Govt to install solar panels on roofs of 800 public buildings

The government plans to install rooftop solar photovoltaic (PV) panels on at least 800 public buildings across the country this year as it steps up its renewable energy push to lessen reliance on fossil fuels.

The Energy and Mineral Resources Ministry has allocated Rp 175 billion (US$12.76 million) to install the solar PV panels on, among others, boarding schools, clinics, orphanages, government offices and police stations in 17 provinces. All of the buildings are owned by regional administrations, which are to cover the panels’ maintenance costs.

“We need to show these administrations that solar panels are worth it,” the program’s head, Puspa Dewi, who is also the energy ministry’s renewables infrastructure director, said in Jakarta on Wednesday.

She said the allocated funds would not include the cost of the batteries for the PV panels because of budget constraints. Thus, her office would prioritize office buildings as they have higher daytime electricity usage compared to housing facilities.

Installing rooftop solar PV panels is one of the government’s many efforts to achieve a 23 percent renewable power production energy mix by 2025 as mandated by the General National Energy Planning (RUEN) road map. Indonesia closed 2019 with a 12.36 percent renewables mix, far less than the 17.5 percent annual target in the road map.

Of the 800 units, 51 percent are small with a capacity of less than 5 megawatts (MW), 32 percent are medium-scale (up to 25 MW), 11 percent are large (up to 50 MW) and 6 percent are extra large (above 50 MW). East Java and East Nusa Tenggara provinces are slated to receive the most solar PV panels: 100 each.

However, Dewi told The Jakarta Post that the solar panel distribution was still subject to change as her office remained open to new requests from regional leaders. The ministry said it expected to begin the bidding for the installation of the panels in March.

She said she also sent a letter to Indonesia’s largest offtaker, stateowned utility PLN, to prepare 800 special electricity meters for the program. Such meters differ from regular meters as the former can measure both electricity inflow and outflow.

According to the Institute for Essential Services Reform (IESR), Indonesia was generating 152 MW of solar power as of November 2019. The generation capacity, despite being 43.3 percent higher year-to-date, is still far below the annual target of 550 MW.

“The number of rooftop solar PV panel owners has increased fourfold from 351 in 2017 to 1,435 owners in 2019,” writes IESR in its energy outlook report. “With almost 90 percent of owners from the residential sector, the sector has become a major market for rooftop solar PV [panels] in the last two years.”

PV panel owners are allowed to sell their electricity to PLN to reduce the high upfront installment costs, but a ministerial regulation issued in 2018 has discouraged them. According to the regulation, the value of electricity exported from rooftop PV panels to the PLN grid is to be calculated at 65 percent of the applicable PLN fee. A preceding regulation set buying prices at 100 percent, which gave investors a shorter payback period on solar PV investments.

The electricity bills of PLN customers with rooftop PV systems is calculated monthly, based on the kilowatt per hour (kWh) import value minus the kWh export value

“If regulations keep changing, it’s confusing. Assumptions will be different. Investments require long-term planning and need consistent regulations,” Eka Himawan, founder of a solar panel start-up, Xurya, said on Wednesday.

Nevertheless, he noted that two regulations issued last year helped improve the appetite for solar PV panels among industrial clients.

Source: The Jakarta Post, 7 February 2020

Coal plant expansion wipes out green energy progress

Indonesia has launched the operation of its largest coal-fired power unit to date, which offset all renewable energy power progress in the Southeast Asian country last year.

Java 7 Unit 1, launched in December 2019, is over twice as powerful as all renewable energy plants launched the same year. The Banten-based plant has a capacity of 1,000 megawatts (MW), 2.7 times greater than the 376 MW worth of green energy plants introduced in Indonesia last year.

The plant’s majority owner, Beijing-based coal miner China Energy Investment Corporation, described it as “the largest individual installed capacity of any overseas thermal generation unit invested in and built by a Chinese enterprise”.

China Energy cooperated with Surabaya-based power producer Pembangkitan Jawa Bali (PJB), a subsidiary of state electricity firm PLN, to develop the US$1.71 billion power plant. China Energy and PJB own 70 and 30 percent of the facility, respectively.

The expansion of coal plants such as Java 7 continues to outstrip renewable energy growth, thus setting Indonesia back from achieving its green energy ambitions. Southeast Asia’s largest economy ended 2019 with a 12.36 percent renewables power production mix, far from the 17.5 percent target stipulated in the General National Energy Planning road map.

