia’s energy transition riding on grid connectivity upgrade

The archipelagic state’s ability to meet its 2060 net-zero target hinges on linking diverse, far-flung electricity networks. A connected grid will also enable regional power sharing, said experts at the Unlocking capital for sustainability event in Jakarta.

Grid upgrades are needed to power Indonesia's energy transition and enable regional power sharing.
Transmission line work in progress in Jakarta, Indonesia. Grid upgrades are needed to power Indonesia's energy transition and enable regional power sharing. Image: Robin Hicks / Eco-Business

The progress of Indonesia’s energy transition hinges largely on investment in the sprawling archipelago’s electricity grid infrastructure to absorb renewables and enable cross-border power trading, said industry watchers at a Jakarta event last Thursday. 

Indonesia is home to a medley of different energy systems dotted across 6,000 inhabited islands, with the Java-Bali power system – the largest in the country so far, with 64 per cent of total installed capacity – among the only grids that connect various islands.

Speaking at the Unlocking capital for sustainability event at the Ritz-Carlton Mega Kuningan hotel, Ricky Faizal, electricity system planning and control vice president at Indonesia’s national energy utility PT Perusahaan Listrik Negara (PLN), said that in order to boost renewable energy capacity in the country and meet climate goals, better connectivity between electricity grids is crucial.

To stay on track to achieve its 2060 net-zero target and bring more renewables into the energy system, the archipelago will need to be close to fully connected by 2035, said Faizal.

A lack of electrical grid connectivity has meant an increased reliance on captive coal plants to power Indonesia’s booming nickel industry, which ironically is one of Indonesia’s fastest-growing emissions sources as the country pursues an ambition to be a transition minerals powerhouse.

There is a need to invest in grid infrastructure. That will enable regional power sharing, which will be a tipping point in the energy transition.

Karna Mohan, vice president, finance, Asia Pacific, Siemens Energy

Indonesia’s energy connectivity challenge is complicated by a “mismatch” in demand and supply, Faizal explained. Java, the most populous island, and tourism hotspot Bali account for 70 per cent of Indonesia’s total energy demand; while less populous Kalimantan, Sulawesi and Sumatra have their own unique energy systems designed to manage lower power loads. 

Adding intermittent renewables – the state utility plans to add 33.2 gigawatts (GW) of renewables capacity from 2024 through to 2033 – presents stability issues that grid upgrades will need to account for. “We can increase renewables energy capacity, but it will take investment and time,” said Faizal.

A plan to build a “super grid” that connects the Indonesian archipelago is estimated to cost US$1.5 million per kilometre of submarine cable alone, with power converter costs running to US$300-400 million per GW. Recent reports pitch the total cost at US$25 billion.

However, the super grid has struggled to attract investment. A PLN executive recently conceded that the return on investment on transmission lines is not as high as for power generation, so it has been difficult to crowd in private capital.

The grid may be partly financed by the Just Energy Transition Partnership (JETP), an agreement to mobilise an initial US$20 billion in funding from developed countries to decarbonise Indonesia’s energy sector, although Indonesian ministers have bemoaned the difficulty in accessing this capital.

Unlocking capital for sustainability Indonesia 2024

At the Unlocking capital for sustainability Indonesia event, speakers including (from left) Sahid Junaidi, secretary of the Directorate General of new renewable energy and energy conservation at Indonesia’s energy and mineral resources ministry, Karna Mohan, vice president finance, Asia Pacific, Siemens Energy, Dr Nuki Agya Utama, executive director of Asean Centre for Energy, Enda Ginting, country manager, Indonesia at Gurîn Energy, and Ricky Faizal, vice president, electricity system planning and control at PT PLN, discussed the importance of establishing policy frameworks and capital mobilisation for the country’s sustainable transition. The session was moderated by Meaghan See, director of partnerships, Eco-Business.  Image: Eco-Business

Regional power sharing potential

The intermittency issues of adding renewables to the grid could be eased by sharing the power load and any excess supply across jurisdictions, which underscores the importance of a transmission infrastructure upgrade, said Dr Nuki Agya Utama, executive director of Asean Centre for Energy, a think tank.

Nuki said that a smart grid – that is, a network that can respond to changes in usage – is also needed, as well as battery storage systems to manage variations in demand as regional energy trading takes off. Indonesia signed a deal with Singapore to increase clean energy trade last September.

Northern Kalimantan and the Malaysian state of Sabah on the island of Borneo are prime candidates for cross-border power sharing, although upgrades to transmission infrastructure and feasibility studies are needed before renewables can be added to the grid, Nuki said.

While financing support in energy infrastructure in Southeast Asia has been growing, with year on-year investments in green technology in the regional bloc growing by 20 per cent in 2023, and Indonesia accounting for the bulk of growth, there remains a “massive finance gap”, said Karna Mohan, vice president of finance, Asia Pacific, for Siemens Energy, an infrastructure technology firm that transmits 40 per cent of Indonesia’s power.

Southeast Asia currently accounts for just 2 per cent of global investment in renewable energy, and the average annual investment of US$70 billion will need to at least double to meet global climate goals, said Mohan. 

Indonesia will need an estimated US$150 billion to US$200 billion per year between 2021 and 2030 to decarbonise its energy sector, according to projections by Indonesia’s planning ministry. Mohan added that the nation will also need to overhaul its regulatory framework to enable renewables to achieve price parity with fossil fuels, beyond crowding in investment. 

Indonesia relies on fossil fuel subsidies, which totalled US$12 billion this year, according to the Ministry of Energy and Natural Resources (ESDM). The introduction of carbon tax on heavy industry, slated to come into play this year, should help to level the playing field for clean energy, Mohan said.

Unlocking capital for sustainability is an annual flagship event on sustainable finance for Asia Pacific organised by Eco-Business in partnership with UN Environment Programme (UNEP). The next regional edition will be held in Kuala Lumpur, Malaysia, on 24 July 2024. Register to join us at the event. 

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