report_56264_Indonesia_Current Policy Scenario

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<p class="doc-text shared">Energy Transition Pathways for the 2030 Agenda</p>
<p class="country-text shared">SDG 7 Roadmap for Indonesia</p>
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<p class="ref-text shared">Developed using National Expert SDG 7 Tool for Energy Planning (NEXSTEP)</p>
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<h1>Executive summary</h1><p>Transitioning the energy sector to achieve the 2030 Agenda for Sustainable Development and the objectives of the Paris Agreement presents a complex and difficult task for policymakers. It needs to ensure sustained economic growth as well as respond to increasing energy demand, reduce emissions and, more importantly, consider and capitalize on the interlinkages between Sustainable Development Goal 7 (SDG 7) and other SDGs. In this connection, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) has developed the National Expert SDG Tool for Energy Planning ( <a href="https://www.unescap.org/our-work/energy/nexstep">NEXSTEP</a> ). This tool enables policymakers to make informed policy decisions to support the achievement of the SDG 7 targets as well as emission reduction targets (NDCs). The initiative has been undertaken in response to the Ministerial Declaration of the Second Asian and Pacific Energy Forum (April 2018, Bangkok) and Commission Resolution 74/9, which endorsed its outcomes. NEXSTEP also garnered the support of the Committee on Energy in its Second Session, with recommendations to expand the number of countries being supported by this tool.</p><p>The key objective of this SDG 7 roadmap is to assist the Government of Indonesia develop enabling policy measures to achieve the targets of SDG 7. This roadmap contains a matrix of technological options and enabling policy measures for the Government to consider. It presents several scenarios that have been developed using national data, considering existing energy policies and strategies, and reflecting on other development plans. These scenarios are expected to enable the Government to make an informed decision to develop and implement a set of policies to achieve SDG 7 by 2030, together with NDC.</p><h2>Highlights of the roadmap</h2><p>Indonesia’s progress towards achieving the SDG 7 targets is promising, but the current pace will not be enough. Without a concerted effort and an enabling policy framework, Indonesia is unlikely to achieve all SDG 7 targets by 2030. The current level of progress in providing access to clean cooking fuels will need to shift from LPG cook stoves and focus on the promotion of electric cooking stoves, in order to connect the remaining 52 million people with clean cooking technology and fuel by 2030. The current plan for a 1 per cent annual improvement in final energy intensity will need to be boosted to 1.53 per cent in order to the achieve primary energy intensity target of 2.39 MJ/US$ by 2030.</p><p>The existing trend indicates that the country will fail to achieve its 2025 renewable energy target as well as the emission reduction target pledged under the Paris Agreement. The share of renewable energy will need to increase to 22 per cent of total final energy consumption, which is a 6 per cent increase from the current rate, to enable Indonesia to achieve its NDC target for the energy sector together with the SDG 7 targets.</p><p>A deeper analysis indicates that commissioning new coal-fired power plants beyond 2020 is not feasible, from both the economic and environmental perspectives. A faster transition towards cleaner energy sources, especially renewables, will help Indonesia to meet its national energy security of supply and its NDC target. The lifecycle cost of renewables-based power generation is already cheaper than coal-fired energy; however, removal of fossil fuel subsidies from power generation and putting a price on carbon would further attract private investments in renewables.</p><h2>Achieving Indonesia’s SDG 7 and NDC targets by 2030</h2><h3>Universal access to electricity</h3><p>Indonesia is on track to achieve universal access to electricity by 2020. Achieving universal access to electricity is a priority for Government of Indonesia, The National Energy Policy (KEN) states that Indonesia should approach “near 100 per cent” access by 2020. Access to electricity is modelled based on the rural electrification plan of the Perusahaan Listrik Negara (PLN); NEXSTEP identifies off-grid renewables as the cost-effective approach to supplying electricity to the remaining population without access.</p><h3>Universal access to clean cooking</h3><p>Indonesia aims to provide 4.7 million city gas connections and 1.1 million biogas digesters for households by 2025 under the National Energy General Plan (RUEN). Promotion of clean cooking cookstoves at current annual rate of improvement of 8.7 percent from 2010 to 2018, will achieve SDG7 target by 2021. The increase is remarkable when compared to global average improvement of less than 1 per cent during the same period 2010 – 2018 (Tracking SDG7 Report, 2020).