As its domestic energy demand soars, Indonesia continues to diversify its supply, taking steps to reduce its dependence on oil. The archipelagic nation is increasingly looking to renewable sources, such as geothermal, to help meet its energy needs.
The power sector output will grow to 970 TW hours (TWh) by 2030, from 120 TWh in 2005, according to projections in a review published by Stratfor, a US-based geopolitical think tank, in March 2013. The rise will be driven by GDP growth at 4-6% per year and increased industrial production. In recent years, demand has outstripped supply, leading to power shortages and a low electrification ratio, according to the US Energy Information Administration (EIA).
The Stratfor review says that if Indonesia continues to generate more of its energy from oil than other sources, it risks depleting its crude oil reserves, which are a valuable source of export earnings and can also be used as feedstock for value-added sectors, such as petrochemicals. In the first two months of 2013, export revenue of crude and oil products fell 23% to $2.2bn against the same period in 2012, while oil imports by value rose 16%, according to official statistics. This led to an oil trade deficit of $4.9bn, up from $3.2bn in 2011.
According to the EIA, petroleum continues to be the largest contributor to Indonesia’s energy mix, accounting for 30% of primary consumption in 2011. However, its share has been declining, particularly as coal usage has soared, tripling in the 2001-11 period and now accounting for 22% of the mix. Biomass and renewables contribute an impressive 29%, and natural gas (of which Indonesia is one of the world’s leading exporters), 19%. In terms of electricity generation, however, traditional thermal accounted for 86% of the total, hydroelectric (8%), geothermal (5%) and other sources (less than 1%).
The government has been actively pursuing a policy of expanding coal power production to ease the burden on oil resources, taking advantage of the country’s huge reserves (Indonesia is one of the world’s largest coal exporters) and low cost. Indonesia is in the process of adding an extra 10,000 MW of installed coal capacity.
While coal is likely to remain an important part of the domestic energy mix, it carries the downside of increasing Indonesia’s carbon output, which the government is hoping to limit. Current supply is ample enough to feed power plants, domestic industry and still generate strong exports, though this will not be the case indefinitely.
With this in mind, in 2011 President Susilo Bambang Yudhoyono issued Presidential Decree Number 61 of 2011, which sets a target of generating 25% of energy from renewable sources by 2025, as part of a strategy to reduce greenhouse gas emissions. Geothermal power is likely to be at the heart of this drive: Indonesia is already one of the world’s leading geothermal producers, with almost 10bn KWh generated in 2011, according to the EIA.
Estimates from the Geological Agency suggest Indonesia could soon top the world in geothermal output, with total potential resources and reserves at 28,994 MW, while installed capacity stood at just 1196 MW in 2011. According to the review, this could rise to almost 4000 MW by 2014, stating that, “if this succeeds, Indonesia can address its energy shortfalls and curb the need for imported oil in the power sector.”
Low Kian Min, president director of Paiton Energy, told OBG, “The largest untapped energy potential available in Indonesia is in geothermal, but many projects can run into problems. Typically, geothermal projects are located in forests next to volcanoes, which have no existing infrastructure, such as power lines or roads. Also, many banks are unwilling to finance the exploration phases, as it takes about three or four wells to confirm the resource with geothermal, and each drill project costs between $8m-10m. Therefore companies have mostly financed this using equity. There have been increases in the tariffs here to compensate for the risk involved, as well as discussions to change regulations to improve access, but not much movement has been seen yet.”
While hydroelectric power is already well established, and geothermal has particular potential, Indonesia is also turning to solar. A recent report by NPD Solarbuzz, a photovoltaic (PV) market research firm, said Indonesia will become the second-largest solar PV market in Southeast Asia by 2017. Indonesia aims to install 1 GW of new solar plants by 2025, though this will result in only a 0.3% contribution to the overall energy mix.
Despite continuing to rely on oil and coal for electricity production, Indonesia has also taken the necessary first steps toward diversifying its energy mix by beginning to tap into its vast potential in several renewable sources, which could provide a number of enticing opportunities for niche investors.