There are several forces that shape the energy policies of Indonesia. Foremost, the security of energy supply is crucial for the nation. Indonesia used to be an important oil exporter and a member of the Organization for Petroleum Exporting Countries (OPEC). However, with the declining domestic production and booming demand, Indonesia became a net oil importer in 2004 and subsequently suspended its OPEC membership in December 2008. Even though six years later Indonesia re-activated its OPEC membership after the election of President Joko Widodo in 2014, the oil reserve is still seen to be insufficient to cover the growing demand. For this reason, the diversification of energy supply is necessary. Secondly, Indonesia has considerable renewable energy (RE) potential, which could be utilized in order to meet the increasing energy demand, but also to ensure environmental sustainability. As an archipelagic nation, providing reliable electricity supply to some part of the country is very challenging and decentralised RE power generation can be one of solutions. Indonesia announced its commitment to greenhouse gas (GHG) emission reduction during the G-20 Leaders’ summit and UNFCCC’s 21st Conference of the Parties (COP-21) in 2015, which is a GHG reduction by 29% in 2030. RE and energy conservation would have a vital role in fulfilling this pledge.

Indonesia’s energy sector is under the jurisdiction of Ministry of Energy and Mineral Resources (ESDM)[1]. The National Energy Council (DEN)[2], that was established in accordance to the Energy Law 2007 (UU No. 40/2007), is assigned to develop the National Energy Policy (KEN). Directorate General on New, Renewable Energy and Energy Conservation (EBTKE)[3] supports the DEN on the renewable energy and energy efficiency policies. The policy is implemented according to National Energy General Plan (RUEN).

The energy supply in Indonesia was highly subsidised by government. The fossil fuel subsidies are not new in Indonesia. These subsidies were introduced for the first time not long from the nation independence in 1949 and by the 1960s, the subsidies are accounted for nearly 20% of fiscal expenditure. The sharp devaluation of the currency during the Asian crisis of the late 1990s further ratcheted up their cost. By 2014, the economic value of fossil fuel subsidies in Indonesia amounted to $27.7 billion.

Indonesia however has been taking some actions by gradually removing fuel subsidies started in early 2015. The energy subsidies are given to the selected customers with specific regulations. This action has been successful in reducing the nation subsidies by significant amount. According to the IEA, the country expense on fossil fuel subsidies in 2016 was projected to less than 1% of GDP.

The energy policy in Indonesia has been defined in National Energy Plan 2014 (NEP14), that was signed on 17 October 2014 as Government Regulation No. 79/2014 to replace the 2006 National Energy Plan. NEP14 sets out the ambition to transform the country energy mix by 2025 as follow: 30% coal, 22% oil, 23% renewable resources and 25% natural gas.

 

[1] ESDM: Kementerian Energi dan Sumber Daya Mineral

[2] DEN: Dewan Energi Nasional

[3] EBTKE: Direktorat Jenderal Energi Baru, Terbarukan Dan Konservasi Energi

Figure 1 presents the latest statistics on total primary energy supply from 2017 with total of 1,650,258 kBOE. It is shown that fossil fuels contribute to 76% of the primary energy supply, with oil and petroleum being the dominant fuel (34%). The remaining 24% of the primary energy demand is supplied by RE sources, mostly bioenergy (20%).

Indonesia's Primary Energy Supply in 2017 (%)

  • Oil & Petroleum (565,576 kboe)
  • Coal (407,526 kboe)
  • Hydro (46,914 kboe)
  • Bioenergy (323,389 kboe)
  • Geothermal (20,259 kboe)
  • Natural Gas (286,694 kboe)

Source: Handbook of energy & economic statistics of Indonesia (2018)

Note: kBOE = Thousand Barrel of Oil Equivalent

The electricity mix is represented in Figure 2. Nearly 88% of electricity generation comes from conventional fuels, mostly from coal fired power plant (58%). In fact, Indonesia’s government aims to promote use of coal in the electricity sector, as it is domestically available and relatively cheap compared to other energy sources. RE contributes to only 12.6% in this sector. Large hydropower is the main RE source for electricity generation (7.4%). Biomass, which contributes significantly to the primary energy demand, does not play a major role in electricity generation. It is used mainly for thermal energy generation e.g. cooking, especially in rural area.

Indonesia's Electricity Generation by Source in 2017 (%)

  • Oil & Petroleum (18,850 GWh)
  • Coal (147,964 GWh)
  • Hydro (18,632GWh)
  • Other RE (Solar: 29 GWh, Waste: 590 GWh)
  • Geothermal (12,764 GWh)
  • Natural Gas (55,790 GWh)

Source: Handbook of energy & economic statistics of Indonesia (2018)

Note: The electricity mix consists of PLN (State-owned Power Utility) self-generation – 183,809 GWh and purchase of electricity from IPP (Independent Power Producer) – 64,802 GWh.

Electricity market in Indonesia is a vertical integrated one where PLN, the state-own utility, owns transmission and distribution assets. The private sector is allowed to generate electricity as independent power producer (IPP). However, PLN remains a single buyer.

Indonesia’s electricity tariffs are regulated by the government on a quarterly basis. The latest electricity tariffs are shown in Figure 3. Previously, electricity in Indonesia was highly subsidized. The tariff charged to the customers was only about a half of its actual production costs, while the difference was covered by the government.

The government of Indonesia is gradually reducing subsidy on energy and then divert the state budget for financing infrastructure development. Hence, the electricity tariff needs to be readjusted in accordance with its actual production cost.

Since 1 January 2017, PLN has two different tariff categories for their customers; with and without subsidy. Households that subscribe a 450 VA power are still subject to old subsidized tariff and households with 900 VA power or more are subject to the new rate scheme.

According to the regulation PERMEN ESDM No. 28/2016 (still applies until end of 2018), the electricity tariff is as follow:

  • Residential subscribers on 450 VA power are subjected to subsidized rates at Rp. 415 per kWh
  • Residential subscribers on 900 VA power are subjected to non-subsidized rates, unless they are proven to be low-income, subsidized tariff may be charged at Rp. 586 per kWh
  • Residential subscribers on 1,300 to 6,600 VA power are subjected to tariff without subsidy at Rp. 1,467.28 per kWh
  • Business and Industry subscribers on 450 to 6,600 VA power are subjected to tariff with subsidy from Rp. 535 per kWh to Rp. 1,100 per kWh
  • Business and Industry subscribers on 6,600 VA power and above are subjected to tariff without subsidy at Rp. 1,467.28 per kWh

In 2016, the electrification rate in Indonesia reached 91.16%[1]. The government is planning to increase the rate of electrification to at least 97.4% by 2019. Some remote islands have the lowest electrification rate (around 36%), while the capital city, Jakarta has reached the universal electricity access.

[1] ESDM: Kementerian Energi dan Sumber Daya Mineral

 

Electricity Tariff in Indonesia

Source: Perusahaan Listrik Negara (2019)

Note: The conversion rate from US Dollar (USD) to Indonesian Rupiah (IDR) is 14,562 (as of December 2018).

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