</p><p>However, NEXSTEP analysis indicates if Indonesia continues to promote LPG cookstoves as the primary clean cooking technology the following issues are possible: increased reliance on LPG imports, increased vulnerability to global oil prices, increased fossil fuel subsidy burden and renewable energy in TFEC decrease.</p><p style="text-align:center"><strong>Figure ES 1. Indonesian access to clean cooking</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1330.png&qu…; title="" alt="" /><h3>Renewable energy</h3><p>The NEXSTEP analysis indicates that the current policies will fall short of Indonesia’s 2025 renewable energy target of 23 per cent and will only reach 17.7 per cent of the Total Primary Energy Supply (TPES) or 16.4 per cent of Total Final Energy Consumption (TFEC) by 2030. The SDG 7 goal and NDC unconditional target together would need a 22 per cent renewable energy share in TFEC by 2030. The increase will require a high penetration of renewable energy in the power sector as well as an increase in renewable energy in the transport sector. Looking further, new coal-fired power plants beyond 2020 are seen to be an uneconomic option, as the lifecycle cost of renewable-based power generation is cheaper than the fossil fuel counterpart. Moreover, investors will face high-risk premiums in investing in fossil fuel-based power plants. Stopping new investment in coal-fired power plants will require renewables to grow to 24 per cent by 2030.</p><h3>Energy efficiency</h3><p>The current trend of energy intensity reduction indicates that Indonesia will need to revise its targeted annual 1 per cent reduction of final energy intensity to 1.53 per cent of primary energy intensity (figure ES 2) to achieve the SDG 7 target of 2.39 MJ/US$ by 2030, a drop from 2.87 MJ/US$ in 2018.</p><p style="text-align:center"><strong>Figure ES 2. Indonesia energy efficiency target</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1331.png&qu…; title="" alt="" /><p>There are ample opportunities for Indonesia to achieve this target as well as implement a higher rate of improvement. These include, for example, a minimum energy efficiency standard (MEPS), rapid deployment of electric vehicles and improvement of energy efficiency of industrial processes. These opportunities are discussed in later sections of this report.</p><h3>Nationally determined contributions</h3><p>In the current policy scenario, Indonesia will fail to achieve the unconditional NDC target of 11 per cent emissions reduction from the energy sector. Emissions will reach 825 MtCO2-e by 2030, compared to 880 MtCO2-e in the business as usual (BAU) scenario, falling short of reducing emissions by 11 per cent target by 42 MtCO2-e. Increasing Indonesia’s contribution to the Paris Agreement and to align the NDC target to the global 1.5-degree pathway, requires emissions to drop to 722 MtCO2-e (figure ES 3). This calls for urgent action to reduce new investment in coal-fired power plants from 2020 onwards and invest more in renewable energy.</p><p style="text-align:center"><strong>Figure ES 3. Comparison of emissions by scenarios, 2000-2030</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1332.png&qu…; title="" alt="" /><h2>Important policy directions</h2><p>The key policy recommendations to help Indonesia accelerate the energy transition to achieve SDG 7 and NDC targets include:</p><p>(a) Efforts to achieve universal access to clean cooking needs to increase by three-fold. Electric cooking stove is the recommended technology option to achieve this target for Indonesia. This option should be prioritized for the areas where the electricity system experience surplus electricity supply e.g., the JAMALI (Java-Madura-Bali) system. Implementation of this program will cost the Government of Indonesia a total of Indonesian rupiah (IDR) 9.77 trillion (US$ 688 million) [^1] to achieve universal access to clean fuels and technologies for cooking;</p><p>(b) Improving energy efficiency beyond the current target of 1 per cent energy intensity reduction offers a cost-effective way to reduce energy expenditure and achieve the SDG 7 target. Low- to no-cost measures, such as efficient lighting, Minimum Energy Performance Standards (MEPS), switching to electric transport, improving fuel economy standards and improvement of industrial processes have a solid business case with quick returns on investment;</p><p>(c) Indonesia has the potential to contribute more to achieving the Paris Agreement by enhancing its NDC targets to align it with the 1.5°C compatible pathways. A rapid decline in national greenhouse gas emissions by 45 per cent, compared to 2010 levels, can be achieved by 2030. This will require the energy sector to reduce its emissions by 18 per cent, compared with BAU;</p><p>(d) Investments in new coal-fired power generation are no longer cost-effective compared with renewables and should be stopped to avoid emissions lock-in. Least-cost optimization analysis suggests that lifecycle costs of renewables, such as