Ten coal plants began operations last year alone, according to the Energy and Mineral Resources Ministry. The plants — including Java 7 — have a combined capacity of 3,017 MW. They not only outstripped renewables growth but also contributed almost three-fourths of all newly added power production in 2019.

“It’s rather unfortunate that the government relies on coal as the answer to both economy and energy challenges, when it is actually a golden opportunity to look toward renewable energy as the answer,” said Anissa Suharsono, an energy policy analyst with a Canadian energy think tank, the International Institute for Sustainable Development.

Energy and Mineral Resources Ministry and PLN representatives defended the coal-based investment as a means of quickly fulfilling Indonesia’s growing energy needs. The government aims to have 30,000 MW worth of new power plants operational by 2028.

“This plant can support peak loads in the Java Bali grid, which grows every year. It was 28,000 MW this year, up from 27,000 MW last year,” said ministry spokesman Agung Pribadi.

He added in a statement that the plant’s second 1,000 MW unit was expected to come online in 2021. At 2,000 MW, the Java 7 plant would consume about 7 million tons of coal each year.

Coal is considered ideal to fulfill Indonesia’s energy needs because of its abundance. The government also guarantees the fuel’s competitiveness by capping domestic selling prices through annually reviewed Domestic Market Obligation (DMO) policies. The latest DMO requires coal miners to sell 25 percent of their production domestically at a maximum of US$70 per ton.

PLN spokesman Dwi Suryo Abdullah told The Jakarta Post that the plant was built to “anticipate a spike in energy needs” in the economic centers of Java and Bali while also “maintaining competitive prices, given the scale of the units”.

In comparison, bankability problems were “the main issue” for renewable energy projects last year, according to a Jakarta-based energy think tank the Institute for Essential Services Reform.

“Several power producers managed to secure financing and reach financial close due to their strong project sponsors. For small power producers, however, it is more difficult to get funding as they usually do not have creditworthy sponsors,” writes the think tank in its latest annual report.

At 1,000 MW, Java 7 Unit 1 is the largest operating coal-fired unit in Indonesia, taking over the title from the 815 MW Unit 3 of the Paiton III plant in East Java

For China Energy, Java 7 also represented a strengthening of the two countries’ economic ties. The company said the plant was part of “promoting the alignment of China’s Belt and Road Initiative and Indonesia’s Global Maritime Fulcrum”.

China, which was Indonesia’s second-largest foreign investor last year, is among many major economies including the United States and the Middle East being approached by Indonesia to finance energy projects

Source: The Jakarta Post, 24 January 2020

Ministry suggests DMO to lower gas prices

The Energy and Mineral Resources Ministry has chosen to pursue a combination of a domestic market obligation (DMO) and fiscal incentives to reduce industrial gas prices in the hope of fulfilling a four-year-old promise from President Joko “Jokowi” Widodo.

The ministry will, among others, expect oil and gas companies to prioritize selling their liquefied natural gas (LNG) to state-owned gas distributor PGN as part of efforts to bring the gas price down to US$6 per million British thermal units (mmbtu) as promised by the government, from between $8 and $9 per mmbtu at present.

“As long as PGN’s infrastructure runs at full capacity, it can sell at $6 per mmbtu,” said the ministry’s acting oil and gas director general, Djoko Siswanto, on Jan. 8.

Should PGN fail to bring gas prices down even with the higher LNG supply, then the government will reduce upstream costs — that average $5.4 mmbtu nationwide — by slashing nontax state revenue (PNBP) from oil and gas companies, he added.

President Jokowi issued a regulation in 2016 that pledged to lower gas prices to $6 per mmbtu. The pledge was meant to boost the growth of seven gas-reliant industrial sectors namely electricity production, chemicals, food, ceramics, steel, fertilizers and glass manufacturing, which collectively consume about 80 percent of Indonesia’s gas supply.

Yet, four years after the regulation’s issuance, gas prices remain unchanged. During a Cabinet meeting on Jan. 6 Jokowi offered three solutions, including easing procedures to boost gas imports, the implementation of the DMO policy and the reduction or even the elimination of state revenue from gas sales.

Energy and Mineral Resources Minister Arifin Tasrif said on Jan. 9 that his office would not apply the option to increase imports because “if we import more gas, we will face another problem, which is the current account deficit. If the deficit widens, it will put pressure on the rupiah”.

