Indonesia targets on-site power growth

Indonesia's government is targeting total electricity production of 440 TWh by 2022
Indonesia’s government is targeting total electricity production of 440 TWh by 2022
Credit: US Foreign Service Liaison Officer Tom Wein

With geographers estimating that Indonesia has 18,307 islands, it is no surprise that the government’s energy plan is flexible on how energy production and distribution can be boosted – its goal is expansion. And small energy plant developers are taking notice, finds Jack Hewson.

Energy production and distribution are often the bedrock of sustainable economic development, and for an archipelago such as Indonesia, on-site power and small grids will always be the most sensible option.

The government of southeast Asia’s most populous country has released a Masterplan for Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) whose goal is developed economy status by 2025. It has identified Indonesia’s patchy energy infrastructure as a ‘primary obstacle’ to achieving this goal. Electricity supply in the greater Jakarta area is rarely interrupted, but in the provinces – particularly outside Java – lengthy power outages are commonplace, with many industrial plants, from palm oil mills to coal mines, requiring on-site power generation. With geographers estimating that Indonesia has 18,307 islands, it is no surprise that the government plan is flexible on how energy production and distribution can be boosted – its goal is expansion. And small energy plant developers are taking notice.

‘You have all these islands and remote generation…There’s no possibility of constructing a national grid; you have to have plenty of small grids. So distributed power is the perfect way to address those issues. Secondly, the use of expensive diesel has been burdening the country, and the government is trying to find a way to address that,’ said Made Wiratma, GE’s ASEAN market development director.

A need for more power

MP3EI is targeting improvements in supply and transmission across all sectors and regional ‘economic corridors’. The government hopes to achieve total electricity production of 440 TWh by 2022, up from 213 TWh in 2013.

If Indonesia’s current economic growth is to be sustained, it will need more power. There are already signs that its weak energy sector is impeding growth.Dr Saleh Abdurrahman, head of public communications at the ministry of energy and mineral resources, told COSPP: ‘Electricity demand grows 8% per annum, because of our industrial growth and GDP per capita growth. But supply growth is only 3%-4%, so there is a lack. The imbalance between the demand growth and the supply growth puts Indonesia in a dangerous position for reliability.’

Some of the government’s planned energy expansion will come from large coal-fired power stations. But while coal’s share of the national electricity mix is projected to rise from 51.6% in 2013 to 66% in 2022, this growth is expected to be focused on more heavily industrialised islands, notably Java – host to 25.8 GW out of state utility PLN’s total installed capacity of 32.9 GW. Meanwhile, an expansion of geothermal, promoted by Indonesia’s volcanically active geology, will also provide large-scale solutions – it is anticipated to account for 11% of the electricity mix by 2022, up from 4.4% in 2013. A 330 MW geothermal project in Sarulla, northern Sumatra, is set to become the world’s largest after it begins construction later this year.

Eight Jenbacher engines at a power plant in Ecuador
Eight Jenbacher engines at a power plant in Ecuador. GE is looking to establish similar facilities in Indonesia for biogas resulting from both palm oil and municipal waste
Credit: GE

Market potential

Outside the core population centres of Java and Sumatra, though, Indonesia’s disparate geography will require innovative power solutions and industry players are eyeing the archipelago nation’s potential as a distributed energy market. Much of the demand will be met by independent power providers (IPPs), from which PLN purchased 50.6 TWh, or 25.24% of national capacity, in 2012.

The growth in diverse smaller-scale power production will also help ease Indonesia’s over-reliance on foreign oil, which has damaged the national balance of payments in recent years: of a total national oil bill of US$39 billion, $8.6 billion was spent subsidising diesel for electricity production in 2012. Diesel accounted for 12.5% of the national electricity mix in 2013, which the government hopes to reduce to 1.7% by 2022.

The government is hoping to see a switch from diesel generator sets – from which electricity production costs can be as high as $0.36-0.37/kWh in the outer islands – to alternative energy.

To encourage IPPs to help facilitate this transition, PLN is buying electricity at preferential rates from small power plants (under 10 MW) generating energy from renewable sources. COSPP has been told by a senior Indonesia energy sector expert about leaks from the energy and mineral resources ministry that suggest these feed-in tariffs (FiTs) are set to rise and energy projects are being delayed as investors wait to benefit from the new rates.

‘[The government] is interested in distributed power, but driven by certain factors – mainly by diesel replacement, not so much on achieving higher efficiency. They are trying to address biomass, biogas, hydro, solar, wind -small scale, because they’re thinking about remote areas where there’s no infrastructure,’ Made said.

Technology spectrum

Made runs GE Distributed Power, a sub-holding of the utilities giant that began operations in February. It is seeking to initiate the distributed power market in southeast Asia by demonstrating the bankability of a spectrum of energy technologies.

Indeed, GE announced the sale of 100 gas engines to Indonesian energy company Navigat for on-site power projects in Indonesia and Thailand in February, to produce a total of 330 MW.

Before the distributed power subdivision was set up, Made worked on a 1.5 MW biowaste-to-energy pilot project using rice husks in Cambodia.

‘I went there because the market was so unregulated and new,’ he said, adding that Cambodia had problems similar to those of rural Indonesia: a low electrification rate – less than 30% (in 2011) – and heavy use of non-subsidised diesel. Electricity prices were then as high as $1/kWh. ‘I was looking at it as an exercise to create a market and establish policy,’ he said.

‘Having spent three years, it doesn’t mean three years and you only sold 1.5 MW. We have learned a lot and now have a reference – I’ve established a model.

‘I know how to create the project and what it costs. Someone recently contacted me after meeting with the rice association in Indonesia, and I now I can say “Oh, these are the calculations”. Maybe they need to be slightly fine-tuned but at least I’ve got the model. Right now power-near-demand needs solutions, not products.’