hydropower, geothermal, solar and biomass, are cheaper than coal-fired technologies. The underlying financial risks of investment in coal-based power plants should not be ignored;</p><p>(e) Financing the low-carbon transition through carbon pricing, removing fossil fuel subsidies and the issuance of green bonds should be encouraged. Indonesia has already proved itself a leader in reducing fossil fuel subsidies. Further measures to eliminate remaining subsidies, particularly those for power generation, would save an annual fiscal cost of IDR 101.32 trillion (US$ 7.13 billion) and level the playing field for renewables. Placing a price on carbon will internalise the externality cost of fossil fuel-based power generation and establish a market mechanism to reduce GHG emissions. The introduction of green financing, such as through green bonds, would alleviate the burden of large capital investments needed for the 2030 energy transition.</p><p style="text-align:center"><strong>Figure ES 4. Forecast of Indonesia’s SDG 7 and NDC targets by 2030</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1333.png&qu…; title="" alt="" /><p><H1 class="pb-before">CHAPTER 1: INTRODUCTION</h1></p>
<h2>Background</h2><p>Transitioning the energy sector to achieve the 2030 Agenda for Sustainable Development and the objectives of the Paris Agreement presents a complex and difficult task for policymakers. It needs to ensure sustained economic growth, respond to increasing energy demand, reduce emissions and, more importantly, consider and capitalize on the interlinkages between Sustainable Development Goal 7 (SDG 7) and other SDGs. In this connection, the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) has developed the National Expert SDG Tool for Energy Planning (NEXSTEP). This tool enables policymakers to make informed policy decisions to support the achievement of the SDG 7 targets as well as emission reduction targets (NDCs). The initiative has been undertaken in response to the Ministerial Declaration of the Second Asian and Pacific Energy Forum (April 2018, Bangkok) and Commission Resolution 74/9, which endorsed its outcomes. NEXSTEP also garnered the support of the Committee on Energy in its Second Session, with recommendations to expand the number of countries being supported by this tool.</p><h2>SDG 7 targets and indicators</h2><img style="max-width: 100%;float: right;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1334.png&qu…; title="" alt="" /><p>SDG 7 aims to ensure access to affordable, reliable, sustainable and modern energy for all. It has three key targets, which are outlined below.</p><p>• Target 7.1. “By 2030, ensure universal access to affordable, reliable and modern energy services.” Two indicators are used to measure this target: (a) the proportion of the population with access to electricity; and (b) the proportion of the population with primary reliance on clean cooking fuels and technology.</p><p>• Target 7.2. “By 2030, increase substantially the share of renewable energy in the global energy mix”. This is measured by the renewable energy share in total final energy consumption (TFEC). It is calculated by dividing the consumption of energy from all renewable sources by total energy consumption. Renewable energy consumption includes consumption of energy derived from hydropower, solid biofuels (including traditional use), wind, solar, liquid biofuels, biogas, geothermal, marine and waste. Due to the inherent complexity of accurately estimating traditional use of biomass, NEXSTEP focuses entirely on modern renewables (excluding traditional use of biomass) for meeting this target.</p><p>• Target 7.3. “By 2030, double the global rate of improvement in energy efficiency”, as measured by the energy intensity of the economy. This is the ratio of the total primary energy supply (TPES) and GDP. Energy intensity is an indication of how much energy is used to produce one unit of economic output. As defined by the IEA, TPES is made up of production plus net imports minus international marine and aviation bunkers plus stock changes. For comparison purposes, GDP is measured in constant terms at 2011 PPP.</p><h2>Nationally Determined Contributions</h2><p>Nationally Determined Contributions (NDCs) represent pledges by each country to reduce national emissions and are the stepping-stones to the implementation of the Paris Agreement. Since the energy sector is the largest contributor to greenhouse gas (GHG) [^2] emissions in most countries, decarbonizing energy systems should be given high priority. Key approaches to reducing emissions from the energy sector include increasing renewable energy in the generation mix and improving energy efficiency. In its NDC document, Indonesia has pledged to reduce GHG emission by 29 per cent (unconditional) compared to BAU, and 41 per cent (conditional) with international support compared to BAU by 2030. The contribution of the energy sector towards these targets is estimated to be 11 per cent (unconditional) and 14 per cent (conditional).</p><p><H1 class="pb-before">CHAPTER 2: NEXSTEP METHODOLOGY</h1></p>