PGN was not immediately available for comment because it was still running numbers on the solutions. If PGN manages to suppress midstream costs enough to hit the elusive $6 price mark, the government will not slash state revenue.

Meanwhile, Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) financial director Arief Setiawan Handoko said on Thursday that it would be difficult to increase LNG supply for the domestic market because almost all LNG production was tied to long-term export contracts with foreign buyers in Japan, South Korea and China, among other countries.

There could be additional LNG production from the Bontang LNG plant in East Kalimantan but only if the Mahakam block, which supplies gas for the LNG plant, is able to increase its production within the next five years.

By 2026, SKKMigas expects an increase in domestic gas supply after several major gas projects come on stream. Such projects include the offshore Indonesia Deepwater Development facility in Kalimantan and onshore Tangguh Train-3 facility in Papua.

Business representatives immediately welcomed Jokowi’s plan. Indonesia Chamber of Commerce and Industry (Kadin) vice chairman for industry Johnny Darmawan called the President’s plan a sign that he was serious about making production costs efficient and competitive for industry, as gas prices have been an issue since 2016.

“We were without hope,” he said, “The manufacturing sector is facing many challenges, such as wages and logistics but at least this decision will help us.”

Indonesia’s GDP growth is expected to remain sluggish in 2020 as weakening exports, low commodity prices and global uncertainty continue to take their toll on the economy. The country’s GDP growth stood at 5.02 percent in the third quarter of last year, the lowest level in more than two years.

The manufacturing sector’s contribution to GDP has steadily declined, to 19.52 percent in the second quarter of last year, from almost 30 percent during its heyday decades ago. The sector only grew 3.6 percent year-on-year in the second quarter of this year, below GDP growth.

Source: The Jakarta Post, 14 January 2020

‘Indonesia’s energy industry underperforms in 2019’

Indonesia’s energy industry saw shortfalls across most sectors in 2019 as the country faced economic uncertainties, from the general election at home to Brexit and to the United States-China trade war.

Data from the Energy and Mineral Resources Ministry released on Dec. 9, 2019 showed that investments totaling US$31.9 billion in the sector were significantly lower than the year’s target of $33.4 billion, as well as the $32.9 billion targeted the previous year.

The shortfall in energy investment corresponded with decreased investment in renewables, oil and gas and mining industries — in that order. Investments were on target and higher than the previous year only in the electricity industry.

“[The ministry] will no longer be a factory of rules, but a facilitator of industry growth,” Energy and Mineral Resources Minister Arifin Tasrif said, expressing his aim to stimulate investment in the industry. The ministry’s efforts toward this end included building infrastructure, deregulating the industry and improving electricity and natural resource supplies, he said.

The industry’s poor performance sets Indonesia back from its ambition to achieve a 23 percent renewable energy mix by 2025 and reducing the trade deficit caused by oil imports.

The ministry’s data recorded the steepest investment shortfall in the renewable energy industry with investments reaching $1.5 billion, 83 percent of the 2019 target and unchanged from 2018.

Due to limited funding, renewable energy generated 10,157 megawatts (MW) last year, lower than the 13,900 MW targeted in the National General Energy Planning (RUEN) road map.

The three biggest renewable energy projects that went online last year were all geothermal power plants: the 85 MW Muara Laboh plant, the 42.3 MW Sorik Marapi and the 55 MW Lumut Balai.

Renewable Energy Director General Sutijastoto reasserted that the directorate would focus on bioenergy development to meet Indonesia’s renewable energy target, and that the 30 percent biodiesel mix (B30) policy “will be continually escalated”.

The second steepest investment shortfall was recorded in the oil and gas industry with investments reaching $12.5 billion — 93 percent of the 2019 target and slightly lower than the previous year.

Ministry data shows that domestic ready-to-use production hit its lowest level in at least five years, producing 1.8 million barrels of oil equivalent per day (boepd), lower than the 2.02 million boepd target.

Upstream Oil and Gas Regulatory Special Task Force (SKKMigas) head Dwi Soetjipto attributed the production shortfall to the forest fires in Sumatra that forced local production to halt temporarily, a natural decline in several oil and gas blocks and several oil spills.

Two of the spills were in areas operated by state-owned energy holding company Pertamina, but he pointed to Pertamina’s Mahakam Block in East Kalimantan as “the largest production shortfall”.

The third steepest investment shortfall was recorded in the mining industry with $5.9 billion, 95 percent of the target and lower than investments in 2018.

