This document provides an outline and overview of sustainable energy policy in Indonesia. It discusses the current status of Indonesia's energy supply, which relies heavily on fossil fuels. It also assesses the implementation of sustainable energy policies, noting that renewable energy targets have not been met and electrification has been led by fossil fuels. Barriers to renewable energy development include a lack of coordination between institutions, regulatory uncertainty, and subsidies that favor fossil fuels. Opportunities exist in stringent environmental policies, integrating renewable energy plans, and developing off-grid solutions for rural areas.

1. Widodo W Purwanto
Departemen Teknik Kimia
1
Sustainable Energy Policy
Lecture 13

2. Outline
 Current Status
 Assessment on SE Policy Implementation
 Barriers and Oppotunities
 Recommendations
2

3. Current Status
3

4. The major issues
Immense RE resources but
not been used widely
(RE ~7.7%)
Net oil importer country:
-60%
Net gas importer country
in 2020, -70% LPG
Regulated price,
energy subsidies
~ 100 trilion IDR
Enjoy strong and stable
economic growth
5.3% (2011-2016)
Energy supply mix is
largely met by fossil
fuels (93.3%)
Archepelago – inter-
regional disparities
and complex logistics
Indonesia has
ambitious RE targets
23% by 2025 and 31% by
2050
Low electrification ratio
compared to ASEAN
countries
Low energy productivity
of most sectors
4
Most of energy planning
objective is least cost
without consider
environmental external.

5. Low Reserve Replacement Ratio
5
Reserve Replacement Ratio
0% 50% 100% 150% 200%
Vietnam
Malaysia
Australia
India
Indonesia
Thailand
Reserve Replacement
(2011-2015)
Reserve Replacement Ratio
(2011-2015)
Source: MEMR

6. Indonesian Oil and Gas Production
Profile
6
Source: PwC

7. Source: OPEC, 2014, 2017
7
Source: MEMR, 2017
Petroleum Fuels & LPG Import
Dependencies

8. Inequality across regions is large
Generation cost of electricity
Source: MEMR, 2017
8

9. High CO2 intensity of electricity
Source: IEA, 2016
9

10. Achievement of RE mix –
far from the target
Source: MEMR
achievement: 7.7%
RE share of total
energy supply
10
Electricity
11,7 % RE share
13,6% (incl.
Biomass)

11. Renewable energy target
vs actual share
11
Source: Maulidia et al., 2019

12. Unclear policy objective: State budgetary vs.
Net/near net importer country
Strukture industri: Oligopoly (Stage I & II) vs.
Regulasi Unbundling (State IV)
Regim harga gas domestik - regulation on a
cost of service basis (RCS) dan regulation on a
social and political basis (RSP)
Status of O & G industry

13. Pertamina, IOCs
Private companies
holding trading licenses PGN, Pertagas PGN, Pertagas
Value Chain
Activities
Key players
Regulators MEMR/ SKK Migas BPH Migas
Policy objectives –Tidak Jelas
Source: WB, Modified
Max Social Welfare
Max Netback Gas
Balancing
Policy - multi objectives
etc
BUMN-K BUP
New law?
?

14. NRM - Resource Value through
State Budgetary
Gas Supply
Gas
Supply
Gas
Supply
Gas End-
User
Resource
Rent
Government
Overall
Society
Drivers for Resource Rent
Redistribution
Rent Leakage?
Gas End-
User
Regulator
Business-to-business
sales
Higher price  more tax/non-tax revenues
Source:WB

15. Political &
Social Cost
Government
PSO
(Financial)
Political and social cost by Gov.
Economic price
Regulated price
Subsidy

16. Permasalahan utama harga BBM
Partially subsidized (28%)
Single price (cross subsidies among
regions)
Fossil Subsidy: “Lock-in,” “Traps,” and
“Addiction”

17. Permasalahan utama harga Gas
Kurang jelas peran market authority (wasit)
No transparency of price signals
• NRM: State bagetary, max. netback
• Harga wellhead: closed book?
• Pipeline gas: eskalasi
• LNG: link dengan minyak, rantai pasok
(liquefaction + regas) >
• Non gas cost (midstream): tinggi – load factor <,
margin >
• Netback gas sisi konsumen: tidak transparan?

18. Permasalahan utama harga RE
18
Harga listrik RE = 85% x BPP Regional ketika
BPP Regional > BPP Nasional (Permen ESDM
No. 50 Tahun 2017). PLTA & Geothermal ~
OK, mini grid & off-grid RE - sulit bersaing.
Subsidi biodiesel berasal dari levy CPO (RE).
Program B20  clean energy vs. defisit
current account ( -Oil&gas)  RE mensubsidi
fossil?.

