How the Energy System is Structured
Indonesia’s electrical grid and distribution is owned and managed by Perusahaan Listrik Negara (PLN), which simply translates to ‘State Electricity Company’. It is Indonesia’s only fully-integrated power utility company. Until 2002, PLN held a monopoly on distribution, but Law No 20/2002 called for an end to the monopoly. This law was ruled unconstitutional in 2004 by the Constitutional Court. Despite this, a later 2009 law legislated an end to PLN’s monopoly. Therefore, the electricity sector’s legal status is uncertain.
The government is attempting to encourage the private sector to expand Indonesia’s energy infrastructure and production, but foreign firms are slow to invest. Many problems remain due to delayed projects, regulatory difficulties, and legal questions. The government has encouraged electrical production growth through several measures. Ministerial Decree No. 2 of 2006 ordered PLN to purchase electricity from renewable energy providers with a capacity of up to 10 MW. This encourages the growth of renewable energy and the development of the private sector in that production. The Minister of Energy Regulation No. 31 of 2009 lays out Power Purchasing Agreements (PPA) between private power producers and PLN. Independent power producers (IPPS) can operate in areas not already designated as sites for PLN’s electrification efforts. IPPs must build their own transmission grids to sell to their customers or go through PLN with a PPA. Since the 1999 Law on Local Government No. 22, local government has greater power in administering the energy sector. Local governments control the development of energy resources and the issuing of permit rights for infrastructure projects. This has created delays and problems for many energy projects, even ones that are essential to achieving national energy goals. However, this decentralization can help the development of independent power producers if they are able to secure a license. Local partnerships with foreign investors in the energy sector are encouraged in projects between 1 MW and 10MW. For projects greater than 10 MW, 95% ownership is possible. Energy production in Indonesia for domestic use is largely public, but the government is seeking to encourage private producers.
The Ministry of Energy and Mineral Resources (MEMR) governs energy in Indonesia. Its directorates cover the oil, gas, and renewable energy sectors. For example, one such directorate is the Directorate General of Minerals and Coal (DG Minerba) that does policy-making, licensing, and regulation of coal production and use. The Directorate General of Oil and Gas (DG Migas), the Directorate General of New and Renewable Energy and Energy Conservation (DG EBTKE), and the Directorate General of Electricity (DG Electricity) have similar responsibilities as DG Minerba does in those areas in their own energy sectors. The oil and gas sector is also overseen by the regulatory body called the Regulatory Agency for Upstream Oil and Gas (BPH Migas). MEMR also handles the state-owned enterprises and researches the government’s mandates for energy. Other institutions involved in the energy sector are the State Ministry of National Development Planning known as BAPPENAS, the Ministry of State-Owned Enterprises (MSOE), and the Ministry of Environment and Forestry (MOEF). The National Energy Council (DEN), BAPPENAS, CMEA (Coordinating Ministry of Economic Affairs), and the Ministries of Trade, Finance, Environment and Forestry, and Industry are involved with policy-making for all of the energy sectors, which includes: coal, oil and gas, new and renewable energy, and electricity. For a more detailed breakdown of the government institutions and their jurisdictions in the energy sector, see the “Learn More” section below under “Energy Profile of Indonesia” on pages 10 and 11 of ADB’s report.
State-owned enterprises (SOEs) are major actors in Indonesia’s energy sector. They operate as corporations and follow the government’s energy goals. MSOE makes sure these enterprises function efficiently and are well-managed. Individual ministries ensure compliance with sectoral laws and regulations. For example, BAPPENAS oversees that SOEs follow its central planning. SOEs in the energy sector includes PLN in energy transmission and distribution, PT Pertamina in oil and natural gas, PT Perusahaan Gas Negara (PGN) in natural gas and coalbed methane, and PT Geo Dipa Energi (GDE) in geothermal energy. The previously mentioned 2009 end to the government monopoly on energy production will allow private power producers to grow in Indonesia. Additionally, the government mandated increases to electrical production rely heavily on investment funding from the private sector. Private energy production is slow to grow due to poor access to the grid and uncertainty over the fuel supply. There are many foreign energy producers of oil and gas. However, much of it is exported. The most notable include: Chevron, Total, ConocoPhillips, Exxon, and BP. Chevron produces more crude oil than Pertamina.
Sources of Energy
Fossil fuels dominate Indonesia’s energy profile at more than 97% of the total: 41.1% from coal, 37.6% from oil, and 18.3% from natural gas. Most of Indonesia’s renewable energy comes from hydropower (around 2%) and geothermal power (around 1%). The projections under the National Energy Policy (Kebijakan Energi Nasional or KEN) forecast a tripling in coal generation, a doubling in gas generation, and a greater than tenfold increase in renewable energy from 2011 to 2025. These projections are based on KEN’s targets for Indonesia’s energy mix.