But the coal industry, the country’s largest mining export by volume, produced 610 million tons, far higher than the targeted 489 million tons. Production grew on the back of a 7.8 percent increase in domestic coal consumption to 138 million tons, mainly due to 10 new coal-fired power plants.

“The 2019 coal production was much higher because provincial mining companies significantly increased production,” said Coal and Mineral Director General Bambang Gatot Ariyono.

Meanwhile, electricity investments met last year’s $12 billion target to exceed investments of $11.3 billion in 2018.

Indonesia closed 2019 with 69.1 gigawatts (GW) in installed capacity, lower than the targeted 74.8 GW, but still 6.4 percent higher than 2018.

“Power production increased 4.2 GW from the previous year. That’s the highest increase we’ve achieved to this year,” said electrification director general Rida Mulyana.

Indonesia also achieved 98.9 percent electrification, up to par with the targeted 99 percent. East Nusa Tenggara ranks the lowest in electrification at 85 percent.

Source: The Jakarta Post, 13 January 2020

US to contribute US$5b to Indonesian development projects

Indonesia is slated to secure US$5 billion in development funds from the United States’ financing arm for developing countries and more from the American private sector, following investments from China and the United Arab Emirates (UAE).

The US’ International Development Finance Corporation (IDFC), said to be a direct competition to China’s growing influence in projects across developing countries through the Belt and Road Initiative (BRI), arrived in Jakarta on Friday to cement its participation in Indonesia’s development projects.

“I welcome the [I]DFC’s commitment to supporting the Indonesian government’s priority programs, especially in infrastructure development, energy and digital technology,” President Joko “Jokowi” Widodo said in the opening remarks of his meeting with IDFC representatives and US delegates at the State Palace in Central Jakarta. “I was assured that the [I]DFC was ready to allocate $5 billion.”

The figure will add to expected funds from China’s BRI and the UAE to fuel development projects across the archipelago. Indonesia is stepping up efforts to attract investments and subsequently create jobs and stoke economic growth, which has slowed to its lowest level in more than two years.

The IDFC, which manages more than $200 billion in investments for emerging countries, has discussed investment opportunities in Indonesia’s infrastructure, health care, road construction and energy projects, said IDFC chief executive officer Adam Boehler.

“Our first visit is to Indonesia, which symbolizes how important the country is to the US and to affirm our friendship,” Boehler said after a meeting with Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan. “We were established only two weeks ago.”

Boehler also expressed the group’s appreciation of Jokowi for focusing on private capital in funding development projects, stating that the changes the President has made had “helped American businesses”.

“The investment is going to be multibillion dollars. That’s going to lead to tens of billions of dollars from our private capital,” he told reporters. “You will see the US very active, and we will come with our partners, Japan and Australia, to join hands and help Indonesia.”

Luhut told the press that the investment would be channeled to toll road projects in Java and Sumatra, as well as to tourism.

“Our team has already started working; we will start these projects immediately,” he said on Friday

without elaborating on the specific projects.

Luhut previously unveiled a plan to set up a sovereign wealth fund for Indonesia so that the country pool major funding from various sources, including from the US, China and the UAE. He targeted $5 billion to $10 billion for infrastructure projects and other development programs for the fund.

Last year, investments from Chinese companies accounted for 16.1 percent of overall foreign direct investment (FDI) in Indonesia, compared to 4.5 percent for the US.

China was Indonesia’s thirdlargest foreign investor in the first half of last year, accounting for 16. percent of overall FDI. The US, meanwhile, ranks seventh over the same period.

According to some observers, however, Indonesia should be prudent because the investments are still in the form of non-binding memorandums of understanding.

“Investment commitments could show big numbers, but the actual investment is often much smaller,” said Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah. He predicted that only a quarter of the investment commitments would be realized.

To ensure that these commitments would follow through, the government must make it easier for other countries to invest in Indonesia, he added.

Source: The Jakarta Post, 11 January 2020

What new capital city means for our energy future

Expert analyses of Indonesia’s plan to relocate its capital have been floating around since President Joko “Jokowi” Widodo announced the intended location. The capital will be moved from densely populated Jakarta to the forested environment of North Penajam Paser and Kutai Kartanegara, East Kalimantan.

The 10-year relocation process is expected to move about 1.5 million people, including key civil servants and their families. The impact will be similar to moving the entire population of Semarang in Central Java out of Java.

This would be a monumental project for any government, with complex, overlapping planning requirements.

