GLOBAL GREEN GROWTH INSTITUTE GREEN INDUSTRY MAPPING STRATEGY GREEN INDUSTRY MAPPING STRATEGY (GIMS) IN INDONESIA INTERNATIONAL LEADING PRACTICE REPORT MARCH 2014
Table of Contents 1.
Executive Summary ................................................................................................................................. 8
2.
Purpose and Background ...................................................................................................................... 12 2.1 The GGGI Green Industry Mapping Strategy Project 12 2.2
3.
4.
5.
6.
International Leading Practice (ILP)
13
Global Market Review ........................................................................................................................... 15 3.1 Introduction 15 3.2
Solar Photo Voltaic
15
3.3
Geothermal
19
3.4
Biodiesel
22
3.5
Landfill Gas (LFG)
25
3.6
Building Energy Management Systems (BEMS)
28
3.7
Slag from Steel Manufacture
32
3.8
Conclusion
33
Comparative Assessment of Indonesia Country Context ...................................................................... 36 4.1 Introduction 36 4.2
Comparative Analysis of Indonesia Business Environment
39
4.3
Policy Assessment of Indonesia
45
Identification of International Leading Practices .................................................................................. 57 5.1 Analysis Framework Error! Bookmark not defined. 5.2
Global Renewable Energy Policy Trends
57
5.3
Global Energy Efficiency Trends
79
5.4
Global Waste Management Policy Trends
86
5.5
Comparative Technology Assessment
97
References ........................................................................................................................................... 102
Appendix 1: National Policy in Indonesia ...................................................................................................... 109 Appendix 2: Methodology for International Leading Practice Analysis ........................................................ 112 Appendix 3: German PV Policy Details .......................................................................................................... 117
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List of Figures Figure 1: Milestones of the GIMS program ...........................................................................................................................................12 Figure 2: Structure of International Leading Practice Report ................................................................................................................14 Figure 3: Global Installed PV Capacity (Masson, et al., 2012) ................................................................................................................15 Figure 4: Solar PV installed capacity (in MW) – forecast .......................................................................................................................16 Figure 5: Top Export / Import Countries across Solar Value Chain in 2012 (UN, 2013) .........................................................................17 Figure 6: Proportion of patents held in solar PV (UNEP, 2010) .............................................................................................................18 Figure 7: Geothermal Energy across Countries in 2010 .........................................................................................................................19 Figure 8: Potential of Geothermal energy by 2050 (Beerepoot, 2011) .................................................................................................20 Figure 9: Top Export / Import Countries across Geothermal Value Chain in 2012 (UN, 2013) ..............................................................21 Figure 10: Proportion of Patents in Geothermal (UNEP, 2010) .............................................................................................................21 Figure 11: Present production of Biodiesel 2012 (OECD/FAO, 2011) ....................................................................................................22 Figure 12: Biodiesel production in 2020 (OECD/FAO, 2011) .................................................................................................................22 Figure 13: Top Export / Import Countries across Biodiesel Value Chain in 2012 (UN, 2013) ................................................................24 Figure 14: Proportion of patents in biofuels (UNEP, 2010) ...................................................................................................................25 Figure 15: LFG to energy - future regions (Pirker, 2010) .......................................................................................................................27 Figure 16: Top Export / Import Countries across LFG Value Chain in 2012 (UN, 2013) .........................................................................28 Figure 17: Top Export / Import Countries across BEMS Value Chain in 2012 (UN, 2013) ......................................................................31 Figure 18: Global Production of Iron and Steel Slag (Sofilic, et al., 2012) ..............................................................................................32 Figure 19: Top Export / Import Countries across the Slag Value Chain in 2012 (UN, 2013) ..................................................................33 Figure 20: Population and Urbanisation projection until 2025(World Development Indicators; EY Analysis) ......................................37 Figure 21: Energy Demand Projections (EY Analysis).............................................................................................................................37 Figure 22: Energy Supply Projection from 2010-2025(EY Analysis) .......................................................................................................38 Figure 23: Relative GHG Impact of Technologies...................................................................................................................................38 Figure 24: Distance from Frontier – Indonesia versus World Best Practice...........................................................................................39 Figure 25: Distance from Frontier - Change over time ..........................................................................................................................40 Figure 26: Comparison of various regions in Indonesia as per EDB .......................................................................................................41 Figure 27: Technology-specific Ranking: component and overall .........................................................................................................42 Figure 28: RECAI Assessment of Indonesia ............................................................................................................................................43 Figure 29: Comparison of macro drivers and energy market drivers with other countries for Solar Technology .................................44 Figure 30: Comparison of macro drivers and energy market drivers with other countries for Geothermal Technology ......................45 Figure 31: Drivers of energy policies in Indonesia ................................................................................................................................46 Figure 32: Electrification ratio with potential of geothermal and solar energy development in Indonesia (PT. PLN, 2013) (INAGA, 2013) (Wirasaputra, 2012).............................................................................................................................................................46 Figure 33: Indonesia crude oil production & consumption by year (EIA, 2014) ....................................................................................47 Figure 34: Success Factors mapped with respect to deployment stages (IRENA, 2013), (IEA, 2011) ....................................................49 Figure 35: Total Installed Capacity and Growth Rate (Earth Policy institute; Bloomberg; EY Analysis) .................................................60 Figure 36: Share of Germany’s PV capacity, (EPIA, 2012) ......................................................................................................................60 Figure 37: Estimating required rate of growth to achieve 2020 target (BMU, 2013) ............................................................................61 Figure 38: PV policy and installed capacity (BMU, 2013).......................................................................................................................63 Figure 39: GHG emissions avoided in 2012 (BMU, 2013) ......................................................................................................................65 Figure 40: GHG emission avoided by sectors in 2012 (BMU, 2013).......................................................................................................66 Figure 41: GHG avoided versus Installed Capacity (BMU, 2013) ...........................................................................................................66 Figure 42: Employment from Solar PV (BMU, 2013) .............................................................................................................................67 Figure 43: Investment rates (BMU, 2013) .............................................................................................................................................68 Figure 44: Turnover from Operation, (BMU, 2013) ...............................................................................................................................68 Figure 45: Country selection for geothermal .........................................................................................................................................71 Figure 46: Cumulative Installed Geothermal Electricity-Generating Capacity by Country (Earth Policy Institute, 2010) ......................71 Figure 47: Two phases of government intervention in geothermal energy and their representative policies .....................................72
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Figure 48: Relationship between RD&D investment and increase in geothermal capacity (NREL, 2009) .............................................73 Figure 49: GHG emission from geothermal energy production compared to other resources .............................................................74 Figure 50: Geothermal capacity and its economic value (GEA, 2006) ...................................................................................................75 Figure 51: The ILP approach for BEMS...................................................................................................................................................80 Figure 52: Definition of BEMS ................................................................................................................................................................80 Figure 53: The relationships between buildings and ICT .......................................................................................................................81 Figure 54: GHG emission reduction proportion in the world by 2020 ...................................................................................................82 Figure 55: Environmental and economic impact of BEMS from Johnson Controls’ case.......................................................................82 Figure 56: Country selection result for BEMS ........................................................................................................................................83 Figure 57: LFG to energy projects – Growth over time (EPA, 2013) ......................................................................................................88 Figure 58: USA landfill methane emissions and GDP between 1990 and 2011 (EPA, 2013) .................................................................89 Figure 59: ILP analysis for slag ...............................................................................................................................................................90 Figure 60: Types / Uses of Slag (Euroslag&Eurofer, 2012) .....................................................................................................................91 Figure 61: World Top Steel Producers (World Steel Association, 2012) ................................................................................................92 Figure 62: Policies under CE ..................................................................................................................................................................95 Figure 63: BFS Slag Usage (Euroslag&Eurofer, 2012).............................................................................................................................96 Figure 64: Steel Slag Usage (Euroslag&Eurofer, 2012) ..........................................................................................................................96 Figure 65: Five top countries of Solar PV components exporters (International Trade Map, 2013) .....................................................98 Figure 66 Five top countries of geothermal components exporters (International Trade Map, 2013) .................................................99 Figure 67 Five top countries of biodiesel components exporters (International Trade Map, 2013) .....................................................99 Figure 68 Five top countries of BEMS components exporters (International Trade Map, 2013) ........................................................100 Figure 69 Five top countries of LFG components exporters (International Trade Map, 2013) ...........................................................100 Figure 70 Five top countries of slag components exporters (International Trade Map, 2013) ...........................................................101 Figure 71 Indonesia National Energy Policy – Vision, Mission, Policy strategy and relevant institutions (Zuhal) (ESDM); (IEA, 2013) .....................................................................................................................................................................................................109 Figure 72: Framework for policy assessment ......................................................................................................................................114 Figure 73: Industrial waste management policy framework ...............................................................................................................116
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List of Tables Table 1 : Dimensions of GIMS Indonesia ...............................................................................................................................................12 Table 2: Present status of adoption of alternative fuel in various countries (Eisentraut, et al., 2011) .................................................23 Table 3: Leading countries for solar and LFG technologies ...................................................................................................................34 Table 4: Leading countries for slag and biodiesel technologies.............................................................................................................34 Table 5: Leading countries for geothermal and BEMS technologies .....................................................................................................34 Table 6: China, Germany and USA dominate global industry landscape of six priority technologies ....................................................35 Table 7: Technology specific weightings for the EDB dataset ...............................................................................................................41 Table 8: Renewable Energy Policy in Indonesia (IEA, 2013) ..................................................................................................................48 Table 9: Renewable Energy Policy by Country (REN21, 2012) ...............................................................................................................49 Table 10: Energy Efficiency Policies in Indonesia (IEA, 2013) ................................................................................................................52 Table 11: Instruments Regulations and Substance (AusAid, 2011) .......................................................................................................55 Table 12: Renewable Energy Policy by Country (REN21, 2012) .............................................................................................................57 Table 13: Percentage of Adoption (REN21, 2012) .................................................................................................................................58 Table 14: Solar PV Policy Evaluation and Implication in Germany ........................................................................................................64 Table 15: General risks of FiT and how the issues has been addressed ................................................................................................69 Table 16: Geothermal development policies (NREL, 2009) (Bloomquist, 2003) ....................................................................................72 Table 17: Fiscal incentives for geothermal energy (NREL, 2009) (John W. Lund, 2012) ........................................................................73 Table 18: Induced employment from geothermal development by state .............................................................................................75 Table 19: Synthesis of selected policies and measures for supporting biodiesel during process chain (Chang Shiyan, 2012) ..............78 Table 20: Relevant policy and measures during the process chain .......................................................................................................78 Table 21: Risks related to biofuel policy measures ................................................................................................................................79 Table 22: Different ICT in Europe ..........................................................................................................................................................85 Table 23: Growth effects of LFG to energy projects (EPA, 2012) ...........................................................................................................89 Table 24: Risks related to LFG policies (EPA, 2012) ...............................................................................................................................90 Table 25: Slag classification in EU member states (Euroslag&Eurofer, 2012) .......................................................................................93 