19. Evolution of Indonesia's Energy Policy
19
Source: Maulidia et al., 2019

20. Indonesia's climate change policy
20
Source: Maulidia et al., 2019

21. Assessment of SE Policy Implementation
21

22. RE power target and achievement
22
Energy Source
RUPTL KEN/RUEN
Target in
2025 (GW)
Target in
2025 (GW)
Target in
2050 (GW)
Geothermal 6.2 7.2 17.5
Large Hydropower (>10M) 13.1 18.0 38.0
Small Hydropower (<10M) 1.4 3.0 7.0
Biomass 0.5 5.5 26.0
Solar PV 0.4 6.5 45.0
Wind 0.6 1.8 28.0
Marine energy 0 3.1 6.1
Total 22.2 45.1 167.6
Achievement:
RE electricity capacity
6 GW (~ 27% of target)
8.8 GW (incl. Biomass)
Source: PLN 2015 2017
60 GW
979 kWh/capita
11,7 % RE share
13,6% (incl. Biomass )

23. RE power growth needs
to achieve the target
23
17%
13%
12%
32%
93%
109%
0
5
10
15
20
25
30
35
40
45
2015 2025 (Target)
Renewable
Energy
Capacity
(GW)
CAGR
2015-2025
Hydropower Geothermal
Biomass Mini- & micro-hydro
Solar Wind

24. Indonesian Biodiesel Mandate
24
Achievement:
blend composition
~10%

25. EFFECTIVENESS-capacity growth
25
4.38 1.30
14.15
2.01 4.20
4.59
9.66
3.21
0.86
2.31 1.61 2.99 0.65
5.06 6.09
18.79
2.31 1.26
-80
-60
-40
-20
0
20
40
0
2000
4000
6000
8000
10000
12000
14000
16000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Growth
of
Renewable
Energy
Installed
Capacity
(%)
Renewable
Energy
Installed
Capacity
(MW)
Year
Source: MEMR, 2016;DGEBTKE, 2016; DGE, 2016; IRENA, 2015; IRENA, 2017
Note: No Reliable Data on Biomass from 2000 - 2005
Hydropower
Geothermal
Biomass
Mini- & micro-hydro
Solar
Wind
Growth Total
Growth On-Grid Only

26. EFFECTIVENESS-Investment
26
0
500
1000
1500
2000
2500
3000
2007 2008 2009 2010 2011 2012 2013 2014 2015
Renewable
Energy
Investment
(Million
USD)
Year
Hydropower Geothermal
Biomass Mini- & micro-hydro
Solar Wind

27. EFFECTIVENESS-production growth
27
15.6
-10.4 -8.1
6.3
35.3
-6.0
43.6
8.1
1.8
26.4
-12.7
2.4
15.0
-1.6 -4.1
-100
-80
-60
-40
-20
0
20
40
60
80
100
0
10
20
30
40
50
60
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Gwoth
of
Electricity
Generation
(%)
Electricity
Generation
(TWh)
Year
Source: MEMR, 2016;DGEBTKE, 2016;DGE, 2016; IRENA, 2017
Hydropower Geothermal Bioenergy
Mini- & micro-hydro Solar Wind
Growth

28. EFFECTIVENESS-production biofuels
28
0
1
2
3
4
5
6
7
8 Biodiesel
Bioethanol
Biodiesel
Bioethanol
Biodiesel
Bioethanol
Biodiesel
Bioethanol
Biodiesel
Bioethanol
Biodiesel
Bioethanol
Biodiesel
Bioethanol
Biodiesel
Bioethanol
Biodiesel
Bioethanol
2007 2008 2009 2010 2011 2012 2013 2014 2015
Billion
Liter
per
Year
Source: DGEBTKE, 2015;DGEBTKE, 2016
Production Unused Capacity

29. EFFICIENCY-LCOE/CoG
29
0
50
100
150
200
250
300
350
400
450
500
Hydropower Geothermal Biomass Solar Wind
Cost
of
Generation
(US$/MWh)
NOTES:
Area in grey color is the cost of generation range of fossil-based electricity
White box in each range indicate the weighted average value
Source: IRENA, 2017