Presidential Decree No 5./2006 on the National Energy Policy (Kebjiakan Energi Nasional or KEN) seeks to make Indonesia’s energy use more environmentally stable and diverse and to increase domestic energy sources. The 2025 targets of KEN are as follows: 30% coal, 25% oil, 23% renewables, and 22% gas. The 2050 targets: 31% renewables, 25% coal, 24% gas, and 20% oil. One of the efforts to achieve these targets and expand access to electricity is the government’s planned $93 billion expansion in infrastructure and energy generation, including 291 generation plants. PLN is taking on $50.5 billion of the project; the other $40.5 billion will be taken on by the private sector. The goal of the spending is to bring the population with access to electricity from 85% to 98% by 2022.
Indonesia has huge electricity generation capacity in geothermal, hydropower, solar power and biomass. Hydropower accounts for the largest source of potential energy at 76 GW, followed by biomass at 50 GW, geothermal at 28 GW, wind with 1 GW, and solar at 4.8 kWh/m2/day (Directorate General for Electricity and Energy Utilization). However, Indonesia has been slow to take advantage of these sources. The Indonesian government is presenting investors with opportunities in both small and large scale power generation projects. Given the government’s target for renewables to account for 15% (or 12.5 GW) of total domestic energy use by 2025 and a planned capacity increase of 55 GW to 2019, it is essential that energy generation production projects are implemented. “PLN estimates that the total investment required will be $96.2 billion USD of which it can provide up to $60.5 billion USD (PLN 2011-2020 Electricity Supply Plan). IPPs are therefore being encouraged to take on up to 43% of new electricity capacity with a target of 3% of the total being supplied by small scale projects.” Land use permits for new sites are a major obstacle for hydropower, especially in protected forests. This was a major obstacle for geothermal energy permits as well, until a 2014 law removed geothermal energy’s designation as a mining activity. (Quote from: http://www.gbgindonesia.com/en/energy/article/2012/indonesia_s_electricity_and_power_generation_sector.php)
Profiles of Leading Energy Companies
Perusahaan Listrik Negara: Perusahaan Listrik Negara (PLN): PLN accounts for 84% of total electricity transmission, while independent power producers make up 16%. PLN’s peak load was 36,787 MW in 2015. The percent of households connected to the grid—the electrification ratio—is 84%. Of the 257.9 million people in Indonesia, 60.3 million are customers of PLN, by far largest provider of electricity in the country. The Indonesian government has charged PLN to help increase the national installed capacity of 50,000 MW by 35,000 MW over the next five years. PLN is accountable for achieving the government’s accelerated generation targets. PLN intends to contribute 10,000 MW. The rest will come through the private sector. Additionally, the government’s target for the electrification ratio is 99.4% by 2024. Given this government policy, it is unlikely that there will be any energy use reductions. However, the government is committed to expanding the renewable energy sector, especially in hydro and geothermal power. Currently, PLN’s main sources of power come from fossil fuels. The government mandated fast tracking of power production (FTP-II), which planned for increases in hydro power (1,753 MW) and geothermal power (4,000 MW), but implementation has been slow. Indonesia has considerable hydro and geothermal potential. Implementation of these plans is key to combating greenhouse gas emissions and providing for the energy requirements of Indonesia’s developing economy. Unfortunately, efforts to increase the scale of geothermal energy production, as well as gas production, have been difficult and slow. PLN expects increasing coal production to prop up domestic power production. This will make Indonesia’s greenhouse gas emissions reduction commitments more difficult to attain. Making implementation of green energy easier, continuing to expand capacity, speeding up permitting at new sites, and increasing prices to competitive levels will spur the development of renewable energy production. PLN is prioritizing the development of renewable energy sources to supply local grids as the increases to the electrification ratio will put a lot of pressure on the grid.
Pertamina: Pertamina is also a state-owned enterprise and the second largest gas producer in the country, behind Chevron Pacific Indonesia. One of the arms of Pertamina is Pertamina Geothermal Energy, which has concessions for geothermal development across Indonesia. Indonesia has the third largest installed generating capacity in the world. 40% of the world’s potential geothermal sources are in Indonesia, some 28,000 MW. Indonesia only has an installed capacity of 1,500 MW. The government has awarded Pertamina geothermal work areas to expand the installed capacity. PLN will acquire a stake in Pertamina to accelerate the expansion of the geothermal energy supply. The government—through the 2014 geothermal law—will facilitate the adoption of geothermal energy by increasing the price ceiling range to between $0.12 and $0.30 per KWh, due to the high startup costs of geothermal energy. Geothermal activities under this law are no longer considered mining, which prevented companies in protected forests and conservation areas from making new geothermal plants. This measure might be problematic given the importance of Indonesia’s forests as a carbon sink. The negative impact this will have on forests is yet to be seen. These measures will help PLN, Pertamina, and new foreign firms to transition to geothermal energy and help Indonesia achieve its emissions reductions targets.
Submitted by Climate Scorecard Country Manager Tristan Grupp