So, what does this massive relocation mean for Indonesia, particularly with regard to the country’s energy future?

We see two contrasting impacts. First, for the host island Kalimantan, it could mean a boost for local economic growth, along with a much-needed upgrade to the island’s basic infrastructure.

The government has already announced that the design of the new capital features a “forest city” concept to avoid Jakarta’s well-known traffic, pollution and water problems.

The goal is to prevent sprawl and uncontrolled growth. To preserve Kalimantan’s forested land, 50 percent of the new capital will be reserved for green spaces. This will be coupled with integrated public transport, pairing electric vehicles and a railway system.

Additional energy infrastructure will be essential, with an estimated power requirement of 1,555 megawatts (MW).

The good news is that Djoko Dwijatno, general manager of state electricity firm PLN for the East and North Kalimantan region, has already laid out a preliminary plan to supply power to the new capital.

The new capital will rely on the interconnected Barito-Mahakam Kalimantan system for most of its power. According to Dwijatno, PLN plans to design the green power system to rely on renewable sources such as solar and biomass. The grid will incorporate smart grid technology and will embrace battery storage, including charging stations for electric vehicles.

So far, everything seems to be on the right track for the new capital. But there is something missing from the equation: a plan for Java, the island left behind.

Although Jakarta will remain Indonesia’s main business hub, its population and economic growth will change dramatically — at a time when the economy is slowing. The global ratings agencies Moody’s and Standard and Poors have cut their 2020 economic growth forecasts to 4.7 percent.

Therefore power demand will only grow at a snail’s pace after having slowed over the past five years.

Based on the 2019 National Electricity Planning Document (RUPTL), the average growth of electricity consumption in Java over the last five years (from 2014 to 2018) was only 4.4 percent for the interconnected Java-Bali system.

However, the power demand trajectory for 2019 to 2028 shows that the demand forecast is far too optimistic, always higher than the actual by at least one percentage point.

For example, PLN is using a baseline forecast of 5.8 percent to 5.9 percent for the Java-Bali grid over the 2020 to 2022 period.

A one percentage point demand growth error might seem like a small thing, but if you use that assumption to drive the power plan, it can result in a fatal flaw.

That’s because the unrealistic demand forecast is used to justify investments in expensive new power generation capacity.

Power sector experts are all aware that the Java-Bali grid has had excess production capacity since 2017. This problem will only get worse over the 2020 to 2024 period when huge increases in inflexible base-load coal-fired power plant (CFPP) generating capacity hit the Java-Bali grid.

Under the current RUPTL plan, there will be approximately 4,827 MW of new CFPP capacity coming online in 2020, 2,000 MW in 2021, 924 MW in 2022, 2000 MW in 2023 and 1,660 MW in 2024.

By the end of President Jokowi’s term in 2024, there will be 11.4 gigawatts of new CFPP capacity coming online in the Java-Bali grid. This surge in highcost new capacity will come from mega-projects such as the Java-7, Java-5, Java-4, Java 9-10, Banten, Java-1, Java-3 and Indramayu-4 CFPPs, each with capacity ranging from 660 MW to 2,000 MW.

These plants will exact a high price on the system because they are all take-or-pay independent power projects and PLN will have to make a fixed capacity payment regardless of whether the capacity is used. This is a real threat to PLN’s financial health because it will lock excess capacity in the Java-Bali system while demand growth declines.

The forecasting errors and long development lead times that now bedevil the Java-Bali grid are a cautionary lesson for planners focused on the new capital. Flexible system design with carefully formulated pricing incentives is more important than big slabs of fixed capacity.

How do we ensure that residents in both the new and former capitals get the benefit of such innovation? Plans to make the new capital green should not ignore the urgency of efforts to repair the Java-Bali grid or many other underserved areas.

The prerequisite for all of this is a full-system audit of PLN. This can give policymakers an urgently needed picture of what is working in PLN’s system, what needs to be fixed and how the innovations being discussed for East Kalimantan can be deployed to solve system problems elsewhere.

Then, other reforms to improve the transparency of procurement and pricing incentives for users and investors will ensure that long-term partners with a global mindset can play a bigger role in Indonesia’s power sector.

This is the homework that awaits Zulkifli Zaini as the new chief executive officer of PLN.

Source: The Jakarta Post, 6 January 2020

PLN needs to triple electricity supply in Sulawesi to power nickel smelters

To power an incoming tide of metal smelters, the nickel-rich Central Sulawesi and Southeast Sulawesi provinces would need an additional power supply of 1,556 megawatts (MW), nearly three times more than their current combined capacity of 557 MW.

