Indonesia Expands Energy Capacity

Indonesia Expands Energy Capacity

Indonesia’s electricity demand is expected to increase from 206.5 TWh in 2013 to 442.5 TWh in 2022, according to an energy report issued by Transparency Market Research. The report also projected Indonesia’s power generation capacity would double to 90.1 GW by 2022.

Infrastructure build out

The government has set an ambitious goal of adding 35 GW of new installed capacity by 2019, increasing the share of the population with access to electricity from 85% to 98% by 2022.

The estimated $93bn expansion will involve the construction of 291 generation plants, 47,000 km of new transmission and distribution lines, as well as 1375 new substations. State-owned electricity company Perusahaan Listrik Negara (PLN) is investing $50.5bn in the project, while the private sector is set to provide the remaining $40.5bn of funding, accounting for up to 30 GW of the 35 GW of installed capacity.

As part of the government’s energy expansion strategy, renewable energy sources, such as hydropower, geothermal and wind, will be targeted for development.

Geothermal to contribute to energy mix

Geothermal energy, which can be harnessed from the archipelago’s volcanic geology and produces less pollution, is a promising feedstock for the country’s future power generation needs.

Available 95% of the time, compared to 60-70% for coal and nuclear, geothermal is also a more reliable power source.

The government has been promoting reforms to facilitate geothermal investment as it aims to increase generation capacity from 1.6 GW in 2013 to 6.6 GW by 2025.

The Geothermal Law, passed in 2014 but yet to be implemented, aims to remove several barriers to geothermal development including by centralising the tender process to sidestep delays in permitting at the local level.

“The old system was sometimes confusing, as developers had to secure permits from both central and local governments,” Abadi Purnomo, chairman of the Indonesia Geothermal Association, told local media after the law was passed.

The law also increased the price ceiling range to between $0.12 and $0.30 per KWh to reflect the high costs of developing geothermal-produced electricity.

Perhaps most significantly, the law states that geothermal activities are no longer considered mining activities. Under the previous classification, geothermal projects were prohibited in protected forest and conservation areas, which limited development.

The government is also expected to issue a new investment regulation allowing foreign investors to have 100% ownership of geothermal power plants with a capacity of at least 10 MW; currently, foreign ownership is set at 95%.

While these reforms are expected to further boost investment in the renewables segment, high initial capital costs and long payback periods are among the challenges cited by the industry as continued barriers to growth.