Pace, political will, pricing seen as crucial for ‘win-win’ Indonesia-Singapore clean energy tie-up

The agreements are signed amid warm bilateral ties, but energy relations between the two countries have not always been rosy. Safeguards are needed for the partnership to last, analysts say.

Singapore viewed from Batam
Buildings in Singapore, viewed from Batam, Indonesia. There are industry plans to route solar power from Indonesia to Singapore via cables through this strait. Image: Reddit/ SigmaEleven.

Last summer, Indonesia’s investments chief said the country would not export new and renewable energy, putting a dampener on neighbouring Singapore’s nascent goal of bringing in low-carbon electricity from nearby countries.

The policy stance would last less than a year, as the two countries’ leaders unveiled an agreement last week to facilitate the manufacturing of clean energy components like solar panels and batteries in Indonesia, and electricity trading between the nations.

A US$37 billion deal was also signed between major Singapore-based energy developers and corporate partners for a “Green Corridor” in Indonesia’s Riau region, where some islands are less than 20 kilometres from Singapore. Top global suppliers would be brought into Indonesia to generate clean energy for both domestic use and export, while “tens of thousands of green jobs” would be created for Indonesians, the memorandum of understanding said.

The tie-ups have been billed as mutually beneficial by top government and business leaders – a characterisation experts agree with, but warn that many more pieces have to fall into place for the cooperation to last and succeed, in an area where both countries have not always had the warmest of partnerships.

“Potential starting point”

Dr Siwage Dharma Negara, a senior fellow at the ISEAS Yusof Ishak Institute, a Singapore think tank, said the agreement between Singapore and Indonesia can be a “potential starting point” to promote cooperation and investment in clean energy development. Negara said Riau’s Green Corridor presents itself as a “showcase pilot” for what the two countries can do.

The Green Corridor project is driven mainly by Keppel – a Singapore conglomerate which deals in energy and infrastructure, EDPR Sunseap – the Asian arm of European renewables firm EDPR and Vanda RE – a joint venture between Gurin, a Singapore-based renewables firm, and Gentari, the clean energy arm of Malaysia’s state-owned Petronas.

All these entities are understood to be eyeing large-scale plans in Riau. EDPR Sunseap itself has announced solar power projects in the region that could generate over 5 gigawatts (GW) of electricity on the sunniest days – equal to almost 7 per cent of Indonesia’s overall installed capacity today, and over 40 per cent of Singapore’s.

The partnership includes two carbon exchanges, hinting at provisions for carbon offsets, and several component manufacturers, many from China.

William Liu, managing director of Hebei-based manufacturing group Haitai Solar, one of the listed partners, said the firm intends to set up a manufacturing plant in Indonesia. The plan is to build 4GW of solar cells and 4GW of solar modules on Batam, the economic hub of the Riau islands, Liu shared. It would be Haitai Solar’s second in Southeast Asia, after Vietnam.

“This is a really good opportunity to be close to the [renewable energy] projects,” he said, adding that it would also help to meet local content requirements when working with Indonesian state-owned enterprises.

Edwin Khew, chairman of industry body Sustainable Energy Association of Singapore (SEAS), who helped negotiate the Green Corridor deal, hailed the two country’s “economic, technological and financial synergies”, and said that projects could also include wind, geothermal, hydro and nuclear power.

Past turbulence, unclear future

The agreements are “strategically important” as they were signed at the highest levels of the government, said Dr David Broadstock, senior research fellow at the National University of Singapore’s Energy Studies Institute. They were announced when Indonesia President Joko Widodo flew to Singapore to meet the city-state’s Prime Minister Lee Hsien Loong. A top senior minister from each country also witnessed the corporate Green Corridor deal.

Leaders from both countries have been stressing that the energy collaboration is mutually beneficial. A day before arriving in Singapore, Indonesia’s coordinating minister of maritime and investment affairs Luhut Pandjaitan told an Indonesian audience that a solar power deal with Singapore needs to be “win-win”. The catchphrase was repeated by Singapore’s Lee as he welcomed the Indonesian delegation.

Singapore has a target to import 4GW of clean electricity, worth 30 per cent of the city-state’s needs, by 2035, as it seeks to decarbonise its gas-reliant power sector. Indonesia, some 2,500 times larger than Singapore, has been seeking foreign funding to kick-start its own buildout of clean energy capacity across its many islands.

The latest tie-up represents a nod at the highest levels for Singapore firms to invest in Indonesian clean power, while exporting a fraction of the electricity to meet Singapore’s needs.

SEAS’s Khew went a step further, saying that the partnership has to be “a win for Indonesia, a win for Singapore, and win for [project] developers”.

