Moody's Investors Service rated Indonesia' target to increase the share of renewable energy to 23 percent of primary energy needs by 2025 from 12 currently will be difficult to achieve - Photo: Special

Singapore (TheInsiderStories) – Moody’s Investors Service rated Indonesia’ target to increase the share of renewable energy to 23 percent of primary energy needs by 2025 from 12 currently will be difficult to achieve, and that coal will continue to dominate the country’ energy mix over the next five to seven years.

“The evolving policy and regulatory framework will make it difficult for Indonesia to meet its renewable energy targets on time, and we expect changes to its energy mix will be gradual,” says Abhishek Tyagi, a Moody’s Vice President and Senior Analyst in an official statement released today (09/04).

In addition to the policy and regulatory framework, which has seen multiple changes over the years, the levelized cost of electricity for wind and solar remains higher than for coal-based generation capacity, which benefits from subsidies.

The absence of a strong electricity grid on many Indonesian islands also makes it difficult to have large project sites that could benefit from economies of scale. And another reason for the slow adoption of renewable energy is concerns over fall in utilizization rates for coal-based projects.

“Most of Indonesia’ renewable energy plans are also centered around geothermal and hydro, which require longer development lead times than wind and solar projects,” adds Tyagi.

Given these challenges, Moody’s does not expect adverse policy actions to discourage coal-based additions in the medium term. However, financing for new coal-based projects and refinancing for existing coal-based projects will become more challenging, as some banks and financial institutions have taken a policy decision to not lend to coal projects.

Indonesia has planned to reduce its emissions by 26 percent by 2020 and 29 percent by 2030. To achieve this target, Research, Technology, and High Education Ministry have been urged to encourage research and development on new and renewable forms of energy in a bid to support the government’s efforts to achieve the 23 percent energy mix target by 2025.

Besides this, the second new energy technology to be developed to support the 23 percent energy mix target is to encourage the development of solar power plants. The problem is not only about how to produce solar cells but also how to store its energy.

The ministry will develop ways to source electricity produced by energy cells in residential areas through an on-grid system of the state-owned electricity company PT Perusahaan Listrik Negara (PLN) so that houses can buy it again during night time.

This system is used to avoid the expensive off-grid storage system, where solar cells require a battery to store energy.

The government also shed light on the development of power generators that harness the energy of sea waves. This will be developed in Adonara, East Nusa Tenggara, in cooperation with the Netherlands and in Maluku in cooperation with Germany.

The main goal of encouraging research on renewable energy technology is to increase the local components used in producing geothermal power generators. So far, the local components have reached 64.5 percent. This percentage will continue to be increased through research and development activities. Thus, more renewable energy will be produced, and the 23 percent energy mix target can be achieved.

The government believed that the use of diverse sources of energy should continue to be promoted to support the development of electricity and transportation, though the prices should be within the purchasing power of the people.

The purchasing power of the people will remain the main focus of the government in the electricity sector. The minister lauded PLN’ efforts to offer electricity at economical rates. However, one needs to understand that not all forms of basic energy can be used or produced efficiently in all locations.

Solar or wind energy can be used by steam power plants in South Sumatra, for instance, as long as they are able to generate electricity at competitive costs.

Hence, Jonan emphasized that it was not necessary to offer incentives to businesses engaged in the development and use of new and renewable energy.

The government is offering room to ensure that the tariffs on electricity generated by new and renewable energy power plants in all regions will not be the same but will instead be adjusted to the existing potential so that they will help supply energy in the regions.

Through the new scheme, the prices of electrical power generated by new and renewable energy power plants will differ across regions, as a maximum of 85 percent of the prices must be the regional production cost.

The move is intended to enable investors in the renewable energy sector to keep down the prices and to make the investment cost cheaper.

Written by Marcel Gual, Email: theinsiderstories@gmail.com