<p>The main purpose of NEXSTEP is to help design the type and mix of policies that will enable the achievement of the SDG 7 targets and the emission reduction targets (under NDCs) through policy analysis. However, policy analysis cannot be done without (a) modelling energy systems to forecast/backcast energy and emissions, and (b) economic analysis to assess which policies or options would be economically suitable. Based on this, a three-step approach has been proposed. Each step is discussed in the following sections.</p><h2>Key methodological steps</h2><h3>Energy and emissions modelling</h3><p>NEXSTEP begins with energy systems modelling for developing different scenarios to achieve SDG 7 by identifying potential technical options for each scenario. Each scenario contains important information, including the final energy (electricity and heat) requirement by 2030, possible generation/supply mix, emissions and the size of investment required. The energy and emissions modelling component use the Low Emissions Analysis Platform (LEAP). It is a widely used tool for energy sector modelling and for creating energy and emissions scenarios. Many countries have used LEAP to develop scenarios as a basis for their Intended Nationally Determined Contributions (INDCs). The Least Cost Optimization method is used to calculate the optimal expansion and dispatch of the electric power system. Figure 1 shows the different steps of the methodology.</p><h3>Economic analysis module</h3><p>The energy and emissions modelling section selects the appropriate technologies, and the economic analysis builds on this by selecting the least cost energy supply mix for the country. The economic analysis is used to examine economic performances of individual technical options identified and prioritize least-cost options. As such, it is important to estimate some of the key economic parameters such as net present value, internal rate of return, and payback period. A ranking of selected technologies will help policymakers to identify and select economically effective projects for better allocation of resources. The economic analysis helps present several economic parameters and indicators that would be useful for policymakers in making an informed policy decision.</p><h3>Scenario and policy analysis</h3><p>Using the Multi-Criteria Decision Analysis (MCDA) tool, this prioritized list of scenarios is assessed in terms of their techno-economic for the energy sector, and environmental dimensions to convert to a policy measure. The top-ranked scenario from the MCDA process is essentially the output of NEXSTEP, which is then used to develop policy recommendations.</p><p> <strong>Figure 1. Different components of the NEXSTEP methodology</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1335.png&qu…; title="" alt="" /><p><strong><i>Note:</i></strong> <i>This tool is unique in the way that no other tools look at developing policy measures to achieve SDG 7. The key feature that makes it outstanding is the backcasting approach for energy and emissions modelling. This is important when it comes to planning for SDG 7, as the targets for the final year (2030) are already given; thus, the tool needs to be able to work its way backward to the current date and identify the best possible pathway.</i></p><h2>Scenario definitions</h2><p>The LEAP modelling system is designed for scenario analysis, to enable energy specialists to model energy system evolution based on current energy policies. In the NEXSTEP model for Indonesia, three main scenarios have been modelled: (a) a BAU scenario; (b) current policy scenario (CPS); and (c) Sustainable Development Goal (SDG) scenario.</p><h3>The BAU scenario:</h3><p>This scenario follows historical demand trends, based on simple projections, by using GDP and population growth. It does not consider emission limits or renewable energy targets. For each sector, the final energy demand is met by a fuel mix reflecting the current shares in TFEC, with the trend extrapolated to 2030. Essentially, this scenario aims to indicate what will happen if no enabling policies are implemented or the existing policies fail to achieve their intended outcomes;</p><h3>Current policies scenario:</h3><p>Inherited and modified from the BAU scenario, this scenario considers all policies and plans currently in place. In addition, a target of an 11 per cent decrease of GHG emissions by the energy sector by 2030, compared to the BAU scenario, is set according to the unconditional NDCs of Indonesia. Other policy orientations of the National Energy General Plan (RUEN) are considered, such as the intention of decreasing the dependence on oil and optimizing the use of natural gas;</p><h3>SDG 7 scenario:</h3><p>This scenario and its sub-scenarios aim to achieve the SDG 7 targets, including universal access to electricity and to clean cooking fuel, substantially increasing renewable energy share and doubling the rate of energy efficiency improvement. A least-cost option has been used to provide electricity access to the remaining population. For clean cooking, different technologies (electric cooking stove, LPG cooking stove and improved cooking stove) have been assessed. Energy intensity has been modelled to help achieve the SDG 7 target. Finally, an emission reduction target has been used to estimate the optimum share of renewable energy in TFEC which is considered to be a substantial increase.