The Indonesia National Committee aims to promote sustainable energy development in Indonesia, as a part of the World Energy Council’s energy vision. As a member of the World Energy Council network, the organisation is committed to representing the Indonesian perspective within national, regional and global energy debates. The committee includes a variety of members to ensure that the diverse energy interests of Indonesia are appropriately represented. Members of the committee are invited to attend high-level events, participate in energy-focused study groups, contribute to technical research and be a part of the global energy dialogue.
Hardiv is currently Chairman of the Indonesian National Committee-World Energy Council; Member of Scientific Board of the Agency of Research & Development Centre for Energy and Mineral Resources, Ministry of Energy and Mineral Resources of Indonesia; Member of Asia Pacific Energy Research Centre Advisory Board, Japan; Member of External Advisory Board of the Electrical and Systems Engineering Department, School of Engineering & Applied Science, Washington University, USA; Member of Studies Committee of World Energy Council; and Member of Indonesian Delegation for the COP, the CMP, and the Subsidiary Bodies of the UNFCCC. He was the Executive Director of the ASEAN Centre for Energy from 2011 to 2014, a Senior Advisor to the Indonesia State Electricity Corporation from 2003 to 2009, and Planning Director from 1998 to 1999 and from 2001 to 2003. Prior to these, he was the 1st General Manager of Transmissions and Java-Bali Control Centre. He received an Engineer degree in Electrical Power Engineering from the Bandung Institute of Technology, Indonesia; M.Sc degree in Electrical Engineering from Union College, USA; and D.Sc degree in System Science and Mathematics from School of Engineering and Applied Science, Washington University, USA. He participated in the Executive Program on Macroeconomic Policy and Management, John F. Kennedy School of Government, Harvard Institute for International Development, USA. He is a member of IEEE, SIAM and AMS. His main interests are Energy and Climate Change on Mitigation Actions for Sustainable Energy Development; Long-term Energy Planning; Power System Planning, Operation and Control; Power Project: Legal, Financing, Operational and Technical aspects in Commercial Engagements.
Energy in Indonesia
The issues related to commitment towards low-carbon development, Rupiah’s exchange rate against the U.S. dollar, rapidly growing demand and fluctuating crude oil global prices have been identified as critical uncertainties and action priorities by the energy leaders of Indonesia.
The depreciating value of Rupiah against US Dollar and fluctuating global crude oil prices have raised the overall cost of production of energy in the country. In addition, coal has always been the most easily available and most abundant source of energy production in the country. With the government committed to keep energy prices constant, particularly the electricity prices in an affordable range, in this situation energy leaders see energy subsidies, exchange rates, and economic growth as the challenging issues in the year 2018.
With a rapidly growing demand and the pressure of keeping energy prices at an affordable level, coal will keep on playing a key role in the future energy mix for power generation in the Energy Transition period before changing into clean energy system. Consequently, it is no surprise that energy leaders in Indonesia consider electricity prices, energy efficiency as action priorities. Other action priorities include energy subsidies and economic growth.
Energy leaders in Indonesia highlight coal as a key critical uncertainty for 2018. Hosting the tenthlargest coal reserve on the planet, coal remains the easiest solution to satisfying the growing energy demand in the country. In 2018, coal consumption for power generation was 91.1 Mt and the consumption will be increased to 162 Mt in 2027 in line with the increasing Coal Fired Power Plant (CFPP) development. CFPP is still used in this transition period to clean energy power system in order to get the low cost of power generation production so that the electricity tariff can be competitive in maintaining supply and demand balanced and also to fulfil requirements of the base load generations. The development of CFPP should be used Clean Coal Technology (CCT) with Super Critical (SC) and Ultra Super Critical (USC). In the National Energy Master Plan stipulates the targets for the optimal Primary Energy mix shall be achieved: 1). the role of the new energy & renewable energy at least 23% in 2025 and to be at least 31% in 2050 provided that its economical fulfilled; 2) the role of oil shall be less than 25% in 2025 and to be less than 20% in 2050; 3). The role of coal at least 30% in 2025, and 25% at the minimum in 2050; and 4) the role of natural gas at least 22% in 2025 and at least 24% in 2050. The government also encourages the development of minemouth based power plant, particularly in the region that has abundant potential such as in Sumatera and Kalimantan. The cumulative additional capacity of CFPP and Mine-Mouth based Power Plant from 2018 until 2027 is about of 26.8 GW. Until the end of year 2018, total power plants installed capacity in Indonesia is 62.9 GW, in which 28.3 GW CFPP (includes Mine-Mouth Based Power Plant). As effort to maintain the security of coal supply for power plant, the government has implemented the domestic market obligation for coal.
The issue of exchange rates also appears as a critical uncertainty for year 2018. The volatility of rupiah against the US Dollar was among main highlights. The depreciating value of rupiah, coupled with the fluctuating global prices for coal for crude oil, lead to a higher cost of production and reduced profit margins for the market players in the country.