30. 30
0
20
40
60
80
100
120
140
160
180
200
Power
Purchase
Price
(US$/MWh)
Source: MEMR, 2017b
Costof Generation (B to B Scheme)
100% Cost of Generation (Hydropower & Geothermal)
85% Cost of Generation (Other Renewables)
National Average of Costof Generation
EFFICIENCY-Power purchace price

31. EQUITY – kWh/Cap/year
31
0
100
200
300
400
500
600
700
800
900
1000
-10
0
10
20
30
40
50
60
70
80
90
100
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Electricity
Consumption
per
Capita
(kWh/yr)
Electrification
Ratio
and
Change
of
Electricity
Consumption
per
Capita
(%)
Year
Electrification Ratio
Change of Consumption per Capita
Electricity Consumption per Capita

32. EQUITY – increased electrification ratio is
mostly by fossil
32
0
10
20
30
40
50
60
70
80
90
100
0
50
100
150
200
250
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Electrification
Ration
(%)
Electricity
Generation
(TWh)
Year
Renewable
Fossil
Electrification Ratio

33. INSTITUTIONAL FEASIBILITY
Table 2.5. Mapping of Function and Institution in Renewable Energy Sector in Indonesia
Function Institution
Policy CMEA; BAPPENAS; MOF; MOEF; MOI; MSOE; DEN; MOPWH
License and Contract DG EBTKE; DG Electricity; Local Gov’t
Regulation DG EBTKE; DG Electricity
Operation Pertamina; PLN; IPP; Local Companies; Cooperatives; Communities
CMEA: Coordinating Ministry of Economic Affairs; BAPPENAS: National Development Planning Board;
MOF: Ministry of Finance; MOEF: Ministry of Environment and Forestry; MOI: Ministry of Industry;
MSOE: Ministry of State-Owned Enterprises; DEN: National Energy Council; MOPWH: Ministry of
Public Works and Housing; DG EBTKE: Directorate General of New and Renewable Energy and Energy
Conservation; DG Electricity: Directorate General of Electricity; PLN: State-owned Electrical Company;
IPP: Independent Power Producer;
Source: ADB, 2016
33

34. Policy support
34
However, the institutions are having difficulties
in coordinating each other, for example
between the central government and local
government. Streamlining the objectives of
policies and regulations among institutions and
to the higher-level regulations and policy.
The country already has comprehensive
legal support, institutions, and
instruments for renewable energy. Each
institutional function, including policy,
regulation, licensing and contract, and
operation has already been assigned to
corresponding institutions.

35. Barrier and Opportunities
35

36. 36
Development of energy policy in Indonesia is mostly based on least cost
objective and less consider the environmental externalities. National
electricity planning is mostly based on centralized grid extension by
optimization process to achieving the lowest cost of electricity supply.
For small non-interconnected grid, it does not apply the optimization
but rather uses a deterministic approach.
The increase in electrification ratio is predominantly due to the
addition of fossil-fired generation capacity, especially diesel-fired
power plant. This can be interpreted that renewable energy based
electricity development has not been running as targeted by the policy
while medium and small-scale renewable electricity opportunities have
not been deployed considerably in increasing energy access.
Ambitious mandates for liquid biofuel blending but lack of innovation
approach in improving the biofuel value chain and sustainability of
supply concerns.
Lack of coordination between government institutions, regulatory
uncertainty, frequent amendments to legislation, and license delays,
are the most serious barriers to the development of renewable energy.
Some political and social cost are responsibility of the PSO –lack of
tansparancy
Regulatory Barries

37. Market Entry Barriers
37
Energy price in Indonesia is heavily regulated with subsidies are still an important
part of state-own enterprises revenues. The energy subsidies are largely being paid
to the region with higher population densities. This is somewhat inconsistent with
the objective to increase equitable energy access, especially for the eastern part of
the country and remote areas.
Subsidies of blending Biodiesel is come from levy of RE (CPO) and lack of
transparency of price signals for users and producers , some excessive margin in
midstream industries
With respect to the current MEMR regulation No. 50/2017 on renewable energy
electricity tariffs that based on benchmarks on the regional electricity generation
cost (BPP). However, this FiT might extremely discourage renewables electricity
development in lower-cost production areas. The current renewable electricity tariff
is assumed less than equal to average regional electricity production cost that is
mostly based on fossil-fired generation. It seems unrealistic since an immaturity of
renewable electricity industry will be to compete with fossil-based electricity for
only an economical aspect without environmental and social considerations.

