Indonesia’s energy dilemma

Fitrian Ardiansyah, Climate Solutions Column, The Jakarta Post | Tue, 07/06/2010 9:28 AM | Environment

The increase in the base price of electricity (TDL) that starts this month reminds us yet again of the big challenges Indonesia faces when it comes to meeting the country’s rising energy demands.

Energy demand will increase in line with economic development and population growth.

Among G20 nations, Indonesia lags only behind China and India as the world’s fastest-growing economy and has a 6 percent GDP growth rate. This has led to a dramatic increase in energy consumption.

According to the Green Policy Paper released by the Finance Ministry, total energy demand is growing by around 7 percent per year, as the transport and industrial sectors grow, and as households become more affluent.

In the power sector, some analysts suggest that electricity demand grows by an average of 9 percent
per year.

In 2004, Indonesia had 25 gigawatts (GW) of installed electricity generating capacity. The current total capacity is 30.9 GW, two-thirds of which is concentrated in Java, Madura and Bali.

To meet demand, it is predicted that capacity will need to reach 100 GW by 2030.

In the transportation sector, the Transportation Ministry recorded a dramatic increase in motor vehicles.

In 2002 there were only 17 million motorcycles. In mid-2008, there were more than 40 million motorcycles, or 75 percent of all motor vehicles, according to the Road and Traffic Police.

In 2007, land transport — predominantly motor vehicles — was 47.5 percent of national fuel consumption.

The overall growing demand for energy is not balanced by growth in energy supplies and this has caused a crisis in some areas.

The Institute of Essential Services (IESR) argues that the energy situation has worsened since the 1997 economic crisis. This has been evident by more frequent fuel and electricity shortages since 2000 throughout the country.

Although still considered the largest energy producer in ASEAN, the country is struggling to keep up with its energy demand.

From the supply side, the country is the world’s leading thermal coal exporter, a substantial liquefied natural gas (LNG) exporter and was, until 2004, a net oil exporter.

By 2030, Indonesia is expected to remain an exporter of natural gas and coal, but is projected to import 1.3 million barrels per day of oil.

The majority of energy sources for power generation come from conventional thermal sources — fossil fuels, such as oil, natural gas, and coal — and less than 20 percent from hydroelectric sources, and geothermal and other renewable sources.

For the transportation sector, oil still dominates.

The high price of oil on the global market has led to increasing electricity-generation upstream costs and made it more expensive to produce and import gasoline.

In the case of power generation, the cost of electricity production, which is currently around 11 US cents per kilowatt-hour (kWh), cannot be covered by a sales price of 6.5 cents per kWh.

Unsubsidized gasoline is sold between 74 cents and 80 cents per liter whereas the subsidized price is 49 cents.

This subsidy and incorrect price have created a burden for the state budget and contributes to wasteful patterns of energy consumption.

Former finance minister Sri Mulyani Indrawati stated that spending on subsidized electricity and fuel would increase to $15.77 billion in 2010, up from an earlier budget target of $11.6 billion.

Since fossil fuels are a main energy source, a dramatic increase in energy consumption has had significant environmental consequences, such as smog, acid rain and significant greenhouse gas (GHG) emissions.

Although politically challenging, it is understandable that the government wants to increase the price of TDL and to gradually remove energy subsidies.

Nevertheless, the increase in price and the removal of subsidies should be carried out in a just and fair way.

The government needs to protect the poor and provide a scheme for families that still require assistance.

The exclusion of 450 VA customers (a significant number of total electricity consumers and mostly households) appears to be a good decision.

In addition, the adjustment of the price could strengthen on-going actions to conduct energy efficiency and conservation.

Some studies show that Indonesia has the chance to achieve energy efficiency, such as a 10-30 percent efficiency increase from households, 10-23 percent from commercial sectors and 7-21 percent from industry.

This may be a good time for the government to think about the provision of incentives for people or institutions that are embracing energy efficiency and conservation.

The reduction of energy consumption will help the economy and contribute towards mitigating climate change in the long term.

This policy on the demand side should also be strengthened with the government’s increase of support for the development of renewable energy.

Indonesia possesses a variety of renewable energy resources, including geothermal, solar, micro-hydro, wind and bio-energy.

Addressing the decline in conventional energy resources and the escalating concern over environmental issues will not be achieved if there is no serious support and investment in renewable energy.

This comprehensive set of different policy options that touches energy pricing, investment and social equity, if developed and implemented properly, will hopefully help Indonesia to secure its energy and ensure it is clean, renewable and sustainable.

The writer is a PhD candidate at the Australian National University, recipient of Australian Leadership Award and Allison Sudradjat Award and former program director of climate & energy at WWF-Indonesia. He can be reached at

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