Table 26: Estimated impacts with different substitution rates (Slag Cement Association, 2013) .........................................................97 Table 27 Strategy Framework (ESDM, 2011) (Sukarna, 2012) .............................................................................................................109 Table 28 Regulatory framework of energy in Indonesia (IISD, 2012) (IISD, 2010) (Ministry of Finance) .............................................110 Table 29 Renewable Energy Policy (IISD, 2012) (BMZ, 2012) (REN 21, 2013)......................................................................................111 Table 30: Technology classification .....................................................................................................................................................112 Table 31: Country selection criteria .....................................................................................................................................................113 Table 32: Types of RE policies and its strengths / weaknesses (BMZ, 2012) .......................................................................................115 Table 33: Outcomes and requirements of each measure....................................................................................................................116
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List of Abbreviations ABS ACEEE ADB APAC ASEI BAU BEMS BLT BLUD BOE BOF BOS BPPT BPS BRIC CAGR CDM CE CFL CREB EAF EAF EDB EE EEG EIA EPBD EPIA EPR ESDM FDI FiT GBCI GBS GEA GeSI GHG GIMS H2S HAP HDPE HS code HVAC
Air-cooled Blast Furnace Slag American Council for Energy Efficient Economy Asia Development Bank Asia Pacific Asian Solar Energy Initiative Business as Usual Building Energy Management System Cash Transfer (Indonesia) Local Public Service Agency Barrel of Equivalent Basic Oxygen Furnace Basic Oxygen Furnace Slag Agency for the Assessment and Application of Technology National Statistics Agency of Indonesia Brazil, Russia, India and China Compound Annual Growth Rate Clean Development Mechanism Circular Economy Compact Fluorescent Lamp Clean Renewable Energy Bond (USA) Electric Arc Furnace Electric Arc Furnace Slag Ease of Doing Business Energy Efficiency Renewable Energy Law (German) Energy Information Agency Energy Performance of Buildings Directive (EU) European Photovoltaic Industry Association Extended Producer Responsibility Ministry of Energy and Mineral Resources Foreign Direct Investment Feed-in-Tariff Green Building Council Indonesia Granulated Blast Furnace Slag Geothermal Energy Association (USA) Global e-Sustainability Initiative Greenhouse Gas Green Industry Mapping Strategy Hydrogen Sulphide Hazard Air Pollutants High Density Polyethylene Harmonized System Code Heating Ventilation and Air Conditioning
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ICT IDI IISD ILP IP IPC ITC ITU LCA LFG LFGE LMOP MP3EI MSW NDRC NRE OHR PPA PTC PURPA PUSDATIN R&D RD&D RE REACH REC RECAI RES RIKEN RINs ROW RPG RPS SECS SKPD Solar PV TLC TOE UNFCCC UVCB VC WM
Information Communication Technology ICT Development Index International Institute for Sustainable Development International Leading Practice Intellectual Property International Patent Classification Investment Tax Credit International Telecommunication Union Life Cycle Assessment Landfill Gas Landfill Gas to Energy the Landfill Methane Outreach Program (USA) Masterplan for Acceleration and Expansion of Indonesia’s Economic Development Municipal Solid Waste the National Development and Reform Commission of China (China) New and Renewable Energy Open Hearth Furnace Power Purchase Agreement Production Tax Credit Public Utilities Regulatory Policies Act (USA) the Center for Data and Information Research & Development Research Development & Demonstration Renewable Energy Regulation on Registration, Evaluation, Authorization, and Restriction on Chemicals (EU) Renewable Energy Certificate Renewable Energy Country Attractiveness Index Renewable Energy Source National Energy Conservation Program Renewable Identification Numbers (USA) Rest of World Renewable Energy Goal (USA) Renewable Portfolio Standard Secondary Metallurgical Slag Local Government Unit of Work Solar Photovoltaic Transparency, Longevity and Certainty Tonnes Oil Equivalent United Nations Framework Convention on Climate Change Unknown and Variable composition, Complex reaction products or Biological materials (EU) Value Chain Waste Management
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1. Executive Summary On 18 June 2013, the Green Growth Program was officially launched in Indonesia by Armida Alisyahbana, the Minister of National Development Planning, and GGGI’s Director-General Howard Bamsey. The Green Growth Program is a joint program to develop a green growth framework and a suite of tools that can be used to help mainstream green growth into existing planning and investment appraisal processes (GGGI, 2013). The Green Industry Mapping Strategy (GIMS) forms a component (1C) of this program, and assesses the opportunities for accelerated investment in a range of green growth technologies across Indonesia. It specifically assesses the additional environmental and economic benefits that could be achieved against a business-as-usual (BAU) forecast for growth in Indonesia. This International Leading Practice report presents an assessment of policies and practices at a technology (Global Market Review), country (Indonesia Country Analysis) and international (International Country Review) level. It identifies where policy opportunities between international leading countries and Indonesia may be found, and makes recommendations for each of the prioritised six green growth technologies. This report has been developed through an assessment of global market trends, Indonesia’s business and policy environment, and international leading practices. It presents detailed analysis of the six technology opportunities set out in GGGI’s Deep Dive report (solar photovoltaic (PV), geothermal, biodiesel, landfill gas (LFG), building energy management systems (BEMS), and slag) and estimates significant economic and environmental benefits that could occur should sufficient reform be realised similar to the leading practice examples discussed within.
