Singapore - Old obstacles in Indonesia's renewables sector

Whenever renewable energy experts gather, as they did recently at a world congress in Bali, the discussion among the Indonesian participants inevitably takes on such a familiar ring, you would swear you were among miners and oilmen.

Presentations begin with how prospective Indonesia is and what great business opportunities there are - yes, even in the long neglected, but now increasingly fashionable renewables sector.

We are told there is a lot of money to be made in geothermal, biomass, solar, wind and even ocean waves. "Renewables are not altruistic," says Star Energy's chief executive Bret Mattes. "There are huge opportunities here."

Unlike Japan, the United States and other industrialised nations which will find it difficult to make a radical change in course, Mr Mattes believes a low-carbon economy is not a dream and that Indonesia is eminently positioned to achieve it.

Rather than simply focus on forestry and agriculture to reduce emissions, he says, Jakarta should develop a coherent national policy and use it to build consensus at the local government level, where officials and community leaders' knowledge of energy alternatives remains low.

In its ambitious plan to reduce emissions by 26 per cent over the next eight years, the government expects the power industry to cut carbon output by only 30 million tonnes, not 770 million tonnes as required.

Mr Mattes believes it could be as much as 30 times that amount. "It can create a legacy even for the current administration," he says. "We can do much better than what is expected of us."

Under a 2006 presidential decree, renewables are targeted to make up 17 per cent of the national energy mix by 2025, up from today's 5.4 per cent.

So if this promises so many great business opportunities, why the lack of interest?

Then comes the lament: It is difficult to get projects off the ground because of a "combination of factors" - all of which seem to begin and end, as they always do, with government regulations and bureaucratic red tape.

That means the lead time for building geothermal plants in Indonesia is a ludicrous nine years, when it should only be four. No wonder there have been no significant new projects since the 1990s.

Sounds familiar? It should. Apart from the boom in relatively easy coal exploration, there has not been a single new hard-rock mine opened in Indonesia in at least a decade - and only one significant oil discovery, which will take another three years to bring on stream.

State utility Perusahaan Listrik Negara (PLN) makes no secret of its admiration for Star Energy's 227-megawatt Wayang Windu plant, the country's biggest geothermal facility, for consistently providing base-load power at 100 per cent efficiency.

Located in a picturesque tea plantation, south of Bandung, the joint venture between Indonesian businessman Prajogo Pangestu and British interests has been operating for the past 11 years and is on track to double its capacity by 2013.

Yet it is just one of a handful of Indonesian geothermal plants that together produce only 1,200MW, or about 3.7 per cent, of current electricity generation, which is dominated by stations running on oil (47 per cent), coal (26 per cent) and natural gas (21 per cent).

In a country with 28,000MW of potential geothermal power, the government has only just decided that geothermal exploration is not mining after all and should not be subject to the same onerous regulations.

But the Mines and Energy Ministry has yet to introduce a proper contractual regime for serious geothermal developers to follow. Nor has it resolved some of its differences with local governments over who actually owns the steam and who gets to issue tenders.

On top of that are the years-long delays faced by all resource companies to secure Forestry Ministry approval to drill in "protected forest" - in reality the vast, often-treeless watershed that makes up 60 per cent of the country's total land area.

The National Energy Council, the government's own policy advisory body, sees budget-distorting oil and power subsidies - and the usual lack of incentives - as the main obstacles to the development of renewable energy.

Removing them, however, has always been trumped by short-term political concerns, with the energy subsidy in the 2011 budget rising from 187.16 trillion rupiah (US$21 billion) to 195.2 trillion rupiah - about 65 trillion rupiah of that for electricity alone.

Energy planners all agree that President Susilo Bambang Yudhoyono's government missed a golden opportunity to introduce relatively painless incremental annual increases when it was forced to significantly raise oil prices in 2005.

Now, the council wants the subsidy shifted from oil to low-carbon energy, with provision for a higher feed-in tariff, just below the PLN's ceiling for Java and Sumatra of 9.7 cents per kilowatt hour, tax incentives and other energy-saving measures.

"Indonesia can be the global leader in producing electricity from renewable energy, particularly from geothermal," says Mr Mattes. "The government just needs to eradicate some problems, like bureaucratic constraints and difficulties in getting permits."

As with everything, it seems, that is easier said than done.

John McBeth

The Straits Times

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