This issue got further intensified with the government’s policy of maintaining the electricity prices fixed up (not increasing) till the end of year 2019 and impact the market progress of energy market players in the country. The 2018 was a rather unfortunate time for emerging market. Acknowledging the experience of being in the so called ‘vulnerable five’ of the emerging market economies, back in 2013 the Fed tapering tantrum, the government of Indonesia has in deed reformed the economic management placing prudential at its core. By 2016, the law of financial sector safety net (Law No. 9 year 2016 on financial sector safety net) has stipulated a unified framework for mitigating and managing against risks on banking and financial sectors, including installing the bail-in policy and standard operating procedure for coordination among Ministry of Finance, Bank Indonesia, Financial Sector Authority and Deposit Guarantee Cooperation. The law effectively placed a firewall separating real economy from any financial monetary economic shocks.
Complementary to financial sector safety net and paramount to the management of macro economy are bounded non-negative budget primary balance, budget deficit limit to three percent of gross domestic product (GDP), macro prudential policy managing domestic liquidity, low foreign denominated currency debt stock to GDP and stable steam of foreign denominated currency revenue and free capital flow policy. These measures ensure the rupiah to float safely against market fair value for other major currencies, including USD, within certain manageable bands. Higher cost of production and reduced profit margins for the market players in the country were surely within tolerable and foreseen standard deviation against the country’s longer horizon economic performance of stable five percent GDP growth, low inflation and current account deficit to GDP of around three percent.
The policy direction of the development of electricity supply in line with the national development objectives in the electricity sector is to ensure the availability of sufficient quantity, good quality, and reasonable price to improve the welfare and prosperity of the people in a fair and equitable and to encourage an increase in sustainable economic activities. With the government focusing to keep the electricity prices in an affordable range, the energy leaders in Indonesia see this as an action priority for the year. The average price of electricity around 0.08 US Dollar per kWh (1,124.60 Rupiah per kWh or 7.89 cent US Dollar per kWh with the exchange rate 14,246 Rupiah per US Dollar) in Indonesia, which is lower than the average price of electricity in the world i.e. about 0.14 US Dollar per kWh. The government is committed to maintaining low electricity prices & not increasing the electricity prices until the end of year 2019, and to keep a competitive tariff in the country. This was done as an effort to ensure electricity affordability for all.
Energy subsidy is also seen action priority for this year’s Indonesia Issues Monitor. According to the Energy and Mineral Resources Ministry, the total energy subsidy spending crossed $10 Billion in the year 2018, which was a lot more than the budgeted subsidy of $ 6.6 Billion for the year. This increase is seen as a result of increase in the cost of subsidy due to the increased in 2018 global crude oil prices, and strong US Dollar in 2018 as the Fed hiked the US policy interest rate four times.
Yet, the higher energy subsidy spending was counterpoised by higher revenue from oil and gas in the 2018 budget. In this sense the central government’s budget gained from the increased in 2018 global crude oil prices. The government policy on fuel subsidy is never to keep the energy prices constant in any situation. Yet it has the constitution’s mandate to manage the fuel price volatility so that it does not pass to domestic inflation erratically at real time. It is part of macroeconomic policy to smooth out inflation, providing anchor for economic growth while fostering the under-privileged citizen.
The Indonesian Government has maintained its approach to provide high oil subsidies, did not cut domestic oil subsidies in order to reduce the overspendings, looking to address citizens’ concerns about the country’s economic growth. As a result of sticking with subsidy plan, the state-owned energy holding company “Pertamina” sold its fuel below the market prices throughout the country. The oil and gas sector shortfall contributed to the 2018 current account deficit through trade account in a more transparent way from the balance of payment management than otherwise. The increasing current account deficit of 3.37% of GDP in third quarter 2018, yet Bank Indonesia (BI) has projected that the country’s current account deficit will be at around 2.3 percent in 2018.
Additionally to the key critical uncertainties and action priorities highlighted above, it is worth mentioning that during COP24, the government claimed to be fully committed to steer the economy for low carbon development by mainstreaming a low carbon framework in their mediumterm development plan. This development would involve improving environmental quality and attaining energy efficiency. Energy efficiency improvements in Indonesia have reduced by 9% of energy use in 2017 since the year 2000 and in the energy efficient scenario the overall energy consumption can be reduced by 670 PJ with savings mainly coming from the industry and services, passenger transport, followed by residential buildings sector (IEA 2018). Some efforts to improve energy efficiency included the application of energy management in the industry, the application of codes to commercial building, the application of MEPS and labeling to household appliances and the application of more efficient passenger transport. Efficiency improvements also prevented 65 Mt CO₂-eq in emissions in 2017.
Indonesian energy leader’s concerns and actions are aligned with the developments for security of supplies, affordability and environmental impact posed by the current energy mix. The government is taking measures to ensure that consumers have access to affordable and reliable & secure supply of energy by providing subsidies and keeping the energy costs constant. The government is also committed to steer the economy for low-carbon development by mainstreaming a low-carbon framework as a medium-term development plan and by increasing the roles of low-carbon & zerocarbon energy technologies, moving the energy system towards using low-carbon energy sources (fuel switching), improving environmental quality and enhancing the work on energy efficiency.