Global Market Review The global market review identifies leading countries based on dynamics, trade activities, and intellectual property (IP) generation statistics with respect to the value chains of each of the six prioritized green technologies for Indonesia, with the findings for each technology including: ► Solar PV: Both China and Germany are leading countries based on installed PV capacity, and they are active participants in international solar PV trade and solar PV technology development. However, their market characteristics differ significantly: while Germany is the third highest IP generator in the world for solar PV, China has emerged as the dominant manufacturer and supplier of solar PV technology without generating the same volume of patents. This may reflect a developed versus developing country divide: for countries such as the USA and Germany, IP generation is a consequence of sophisticated manufacturing capabilities based on targeted research and development. This is not necessarily the case in developing nations such as China and India, which may focus on economies of scale and other competitive advantages to deliver large-scale production based on existing IP. ► Geothermal: Global geothermal resources are concentrated in a small number of countries, with significant differences in the proportion of resource developed by different countries. There is a strong correlation between IP generating countries and countries that generate value from meeting the supply chain demands of the sector; however, the relationship between resource and either IP generation or value creation is variable. The USA and Germany are significant IP generators, yet the geothermal resource (and installed capacity) of Germany is very small compared to that of the USA. ► Biodiesel: Biodiesel production is dependent on input feedstock (often crops) to the process. Currently, more than 50% of the world’s biodiesel is produced in Europe, followed by the Caribbean and Latin America. Germany is the major exporter of biodiesel and a leading IP generator in the biofuels technology market. This suggests that Germany is a key player in the biodiesel production market. This is in sharp contrast to Brazil: despite having larger biofuel production base, Brazil has broadly the same number of biodiesel technology patents as China. This suggests that Brazil still mostly functions as a production hub and does not yet generate new, cutting-edge technology. ► LFG: Landfill management differs greatly from one geographical region to another, and this influences its role in energy generation. While Europe and North America have highly evolved systems for landfill management, countries in Asia and Africa lack similar measures and infrastructure. As a result, most of the major importers of LFG technology tend to be Asian countries like China and India who have large, open landfills that can
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potentially create opportunities from gas capture technologies and infrastructure. The LFG market is expected to grow as developing countries in Asia and Africa start implementing improved landfill management measures at an increasing rate. BEMS: Buildings account for 10% of global energy consumption (EIA, 2013), and are responsible for a similar proportion of global CO2 emissions. Buildings in Europe and North America generally have better thermal performance, and therefore energy efficiency, than global counterparts, but the quantum of energy consumption remains high due to the increased uptake of energy-consuming devices. Conversely, building performance in Asia and Africa is generally considered less efficient; however, the quantum of energy consumed is low compared to Europe and North America. However, as economies continue to grow in Africa and Asia so will demand for electronics, heating and cooling, and white goods, as well as the total number of buildings. This will lead to their energy consumption and carbon emissions increasing as a whole. Therefore, it is critical that these countries improve their building energy-efficiency. Regarding patents related to building energy management, China is the world leader followed closely by the USA and Germany. These three countries are also major players in the global BEMS market, suggesting a correlation between IP generation and value generation. . Slag: Slag is a by-product of steel and iron production. The technologies and machineries, such as hoppers, vibrators, mills and grinding machines, involved in processing slag into various construction materials are used in the mining sector long since. IP related to the final product, slag cement, are dominated by the countries such as China, Korea, Russia, Japan and USA according to their IP generation rank. This suggests that the top steel producing nations like China, Japan, USA and Korea could potentially be the hotspots for technology related to slag re-use in the cement industry. Slag reutilization is closely linked to the concept of Circular Economy in a way that by-product of steel manufacturing serves as an input to cement production. According to the report, varying the mixture of cement with slag can offer significant CO2 reductions and energy savings within the cement industry.