</p><h5>Fossil fuel subsidy</h5><p>Government of Indonesia will spend IDR 1,008 trillion (US$ 71 billion) in the time period 2020-2030 based on annual fiscal cost of IDR 101 trillion (US$ 7.129 billion) (2017 estimate). Policy reform is required to abolish subsidies that encourage wasteful consumption</p><h2>Economic analysis</h2><p>The economic analysis considers the project’s contribution to the economic performance of the energy sector. The purpose of a cost-benefit analysis (CBA) is to make better informed policy decisions. It is a tool to weigh the benefits against costs and facilitate an efficient distribution of resources in public sector investment.</p><h2>Basics of economic analysis</h2><p>The economic analysis of public sector investment differs from a financial analysis. A financial analysis considers the profitability of an investment project from the investor’s perspective. In an economic analysis the profitability of the investment considers the national welfare, including externalities. A project is financially viable only if all the monetary costs can be recovered in the project lifetime. Project financial viability is not enough in an economic analysis, and contribution to societal welfare should also be identified and quantified. For example, in the case of a coal power plant, the emissions from the combustion process emits particulate matter that is inhaled by the local population, causing health damage and acceleration of climate change. In an economic analysis a monetary value is assigned to the GHG emission to value its GHG emissions abatement.</p><h2>Cost parameters</h2><p>The project cost is the fundamental input in an economic analysis. The overall project cost is calculated using the following:</p><ol><li>Capital cost – capital infrastructure costs for technologies, which are based on country-specific data to improve the analysis. They include land, building, machinery, equipment and civil works; </li><li>Operation and maintenance cost – comprising fuel, labour and maintenance costs. Power generation facilities classify operation and maintenance costs as fixed (US$/MW) and variable (US$/MWh) cost; </li><li>Decommissioning cost – retirement of power plants costs related to environmental remediation, regulatory frameworks and demolition costs; </li><li>Sunk cost – existing infrastructure investments are not included in the economic analysis, since no additional investment is required for the project; </li><li>External cost – refers to any additional externalities which place costs on society; </li><li>GHG abatement – avoided cost of CO 2 generation is calculated in monetary value based on carbon price. The 2016 Intergovernmental Panel on Climate Change (IPCC) Guidelines for National Greenhouse Gas Inventories is followed in the calculation of GHG emissions for the economic analysis. The sectoral analysis is based on the Tier 1 approach, which uses fuel combustion from national statistics and default emission factors. </li></ol><h5>Fossil fuel subsidy</h5><p>Government of Indonesia will spend IDR 1,008 trillion (US$ 71 billion) in the time period 2020-2030 based on annual fiscal cost of IDR 101 trillion (US$ 7.129 billion) (2017 estimate). Policy reform is required to abolish subsidies that encourage wasteful consumption</p><p><H1 class="pb-before">CHAPTER 3: OVERVIEW OF INDONESIA'S ENERGY SECTOR</h1></p>
<h2>Current situation</h2><p>Indonesia is an archipelagic State with more than 18,000 islands and a population of more than 265 million in 2018. The country is ranked as the world's fourth most populous nation and has seen rapid economic growth and development. A growing population, rising household incomes and increasing urbanization will lead to rising energy demand and put constraints on energy supply.</p><p>The vision and mission for the country is set under the Long-Term Development Plan (RPJPN) 2005-2025, which aims to establish a country that is developed and self-reliant, just and democratic, and peaceful and united. The RPJPN is divided into ‘five-year Medium-Term Development Plans (RPJMN). The national energy policy approach is defined under the 2007 Energy Law, which is aligned with the RPJPN; this is used to support energy independence for achieving long-term growth.</p><p>The Government recently passed Presidential Regulation 22/2017 for implementing the provision of the Energy Law to create the National Energy General Plan (RUEN). The RUEN is supposed to implement the 2014 National Energy Policy (KEN), which aims to achieve energy self-reliance and national energy security. In terms of energy efficiency, the 2007 Energy Law provides for energy efficiency principles, further specified under the Government Regulation No. 70/2009 on Energy Conservation (Asia-Pacific Energy Portal, 2020).