Currently GE is working with a variety of Indonesian partners on various pilot projects under 10 MW.

Made says he is helping PLN to establish a 1 MW biogasification plant in Sumba, eastern Indonesia, run from leucaena leucocephala, an energy crop to be grown locally. GE has also invested $1.5 million in a 400 kW waste-to-energy pilot in Bali, fueled by bamboo from the handicraft industry. GE’s industry partner Navigat is also establishing a municipal waste-to-energy project in Jakarta.

Made acknowledges that these projects are small first steps, but insists that there are ‘billions of dollars to be made’.

Gas cogeneration

According to Made, the biggest portion of distributed power will be small-scale liquid natural gas (LNG). Under a 2009 regulation on the ‘preferential supply of domestic mineral and coal demands’, otherwise known as the domestic market obligation (DMO), more than 50% of Indonesia’s gas – abundant in the archipelago’s east – must be used domestically.

The government anticipates that 70 TWh will come from LNG in 2022, up from 50.3 TWh in 2013 (although gas’s share of the energy mix will drop from 23.6% to 16%, losing out to the wholesale expansion of coal).

Made cites Bali – where energy is generated almost entirely from diesel, and where there is opposition to a switch to coal – as a prime example where LNG solutions would be suitable. Government subsidy reductions culminated in industrial diesel price hikes of between 38% and 64% in May, making gas an attractive alternative on the resort island.

‘The gas price is pushed up by the liquefaction and gasification that is required, but still the cost of the power will be significantly less than diesel. Let’s say you’re providing $0.20/kWh compared to diesel at $0.30/kWh. It’s still expensive, but it’s less subsidy from the government, and more importantly the market [in Bali] – the hospitality industry – can afford it.’

Made says the recent subsidy reduction has, for the first time, made gas cogeneration cheaper than diesel – an option completely neglected in Indonesia until now, and for which there are no government FiTs. GE is now helping to set up several 5 MW-10 MW cogeneration pilot projects serving several Bali hotels, an airport, a seaport and a Jakarta shopping mall.

Renewable potential

Some small-scale renewable sources with huge potential are hydro and biomass-to-energy – particularly from by-products of the palm oil industry.

The government predicts that hydro will produce 22 TWh, or 5% of the national electricity mix, by 2022, up by volume from 16.4 TWh, but down from 7.7% of total provision in 2013.

‘I think we have a good chance for mini-hydro projects to grow because the FiT has recently been raised and is now becoming attractive as it’s considered a very safe technology, and the feedstock is there ࢀ” the only risk is the implementation,’ said Bjoern Heidrich, a project developer with engineering and energy consultancy Bumi Raya, which works closely with the Global Climate Partnership Fund, backed by the German government and managed by Deutsche Bank. He added that feedstock that results from the harvesting of palm oil is also massively abundant in Indonesia, the world’s largest palm oil producer.

Out of Indonesia’s renewable energy sources, available biomass is deemed to have the second greatest potential capacity (49.8 GW) – after large hydro (75.6 GW) and ahead of geothermal (29 GW) – yet currently only 3.25% is put to use for energy.

‘With a palm oil mill, its production process brings with it the entire feedstock in terms of calorific value needed to run the total mill operation. So it fuels itself,’ Heidrich said. Solid biomass from palm oil production is comprised of pressed mesocarp (from which the oil is derived), palm kernel shells, the fronds and empty fruit bunches. Steam from boilers fuelled by this biomass drive a turbine to produce electricity, which can be used to sterilise cropped fruit bunches. Also, because of their high calorific value and low moisture, leftover palm kernel shells can be sold on to South Korea, Japan or Europe to help feed coal-fired plants or specialised boilers.

Environmental regulation in Indonesia bans incineration of empty fruit bunches – which are not used as fuel due to their low calorific value – and alternative uses for them must be found. According to Heidrich, empty fruit bunches can now be dried with exhaust heat from a biogas engine, and after they are cracked and shredded they can be turned into a product called ‘dried long fibre’ – similar to coconut fibre – which can be traded as a geotextile input for use in mattresses and car seats, among others.

Meanwhile, the liquid biomass – palm oil mill effluent (POME) – can be treated to produce biogas in an open lagoon system. ‘And that’s where people start to build more and more methane capture, clean it and feed it into a biogas engine which then turns it into electricity,’ said Heidrich.

‘The potential is huge. Every palm oil mill, except the very small ones, should and would qualify for a methane capture biogas facility, just because it’s green already and it’s reasonably cheap. But it depends on the local grid situation. If it’s the middle of the jungle and there’s no grid for 30 km then they cannot utilise the electricity,’ Heidrich said, adding that under current rules, developers are expected to shoulder the cost of building grid connections. Given that most palm oil mill power plants are 1 MW-2 MW, the costs outweigh the potential electricity sales.

Of Indonesia’s 600-plus palm oil mills, Heidrich estimates that only 20 to 30 have adopted on-site power, though many more are under development. He said there is plenty of funding available to the developers through the Global Climate Partnership Fund, but the fund has struggled to find well-developed projects in Indonesia for its financing.

Heidrich says many foreign investors – who are permitted to own no more than 49% of a 1 MW-10 MW power plant in Indonesia – have put their money into projects in Thailand, the Philippines and Malaysia, where there are better FiTs and less currency exchange rate fluctuations.

‘There could be a lot more biogas plants in Indonesia if the financing solutions were different, and if the FiTs reflected actual costs and requirements from investors,’ he said.

Jack Hewson is a journalist based in Jakarta, Indonesia

No posts to display