Spearheading power fulfillment efforts, state electricity firm PLN plans to double the construction of new power plants and integrate the electric grids of all six provinces on the island.

“Why are we suddenly building so much power? Because there’s been a change in government mining policies,” said PLN Sulawesi director Syamsul Huda during a discussion about the region’s preparedness for new smelters on Dec. 20.

Syamsul was referring to the 2009 Coal and Mineral Mining Law and its supporting Energy and Mineral Resources Ministerial Regulation No. 11/2019 that mandates all nickel ore to be refined domestically instead of being exported in raw form, starting January this year.

Central and Southeast Sulawesi, the heartland of domestic nickel mining, are to host 19 new smelters with a combined annual input capacity for 45.95 million tons as a direct result of the regulation. The largest smelter, being built by China’s Virtue Dragon Nickel, is to have a 7.2 millionton capacity once it becomes operational in 2021.

“We advise mining companies to prioritize getting electricity from PLN, but since the mining companies have commercial operation deadlines, only if PLN cannot supply the electricity would they be advised to build their own power plants,” noted the energy ministry’s mineral business development director, Yunus Saefulhak.

PLN plans to increase lower Sulawesi’s production capacities to 3,031 MW by 2022, then to 3,842 MW by 2024. Most of the power is to come from coal-fired power plants, as per the company’s latest electricity procurement plan (RUPTL). The company is only slated to add hydropower plants starting in 2025.

The utility company also integrated on Oct. 8 the electricity grids throughout the island’s southern half, connecting all provinces except Gorontalo and North Sulawesi, which are the next two areas that the company is to work on.

Ceria Nugraha Indotama is one of the many nickel mining companies involved in Southeast Sulawesi. The company is developing a smelter to process 50 million tons of nickel each year, which would require a reliable 350 MW power source.

The company expects to pay 8 US cents per kilowatt hour (kWh) for PLN’s electricity. The rate matches the governmentsanctioned one for medium voltage industries of Rp 1,115 (8 US cents) per kWh, the third lowest such rate among the six major Southeast Asian economies.

“Compared to building our own power plants, which would be cheaper — about 4 US cents per kWh — we would also have to bear external costs, so it comes to about the same rate,” Ceria chief executive officer Derian Sakmiwata told The Jakarta Post.

PLN is also offering Premium Platinum Customer statuses to smelters in the region, including Ceria. Status holders would be connected to two electricity substations instead of one and, thus, be better secured against power shortages.

“We’re working our best to ensure electricity is available before the industries arrive,” said the energy ministry’s electricity director general, Rida Mulyana. “PLN’s electricity infrastructure will not be an over-investment as long as the smelters are built.”

PLN’s procurement plan requires the company to increase southern Sulawesi’s reserve margin ratio — the difference between power capacity and peak demand — from 29 percent next year to 38 percent by 2024 to accommodate industrial growth. Higher ratios secure local industries against unexpected spikes in regional power consumption.

PLN’s Syamsul added that the company was committed to increasing the nationwide power production capacity so that 23 percent of the power consumed in 2025 comes from renewable energy sources, as mandated by the General National Energy Planning (RUEN) road map.

Source: The Jakarta Post, 6 January 2020

2019, transition year for bioenergy

Out of five renewable energy sources being developed in Indonesia, bioenergy saw the most progress this year as Indonesia escalated a policy mandating the use of biofuel-blended diesel. Otherwise, renewable energy development and investments are poised to fall behind annual targets.

August marked Indonesia’s 11th month of mandating the use of 20 percent blended biodiesel (B20). However, less than a year under in, President Joko “Jokowi” Widodo announced the government would begin mandating use of B30 starting in January next year.

“We need to respond to any pressure on crude palm oil [substance used in producing biofuel] by driving up domestic demand and so that we can have a good bargaining position, whether with the European Union or other parties that try to weaken our position,” Jokowi said.

In preparing businesses for the implementation of the B30 policy, the Energy and Mineral Resources Ministry kicked off in June a five-month experiment to test the biodiesel’s compatibility with market-available vehicles. In September, the ministry increased this year’s allocation for subsidized fatty acid methyl esters (FAME), a key biofuel ingredient, by 208,238 kiloliters.