</p><p>The country has set a target to limit its GHG emissions through the Nationally Determined Contributions in 2015 which suggests an unconditional target of 29 per cent (41 per cent if external support is received) by 2030 compared to BAU.</p><h2>National energy profile</h2><p>Indonesia has made significant progress towards achieving universal access to electricity. The ratio of electrification in Indonesia was 98.3 per cent in 2018. Indonesia is on track to achieve universal access to electricity by 2020.</p><p>Access to clean cooking solutions is measured at 80 per cent, based on National Statistics for Indonesia (Neliti, 2020). Indonesia has made remarkable progress towards clean cooking – more than a 10-fold increase from 7 per cent in 2000. This has been possible due to government-funded programmes during 2007-2015, i.e., Zero-Kero and Improved Cook Stove programme that have seen about 50 million households getting access to clean cooking technology. The current policies to reach 4.7 million city gas connections and 1.1 million biogas digesters by 2025 are modelled in the current policy scenario.</p><p>The renewable energy share in TFEC is calculated at 11.25 per cent in 2018, which is equivalent to 12 per cent of TPES. Figure 2 shows Indonesia’s planned capacity expansion for electricity generation. This is based on the planned capacity expansion from RUPTL 2019-2028 (Ministry of Energy and Mineral Resources, 2020). Coal in power generation has been planned to increase by 27GW by 2028 reaching a share of 42 per cent of total installed capacity in 2028.</p><p style="text-align:center"><strong>Figure 2. Indonesia’s RUPTL 2019-2028 planned capacity expansion</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1336.png&qu…; title="" alt="" /><p>Energy intensity in Indonesia has been declining at an average annual rate of 2.81 per cent since 2010 and reached 2.87 MJ/US$ in 2018. Under the current policy, Indonesia aims to reduce its energy intensity (in terms of final energy) by 1 per cent annually up to 2025. The objective is to achieve energy elasticity [^3] of less than 1 in 2025.</p><h2>National energy policies and targets</h2><p>Scenario development has been based on energy policies and assumptions (as summarized in table 1) as well as considering relevant policies (listed below) that are already in place. National Energy Policy (KEN): KEN mandates a renewable energy target of 23 per cent in the primary energy mix by 2025. Indonesia has set a target to improve energy efficiency by 1 per cent in TFEC in order to promote energy saving across all sectors (Ministry of Energy and Mineral Resources, 2018);</p><ol><li>National Energy General Plan (RUEN): To connect 4.7 million city gas connections and 1.1 million biogas digesters (Ministry of Energy and Mineral Resources, 2018); </li><li>RUPTL 2019-2028: In the power sector the capacity addition is based on RUPTL 2019-2028 and the remaining two years (2029 and 2030) are forecasted using linear regression (Ministry of Energy and Mineral Resources, 2020); </li><li>Biofuel Roadmap: Biofuel mandate of 30 per cent biodiesel and 20 per cent bioethanol utilization by 2025 based on Minister of Energy and Mineral Resources Regulation No.12 of 2015 in the transport sector (Ministry of Energy and Mineral Resources, 2018); </li><li>National Master Plan for Energy Conservation (RIKEN): RIKEN sets a goal of decreasing energy intensity by 1 per cent annually until 2025. In order to reach this goal, energy savings potentials have been identified as follows: industry 15-30 per cent, commercial buildings 25 per cent, transportation 20-35 per cent and households 10-30 per cent; </li><li>Energy Law No. 30/2007 (EL7) The law recognizes energy security as a critical national issue and requires that more attention to be given to new and renewable energy development and that incentives should be developed for energy providers to do this; </li><li>National Action Plan for Reducing Greenhouse Gas Emissions (RAN-GRK): RAN-GRK is a follow-up to Indonesia’s commitment to reduce GHG emissions by 29 per cent in 2020 from the BAU level by its own efforts and then reaching 41 per cent reduction with international support, based on Presidential Decree No. 61 of 2011; </li><li>Green Energy Policy (Ministerial Decree No. 2/2004): The Green Energy Policy identifies Indonesia’s strategy to maximize the utilization of its renewable energy potential and to build public awareness of energy efficiency measures; </li><li>Nationally Determined Contribution (NDC): The first NDC of 2016 shows the national commitment to reduce GHG Emissions at 29 per cent unconditional and 41 per cent conditional up to 2030. </li></ol><p style="text-align:center"><strong>Table 1. Important factors, targets and assumptions used in modelling</strong></p><table><tr><th><strong>Parameters</strong></th><th><strong>Business as usual</strong></th><th><strong>Current policy scenario</strong></th><th><strong>Sustainable Development Goal</strong></th></tr><tr><td>Economic