38. Technical Barriers
38
As an archipelago state has challenges in providing equitable
access to energy services for a complex geography. The
electrification ratios in some provinces of eastern Indonesia and
remote areas were particularly low.
Indonesia’s electrical grid system is fragmented composing eight
interconnected networks and more than 600 isolated grid
systems are in operation, not including the smaller grids
supplying small cities and villages. The relatively small size of the
limits of the grid how much VRE can be connected.
Lack of awareness and limited technical capability for developing
renewable energy.

39. Opportunities - Regulatory
39
Stringent policy on the environment by aligning renewable energy
deployment strategy between national energy policy (KEN) and
GHG reduction objective of Paris agreement (Law No.16/2016).
Incorporate the plans and targets of the expected increase in VRE
and mini and off-grid renewable power plants in RUPTL and RUKN.
The geographical characteristic encourages the off-grid and mini-
grid deployment by using renewables energy in rural areas or
remote areas.
Integrated supply policy with end-user sectors policy especially on
energy efficiency and energy conservation in the renewable energy
value chains.
Political and social cost of energy are responsibility of the
government not the PSO

40. Opportunities – Market Entry
40
Renewable energy markets are on a rise; this is due to
declining costs of renewable energy technologies, to
improving energy access across the country.
Increase government fund for renewable energy projects
that covers the gap between the mandated renewable
energy feed-in tariffs and the revenues that state-own
company receives from consumers.
Develop more financially-friendly FiT that reflects their
higher risks as well as their increased capital and
operational expenses of renewable energy projects.
Reform domestic pricing mechanism for fossil energy and
removes the subsidies

41. Opportunities – Technical
41
Integrate grids plans across the country for with potential to
absorb VRE. Equip the grid with energy storage to stabilize it
while absorbing higher levels of VRE.
Improve the limit capacity of off-grid renewables project by
establishing larger off-grid working areas and larger capacity
and allow integrated business electricity with productivity
zones or small-scale economic activities.
Biofuel policies should be embedded in broader
considerations of sustainability. producers, not only supply
feedstock for biofuel production, but also increase the use of
residues and waste in the production of heat and electricity.

42. Recommendations
42

43. Kejelasan Mekanisme Penentuan
Harga Gas Domestik
43
Gas price
Price Max
Price Min Trade off
Efficient gas allocation  Estimate economic value of gas in difference sectors
(consumer sector -WTP, production sectors-MVP)
 Max gas value chain for domestic
 Effiencient use of gas - Macroeconomic impact
Producer
Consumer Price mechanism
Economy efficiency, Social equity, Finacial viability
Wholesale price formula or renponsive price adjustment

44. Perkuat peran Market authority
44
BPH
KPPU
DMIgas

45. RE pricing mechanism
45
Fossil energy
Renewable energy

46. Targets in the global renewable energy
landscape
46
Source: IRENA, 2017

47. Types of renewable energy policies
and measures
47
Source: IRENA, 2017

48. Key Recommendations
The success of fossil fuel subsidy reforms were
influenced by strong leadership in fostering support
unpopular energy price increases.
Reshape and transform Indonesia’s Oil and Gas Industry.
Reform energy pricing: clear policy objective,
transparency of price signals, and simple price
mechanisms can help depoliticize the reform process.
Energy price should reflect the energy quality
(externalities) using rational FiT for RE, and redirect
fossil subsidies to RE.
Requires“political economy of RE” in Indonesia.
48

49. Key Recommendations
Strengthen the RE policy commitment by considering the
environmental and social externalities of fossil energy in policy
objectives besides the least cost that it reflects the true cost to
the society.
Development of a national grid extension plan needs to be
addressed with an integrated approach. Policymakers should
mix centralized top-down grid extension with bottom-up
strategies and decentralized power generation includes mini-
grids and off-grid.
Capitalize on the important role of renewable-based energy
supply for small and medium-scale projects, using an
availability of local energy sources, to increase access to energy
services, especially for the region with low electricity ratio
instead of using diesel-fired generators.
49

50. Key Recommendations
Develop FiT of RE technologies which are more financially-friendly
for the private sector. The tariffs should reflect their higher risks
and simplifies license procedures, and create more attractive
policy measures that allow industry reduces the capital and
operating cost.
Create innovative business models promise new ways to finance
RE project such as by the use leasing to bridge between investor
and user of off-grid renewable energy, named pay-as-you-go
(PAYG).
Inline coordination between government institutions, assures
regulatory certainty, and simplifies license procedure, for
attracting private sector involvement
50

51. Thank You
51