Fuel consumption using biodiesel depends on the vehicle, but B30 is around 0.87 percent higher than B20, said the ministry’s research and development head, Dadan Kusdiana, in September, when the experiment neared completion.

“This does not mean it’s more wasteful because the power is also higher and the performance is better,” Dadan added. “In terms of emissions, everything improved, except for nitrogen dioxide, depending on the vehicle type.”

In renewable power generation, Institute for Essential Services Reform (IESR) researcher Marlistya Citraningrum summarized this year as a period when solar energy saw the most progress even though the renewable energy sector declined overall.

“Several big solar power plants began operations this year, such that solar energy growth was higher than last year, even though renewable energy cumulatively declined,” she told The Jakarta Post.

The IESR’s latest renewable energy report shows that, even though Indonesia’s solar energy production capacity tripled yearto-date (ytd) to 152 megawatts (MW) in November, the overall share of renewables declined by 0.19 percentage points ytd to 12.2 percent in the same month.

The report also noted that Indonesia’s total capacity hit 10,169 MW as of November. At that figure, the country is poised to miss the year-end target of 13,900 MW, as stipulated in the General Plan for National Energy (RUEN).

Limited renewable energy growth aligned with an investment shortfall that, as of October, reached only 65 percent of this year’s targeted US$1.8 billion, one-third of which went to geothermal projects. This year’s investment target is $21 million lower than last year’s.

“In general, investment in [renewable energy and energy conservation] has been stagnant in the past five years, showing low investment attractiveness in Indonesia. Over the years, the government has also seemed pessimistic about the investment in the sector as it lowered the target,” writes the IESR.

Nevertheless, some modest progress was achieved as, out of 70 ministry-sponsored renewable projects announced in 2017, only 32 remained without financial closing as of early November.

The 32 projects include four that were cancelled, nine awaiting financial disbursement and 19 in the process of receiving funds. According to energy ministry renewable energy director Harris, “most of the canceled projects are in Sumatra”.

Among the largest projects that commenced operations this year are Supreme Energy’s 85 MW Muara Laboh geothermal plant in West Sumatra and Indonesia Power’s 45 MW Rajamandala hydropower plant in West Java.

Singapore-based renewables company Vena Energy also began operating its 15 MW Likupang plant in North Sulawesi in September. The plant is currently the largest of its kind in Indonesia.

Entrepreneur Gusmantara Himawan, founder of Jakartabased solar panel start-up Xurya, said industrial-scale solar energy growth was facilitated this year by the issuance of two ministerial regulations that amended disincentivizing clauses within regulation No. 49/2018.

The ministry introduced in September regulations No. 12/2019 and No. 16/2019. The former cuts back bureaucratic red tape while the latter slashes operational costs for on-grid solar power installations.

However, the regulations mainly benefit industrial scale solar power projects. In comparison, household solar energy hit 16.66 MW as of November, far from the year-end target of 1,000 MW as stipulated in the joint public-private One Million Rooftop Solar Panels Initiative.

“Indonesia’s solar energy utilization is very low. Only 78.5MW out of a total potential of 207,898 MW [0.37 percent]. The world average is 2.6 percent. Germany has the biggest at 14 percent,” said Eka.

The Indonesian Renewable Energy Society (METI) estimates that renewable energy will contribute around 9 percent to the energy mix this year. Most industry stakeholders are skeptical about Indonesia having an energy mix comprising 23 percent renewable energy by 2025, as stipulated by the RUEN.

“Right now, our renewable energy mix is still far from expectations. It’s 2019 now and adding between 17 and 18 percent to the mix over the next five to six years is a large task. Even adding 1 to 2 percent each year is not guaranteed,” said METI chairman Surya Dharma.

Source: The Jakarta Post, 4 January 2020

Sustainability investing takes off in Southeast Asia

Private equity and venture investors in Southeast Asia are betting on something new — sustainability. Bain research shows a significant increase in capital flowing to companies that contribute to environmental and social progress.

Just 10 years ago, most large investors in Southeast Asia targeted primary industries such as oil and gas, mining and agricultural commodities. Today, investors are piling into renewable energy projects, financial platforms that provide access to capital for microbusinesses, and for-profit hospital networks that offer underserved populations better access to health care.

In developing countries, the range of potential sustainability investments is arguably broader than in developed countries. Based on a definition adapted to developing countries, sustainability investing in Southeast Asia has rapidly gone mainstream.