growth</td><td>5.7%</td><td></td><td></td></tr><tr><td>Population growth</td><td>Statistics Indonesia</td><td></td><td></td></tr><tr><td>Household size</td><td>Assumption used in National Energy General Planning (RUEN)</td><td></td><td></td></tr><tr><td>Commercial floor space</td><td>Assumption used in National Energy General Planning, adjusted with the GDP growth used in a moderate scenario of Medium-term National Development Planning (RPJMN 2020-2024)</td><td></td><td></td></tr><tr><td>Transport activity</td><td>Assumption used in National Energy Planning, adjusted with the GDP growth used in a moderate scenario of Medium-term National Development Planning (RPJMN 2020-2024)</td><td></td><td></td></tr><tr><td>Residential urbanization</td><td>Assumption used in National Energy General Planning</td><td></td><td></td></tr><tr><td>Biodiesel target</td><td>2025: 20%</td><td>2025: 30%</td><td>NA</td></tr><tr><td>Bioethanol target</td><td>2025: 5%</td><td>2025: 20%</td><td>NA</td></tr><tr><td>Access to electricity</td><td>2020: 100%</td><td>2020: 100%</td><td>2020: 100%</td></tr><tr><td>Access to clean cooking fuels</td><td>Based on 2018 share</td><td>4.7 million city gas connections1.1 million biogas digesters</td><td>100 per cent access to clean cooking fuels and technologies</td></tr><tr><td>Energy efficiency</td><td>Remains constant</td><td>1 per cent annual improvement in TFEC</td><td>1.53 per cent annual improvement in TFEC</td></tr><tr><td>Power plants</td><td>Based on 2018 share</td><td>RUPTL 2019 - 2028</td><td>Based on least cost optimization</td></tr></table><style>
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</style><h2>National energy resources</h2><p>Indonesia is a resource-rich country and has abundant renewable energy potential. It has coal resources and reserves of 151,399.41 million tons (MT) and 39,890.95 MT, respectively. In 2018, coal production in Indonesia amounted to 557.77 MT of which 356.39 MT were exported, establishing Indonesia as the world’s fourth largest exporter of coal.</p><p>Indonesia has proven and potential oil reserves of 3.15 billion barrels and 4.36 billion barrels, respectively. The country has been a net importer of oil since 2004, due to a production decline caused by depletion of mature production wells, the limited development of new production wells and declining investment.</p><p>Indonesia’s proven and potential natural gas reserves are estimated at 96.06 trillion standard cubic feet (TSCF) and 39.49 TSCF, respectively. In 2018, natural gas production in Indonesia totalled 2.99 TSCF, making the country the largest exporter of natural gas in South-East Asia.</p><p>Renewable energy potential in Indonesia is mentioned in the RUPTL document. The country’s utilization of renewable energy potential is very low (table 2) This indicates that there is significant potential to expand the renewables share.</p><p style="text-align:center"><strong>Table 2 Renewable energy resource utilization in Indonesia</strong></p><table><tr><th><strong>Renewable Energy</strong></th><th><strong>Potential</strong></th><th><strong>Installed capacity</strong></th><th><strong>Utilization</strong></th></tr><tr><td>Geothermal</td><td>29,544 MW</td><td>1,438.5 MW</td><td>4.9 per cent</td></tr><tr><td>Hydro</td><td>75,091 MW</td><td>4,826.7 MW</td><td>6.4 per cent</td></tr><tr><td>Mini-micro hydro</td><td>19,385 MW</td><td>197.4 MW</td><td>1.0 per cent</td></tr><tr><td>Bio-energy</td><td>32,654 MW</td><td>1,671.0 MW</td><td>5.1 per cent</td></tr><tr><td>Solar</td><td>207,898 MW</td><td>78.5 MW</td><td>0.04 per cent</td></tr><tr><td>Wind</td><td>60,647 MW</td><td>3.1 MW</td><td>0.01 per cent</td></tr><tr><td>Ocean energy</td><td>17,989 MW</td><td>0.3 MW</td><td>0.002 per cent</td></tr></table><style>
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</style><p><i>Source:</i> RUPTL document (PLN, 2019).</p><h2>National energy balance</h2><p>The national energy balance of Indonesia 2018, as noted in the <i>Handbook of Energy and Economic Statistics of Indonesia</i>, is the starting point of the NEXSTEP analysis. The Total Primary Energy Supply (TPES) is dominated by oil, coal and natural gas, with renewables contributing only 13 per cent in 2018.figure 3) shows TPES of Indonesia is 1,533 million barrels of oil equivalent (MBOE). Indonesia’s TPES by fuel share: Crude oil and products (37 per cent); coal (32 per cent); natural gas and products (19 per cent); and renewables (13 per cent).</p><p style="text-align:center"><strong>Figure 3. Total Primary Energy Supply, 2018</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1337.png&qu…; title="" alt="" /><p>Indonesia is the largest energy consumer in South-East Asia. TFEC in 2018 is reported as 936.33 MBOE (figure 4). TFEC in Indonesia increased by 38 per cent between 2000 and 2016. The largest increase was in the transport sector, which more than doubled during that period. Indonesia’s final energy consumption, by sector, is led by transport (40.8%, 39.2 MBOE), industry (34.7%, 33.4 MBOE), households (15.7%, 15.1 MBOE), commercial (4.5%, 4.3 MBOE) and other sectors (1.7%, 1.6 MBOE).</p><p style="text-align:center"><strong>Figure 4. Total Final Energy Consumption, 2018</strong></p><img style="max-width: 100%;display: block;margin: auto;" src="https://nexstepenergy.org/web/sites/default/files/imagename_1338.png&qu…; title="" alt="" /><p><H1 class="pb-before">CHAPTER 4: SUMMARY OF CURRENT POLICY SCENARIO</h1></p>
