RACE AGAINST THE CLOCK

Indonesia 2018 | ENERGY & MINING | REVIEW

As Indonesian authorities push to make the deadline for the introduction of a 35-GW power generation program by 2019, time is running out for the signing of new contracts.

Indonesia's energy sector is in upheaval with the intense push to fulfill President Joko Widodo's plan to solve the country's energy shortages, with the introduction of 35GW of power generation capacity by 2019. It is no small task, but after much ink ran with projections of failure for the program, in November 2017 the national electricity company PLN announced it had signed off on contracts for the construction of 31GW of new power generation. This announcement provided a brighter outlook on the fulfillment of the program. Almost exactly a year earlier, PLN was near admitting defeat, with projections indicating that it would not be able to put together more than 19.7GW of new power generation, just above half of the intended target within the timeframe. According to the company, before the end of the year, another 600MW will be contracted.

It is uncertain if all these projects will in fact be ready by 2019, but even if the target imposed is not met, the investment will certainly help to address the country's vast power generation limitations in the coming years. Indonesia's slower-than-predicted economic expansion could render the need for power generation expansion slightly less urgent. In contrast to Widodo's campaign promises of seeing gross domestic product growth at 7% per year, 2017 is only expected to grow by 5.2%. This represents a slowdown in the manufacturing and industrial sector growth, which consume a greater part of the country's electricity.
Regardless, things seem to be moving quickly. In late November 2017, PLN signed an agreement with Malaysia's national electricity company Tenaga Nasional for the construction of a 400-MW coal-fired power plant on the island of Borneo. One day earlier, Energy and Mineral Resources Minister Ignasius Jonan presided over a ceremony to sign nine new power purchase agreements between PLN and private players for the development of hydro, geothermal, and mini-hydro projects, with a combined capacity of 640.65MW, to be built in Sumatra, Java, Sulawesi, and Nusa Tenggara. These nine projects alone will represent an investment of USD1.51 billion.
Speaking to TBY, Jonan emphasized the importance of this push for power generation for Indonesia's economic future. “The goal for the next 10 years is that electricity must be the engine of growth. First is the availability, second is the tariff, and third is the capacity. Those three elements will be supported and adjusted from time to time according to demand. What we can expect is that for the next 10 years we will see many more electric cars on the street, and we will change some cooking customs throughout households in Indonesia; many people currently use LPG for cooking, and we want them to change to electric stoves," he added.
The green drive
While Indonesia is likely to remain the world's biggest exporter of coal-based power, which also represents over 50% of the national energy consumption, the government has been showing a strong commitment to its international environmental sustainability promises.

In late October 2017, President Widodo directed his cabinet on a mission to assure that, through the use of geothermal and hydro energy sources, Indonesia would boast a power generation matrix composed of 23% renewable energy sources by 2025. If, in recent years, development in the renewables sector has been relatively sluggish, 2017 has changed that trend. In the first nine months of the year, the government contracted over 1,000MW of new renewable generation capacity, or twice as much as in the previous three years combined. While the ability of alternative energy sources to compete with traditional fossil fuel-based generation like coal, oil, or gas remains a challenging point of debate, adoption is taking place quicker than anticipated. According to the country's authorities, renewable energy use is growing by 0.54% per year, with the use of hydropower and geothermal sources consistently ranking higher than the government's earlier predictions.
Also in October, the Ministry of Energy and Natural Resources announced that coal-based power generation development would no longer be allowed on the island of Java, the most populated in Indonesia, opening space for the development of cleaner alternative sources of power generation.

Overall, the country's energy matrix has a 12% input coming from renewable sources. In this way, the country is on its way to fulfill its commitment to the United Nations Framework Convention on Climate Change in 2015, which set a 23% portion of the country's power generation capacity coming from clean sources of energy by 2025.

One of the country's biggest keys in attaining its clean energy goals is geothermal generation. Indonesia is the world's third-biggest producer of this type of energy, after the US and the Philippines, and holds the world's biggest reserves. It is expected that, by next year, Indonesia could overtake the Philippines as the world's second-biggest producer and take over the US' position by 2021. The ministry has stated its intention to add over 2GW of geothermal generating capacity to the national grid over the next five years, with projects like the Sarulla Geothermal Power Plant, the Karaha Geothermal Power Plant, the Sorik Marapi Geothermal Power Plant, and the Lumut Balai Geothermal Power Plant already under development.

More localized developments are also taking place across the country, addressing smaller-scale needs. In November 2017, a new 5-MW geothermal power project initiated development in the South Halmahera Regency, North Maluku, sponsored by the Ministry of Energy and Mineral Resources, which is considering a potential near-term expansion of the plant to 10MW. The area itself has potential to produce up to 149MW of geothermal power.

Small-scale geothermal projects could come to represent an ideal solution to produce power in many of Indonesia's remote communities.

The geothermal sector, however, still faces challenges that restrain further development. Speaking to TBY, Khoiri S., President Director at PT Plumpang Raya Anugrah, explained: “The problem in geothermal is the cost of exploration, and that includes the necessary infrastructure development. For example, in remote and mountainous areas, protected forest permits and road infrastructure are costly. If these investments solely come from private companies, it becomes almost unfeasible, and we thus need the government to come in. Fortunately, there is willingness on its side to collaborate, both on exploration and energy infrastructure."
Crude problems

While the power generation sector is in high gear, the oil and gas sector, once a core share of Indonesia's financial streams, is in depression. A decade ago, the sector represented 25% of the government's revenue, in 2014 it contributed no more than 14%, and, by 2016, its input represented no more than 3% of the money entering governmental coffers. While a great deal of the responsibility lies in the collapse of the oil price since 2014, industry players cite excessive red tape and delays on project approvals as a major deterrent in the sector's development, rather than lack of geological potential. Investment in exploration in 2016 stood at around USD100 million, comparing poorly with the USD1.2 billion spent in 2012.

A recent change in the cost-recovery schemes is considered to have made investment conditions even less attractive, even though the government stands by the idea that working conditions for oil operators have never been as good. PT Pertamina, the national oil company (NOC), is tasked with the monumental job of raising production from the current 800,000bpd to 1million bpd by 2019. Beyond the billions in investment necessary to achieve such a goal, the company is also picking up the pieces of what appears to be a receding sector. From January on, the company will take over control of Mahakam, Indonesia's biggest gas field, after French major Total pulled out of the project. Mahakam alone will cost USD700 million in investment next year to maintain production at contracted levels. A rush of nationalistic political stands will likely see the NOC take over most of the country's oil and gas fields in the years to come, as contracts with foreign operators reach their terms.