Of all private equity deals in the first half of 2019, about 56 percent involved companies that met our sustainability criteria for developing countries, up from 30 percent in 2017, Bain research shows. The total deal value of sustainability investments for the first half of 2019 was US$3.2 billion, up 60 percent over the first half of 2018, and is on track to surpass 2018.

Socially responsible investing is on the rise globally, fueled by public concern about global challenges such as climate change, pollution, deforestation and social inequality. Limited partners are putting pressure on global fund managers to incorporate environmental, social and governance (ESG) criteria into their investment processes. As a result, a growing number of funds are building portfolios of companies that meet Principles for Responsible Investment (PRI), supported by the United Nations — and developing the in-house capabilities to help them grow.

For our research, we defined a sustainable investment as one that fuels growth — as opposed to a mere change in financial ownership — and meets at least one of three criteria:

• Improve the environment. Includes investments in clean energy, water purification, pollution controls, waste reduction, lowcarbon transportation, sustainability fisheries and energy from waste.

• Increase access to basic resources or services. Encompasses investments in platforms to expand and improve access to vital services that often are lacking in developing countries and hinder growth, such as education, healthcare and e-wallets for lowincome segments of the populations with no access to traditional banking services.

• Provide microbusinesses access to finance and markets and promotes social mobility. Includes microfinancing or digital sales platforms for small businesses that help reduce poverty and promote upward economic mobility of business owners.

Several forces are accelerating the shift to sustainability investing in Southeast Asia. Global private equity funds are rapidly adopting ESG criteria and shifting their investment focus. And as awareness and commitment to sustainability grow, private businesses increasingly see big opportunities.

The region’s sovereign investment funds and governmentlinked funds, which are among the world’s most active sustainability investors, are another powerful force. Funds such as Temasek and Khazanah have helped expand the sector, deploying patient, long-term capital to develop successful business platforms in areas such as healthcare. As the region’s largest funds take the lead on embedding sustainability goals into their strategies and championing ESG-focused investing policies, they are setting the tone for portfolio companies as well as private equity funds.

In a recent Bain survey, 96 percent of investors in Southeast Asia said they had accelerated their efforts to incorporate environmental and social criteria into their investment decisions. Large global private equity funds are among the most committed.

KKR, for example, incorporates ESG diligence into all its deals in the region in keeping with its global policy. Global investment group EQT, headquartered in Sweden with roughly $45 billion in assets under management, keeps an ESG scorecard for all its portfolio companies and tracks ESG performance globally. However, many smaller and medium-sized funds are lagging in implementation, according to the survey.

Importantly, a growing number of studies show that funds that incorporate ESG goals into their strategies perform as well as or better than other portfolios. That’s accelerating the shift to sustainability investing. The number of fund managers who have signed the UN-supported PRI has grown to more than 2,660, from 1,200 in 2013. The $82 trillion in assets under management by these signatories increased by a compound annual growth rate of 19 percent in the same period.

For Asia-Pacific exits between 2014 and 2018, Bain research shows the median return multiple for deals that either involved impact funds or focused on sectors that score high on ESG — including clean tech, ecology, renewables, education, water and waste — was 3.4, compared with 2.5 for other deals.

The majority of investors in these deals are attracted by business opportunities with solid returns that happen to address environmental problems or social needs. Impact investors, a much smaller subset of sustainability investors, by contrast, intentionally build portfolios of companies to achieve environmental or social goals in addition to financial returns — and they systematically measure their impact.

In December 2018, KKR made its first global impact investment in Southeast Asia, committing up to $33 million for a stake in Barghest Building Performance, a Singapore provider of energysaving solutions. The company uses sensors, software algorithms and equipment controls to cut electricity consumption by up to 40 percent in the air-conditioning systems of industrial and commercial customers throughout Asia. KKR’s impact investing strategy focuses on global opportunities where financial performance and societal impact are aligned and where there is no trade-off between the two goals.

The most striking sustainability trend in Southeast Asia, however, is the increasing ordinary deals that involve companies with a positive environmental or social progress (as defined for developing countries). In 2018, private equity funds invested more than $6 billion in sustainability assets in Southeast Asia, making up 41 percent of deal value, compared with 1 percent in 2010. AI Grid Foundation, a nonprofit based in Singapore that codeveloped a community-based model to deploy decentralized renewable energy resources, raised $20 million in a 2018 round from more than a dozen private equity funds, venture capital funds and corporates.

Source: The Jakarta Post, 16 December 2019