<h3>Current policy scenario</h3><h4>Scenario description</h4><p>The CPS is based on the current national energy policies of Indonesia.</p><h5>SDG 7.1.1. Universal access to electricity</h5><p>In the CPS scenario, universal access to electricity is achieved by 2020 based on the rural electrification plan of PLN. Indonesia is on-track to achieve "near 100%" electricity access by 2020.</p><h5>SDG 7.1.2. Universal access to clean cooking</h5><p>Indonesia currently has a policy in place to connect 4.7 million city gas connections and 1.1 million biogas digesters by 2025. The universal access to clean cooking target will be achieved based on the current annual rate of improvement of 8.7 per cent in 2021. By 2030, in the current policy scenario 67.5 million households (89 per cent) in Indonesia will depend on LPG cook stoves, followed by city gas cook stoves at 5.9 million households (8 per cent), biogas digester at 2 million households (3 per cent) and electric cook stoves at 0.6 million households (1 per cent).</p><h5>SDG 7.2. Renewable energy</h5><p>The renewable energy share of TFEC in Indonesia is projected to decrease from 11.25% in 2018 to 16.4% by 2030.</p><h5>SDG 7.3 Energy efficiency</h5><p>The energy intensity improvements at the end-use level is modelled to improve 1% yearly, based on the Government of Indonesia’s targets, from 2018 to 2025. The primary energy intensity, a proxy for the measurement of energy efficiency improvement is estimated to be 2.41 MJ/US$ and falls short of the SDG rate of 2.39 MJ/US$ in 2030.</p><h5>NDC Unconditional target</h5><p>Based on the Nationally Determined Contributions (NDC) document submitted to UNFCCC, Indonesia has committed to reducing GHG emissions in the energy sector to 11% unconditionally (without international aid) below the BAU scenario. The emissions in the current policy scenario will reach 825 MtCO2-e by 2030, compared with 880 MtCO2-e in the BAU scenario, falling short of the NDC target by 42 MtCO2-e.</p><h5>Investment required: IDR 1,733 trillion (US$ 122 billion)</h5><p>Based on the capacity expansion in RUPTL 2019-2028 and a linear regression forecast for the remaining two years, Indonesia will need to invest IDR 1,733 trillion (US$ 122 billion) in the power sector. The investment costs in the current policy scenario are IDR 269.9 trillion (US$ 19 billion) higher compared to the BAU scenario, mainly due to the increase in the share of renewable electricity generation capacity.</p><h5>Total net benefits from the power sector</h5><p>The total net benefits from the power sector will be IDR 3,443 trillion (US$ 232 billion).</p><h5>Coal lock-in</h5><p>The CPS scenario is based on RUPTL 2019-2028 capacity expansion. Due to the high level of coal-fired power it leads to a lock-in of coal technology. Based on a 30-year lifetime of coal-power plants, Indonesia will see an eventual phase-out possible in 2058.</p><h5>Fossil fuel subsidy</h5><p>The Government of Indonesia will spend IDR 1,008 trillion (US$ 71 billion) in 2020-2030, based on an annual fiscal cost of IDR 101 trillion (US$ 7.129 billion) (2017 estimate). Policy reform is required to abolish subsidies that encourage wasteful consumption.</p><h5>Energy balance</h5><p><H1 class="pb-before">CHAPTER 5: POLICY RECOMMENDATIONS</h1><h2>Levelised Cost of Electricity (LCOE) for Power Plant Technologies</h2>
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The following presents the results of Levelised Cost of Electricity (LCOE) for the power plant technologies applicable for Indonesia. It can generally be concluded that some renewable power technologies have become cheaper than the conventional fossil-fuel-based technologies.<br /><br /><br /><img alt="" data-entity-type="file" data-entity-uuid="6f9dbee5-c21a-4479-82fe-e323836ef60f" height="731" src="https://nexstepenergy.org/web/sites/default/files/users/user53/Screensh…; width="856" />
</p><h2>Marginal Abatement Cost Curve (MACC) Analysis</h2>
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The following presents the results of the marginal abatement cost curve (MACC) analysis of selected mitigation technologies for Indonesia. MACC analysis compares the GHG abatement potential and the marginal abatement cost of different technologies. Marginal abatement cost measures the cost in reducing one tCO2-e. Mitigation technologies with an abatement cost below 0 US$/TCO2-e signify that some GHG emissions reduced can be done cost-effectively.<img alt="" data-entity-type="file" data-entity-uuid="2db1d04b-d317-44c8-9521-bfa62e614e8d" height="546" src="https://nexstepenergy.org/web/sites/default/files/users/user53/MACC.png…; width="1024" />
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