Singapore project developers appear to take a more prominent role this time round, compared to two existing natural gas pipelines from Indonesia: the Grissik-Singapore project has no major Singaporean partners; the West Natuna project is 75 per cent owned by Indonesia’s Pt Medco Daya Abadi Lestari and 25 per cent by Singapore’s Prime Natuna Energy.

But Singapore and Indonesia have had past disagreements over energy. There was a brief scare in 2011 when an Indonesian senior minister had called for cutting gas exports to Singapore. In 2020, Indonesia said it would halt one of the two gas pipelines to Singapore this year, before renewing the contract late-2022.

Analysts say Indonesia’s clean electricity export rebuff last year is a response to the sharp rise in energy price and insecurity after Russia invaded Ukraine. Broadstock said Indonesia’s move could be seen as part of a wave of “green nationalism” across the world.

“What we know for sure is that Singapore has realised risk when it comes to trade relations for energy with our neighbours,” he said, also referring to Malaysia’s federal renewable export ban, instated about the same time as Singapore’s announcement of its clean energy import target in late-2021. Singapore had said it wanted 4GW of imports by 2035; Malaysia said it was reviewing its restriction earlier this month.

Negara said Indonesia had faced “crisis” conditions and constrained energy supply last year. Indonesia could be putting sustainability and trade facilitation higher on its agenda this year as it assumes chairmanship of the regional Association of Southeast Asian Nations (Asean) bloc, he said, as to why the country is warming to renewable energy exports.

Negara added there needs to be long-term political commitment to ensure that the cooperation with Singapore continues after Indonesia hands over Asean leadership to Laos next year. New regulations are possible with a new government, he said. Widodo will complete his second and last presidential term next year.

It is a concern that Indonesia’s Pandjaitan has sought to allay.

“I understand there are some questions about what will happen after this administration. I can assure you that we can make this thing happen,” Pandjaitan said at the launch event of the Green Corridor project in Singapore. He said Widodo is working to make sure that existing government programmes can continue with the next government.

Singapore Indonesia Riau Green Corridor MOU signing

Singapore-based renewables developers and their partners signed an MOU to develop projects in the Riau region of Indonesia worth US$37 billion. From left: Michael Boardman, chief financial officer, Gurin Energy; Luhut Binsar Pandjaitan, Indonesia coordinating minister of maritime and investment affairs; Cindy Lim, chief executive officer, Keppel Infrastructure; Teo Chee Hean, Singapore senior minister and coordinating minister for national security; Pedro Vasconcelos, Asia Pacific executive chairman, EDPR. Image: Eco-Business/ Liang Lei.

As it stands, few details on energy investments and trading between Singapore and Indonesia have been made public, beyond the topline figures and aims.

Indonesia subsequently needs to get its electricity trading regulations right, particularly around pricing, Negara said. Indonesia provides for generous subsidies on local electricity bills, to the tune of US$6.5 billion last year.

“When we talk about [cross-border] trading, the price is set by the international market. So there is potential for the international price to be much higher than the domestic price set by the government. This gap may cause issues later if the PLN or power producers prefer to sell electricity outside of Indonesia than supplying domestic consumers,” he said, referring to Indonesia’s state-owned electricity company Perusahaan Listrik Negara by acronym.

Such price differentials and domestic shortages had resulted in temporary trading bans recently for commodities like coal and palm oil.

The pace of buildout of the power trading infrastructure also matters, according to Broadstock, who pointed at the Trans-Asean gas pipeline project from the 1990s to connect natural gas infrastructure across Southeast Asia that has all but stalled with slow progress through the years.

“If that were to occur for the power grid as well then it would be a shame,” Broadstock said.

“If we don’t see something within two to three years, then there is a very reasonable chance we are not going to be able to meet [Singapore’s 2035 energy import] target,” he said, given that the projects could take a decade to develop.

A “big, connected network” will also ensure that things will not fall apart easily, since electricity would have more ways of getting from source to user, Broadstock added.

Both Singapore and Indonesia have been publicly stating their support for a pan-Asean power grid. Singapore provided conditional approval for a plan to import 1GW of clean electricity from Cambodia the same day the deals with Indonesia were announced. The city-state is also considering over 20 other proposals for similar projects with neighbours.

Nevertheless, investors need to understand that such projects are long-term ventures, which carries inherent risks, analysts noted. Broadstock said that projects involving long subsea power cables – which many of the proposals could involve – could be complex and expensive, pointing to the recent troubles with an ambitious plan to build a 4,200-kilometre cable between northern Australia and Singapore.

Parties should “commit quickly, but not rush”, he said, of the Singapore-Indonesia projects.

Key partners signal that they are not hanging around.

“I would like to see the implementation…I am not a person who can wait. I would like to see this happen,” Pandjaitan said of the Green Corridor partnership.

“Time is money. We would like to start production as soon as possible,” said Haitai Solar’s Liu.

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