In summary, China, Germany and the USA appear to dominate the international landscape for production, trade and IP generation when it comes to the six green growth technologies considered in this report.
Comparative Assessment of Indonesia The comparative business landscape analysis of Indonesia reviewed the attractiveness of the country from the perspective of (i) general business investors, (ii) renewable energy investment and (iii) policy landscape. ►
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The general business climate is based on a re-analysis of the World Bank’s Ease of Doing Business (EDB) dataset. This analysis suggests that there is significant scope for improvement in business-related policies and practices in Indonesia, particularly in relation to streamlining the procedures and timelines for establishing new operations. The renewable energy investment attractiveness is based on Ernst & Young’s (EY) Renewable Energy Country Attractiveness Index dataset. Indonesia ranks poorly against macro drivers, and despite having a significant solar and geothermal resource Indonesia also ranks poorly in terms of investment attractiveness for these particular renewable energy technologies. These results suggest that there is significant opportunity for Indonesia to incentivise investment in green growth technologies through improvements in the business environment in the country, particularly through the adoption of stable economic policies and streamlined procedures. Indonesia has announced and implemented a wide range of policy initiatives to spur uptake in renewable energy, energy efficiency, and waste management measures. However, competing jurisdictions, a lack of clarity over development processes, and unclear incentives and penalty regimes to support policy initiatives have resulted in sub-optimal uptake in response to Indonesia’s green growth policy goals.
Renewable Energy Policy in Indonesia Renewable energy could make a significant contribution to meeting growing energy demand across Indonesia, given the deployment opportunities, the country’s high renewable energy potential (amongst the highest in South East Asia),
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its financing ambitions for geothermal projects and its targets for renewable energy and GHG emissions (Vision 25/25). However, issues associated with administration & governance, financing, market structure, infrastructure, and public acceptance have acted to limit the development of these resources.
Identification of International Leading Practices International leading practices to support the six priority technologies have been identified. These technologies were classified into renewable energy supply, demand and efficiency, and different criteria have been developed for country selection based on these classifications. For the energy supply side, country selection has considered installed capacity, results from the Global Market Review section and World Bank’s Ease of Doing Business (EDB) rankings and Renewable Energy Country Attractiveness Index (RECAI from EY). Policy assessment has taken policy outline, effectiveness and associated risks into its analysis. The main findings are: ►
Feed-in Tariffs (FiT’s) are a proven policy mechanism for solar PV, which can ensure investor transparency for investors, and longevity and continuity in their investment vehicle, thus creating a supportive environment for investment. In addition, FiT’s allows full control of the market through tariff rates, using PV component prices as an indicator for intervention. This mechanism has been implemented countries such as Korea, Australia, Germany, the UK and other EU member states. However, the policy and business environment in Indonesia would seem to make a viable FiT policy more difficult. The inherent risks of establishing FiTs (namely difficulties in design, heavy burden on government budget and longevity) suggest that considering the experience of other countries can be valuable in designing policy in Indonesia. The report deals with the case of successful implementation in Germany, where the introduction of FiT’s has achieved tremendous success in increasing installed PV capacity through continuous policy interventions and these amendments are highlighted during the analysis.
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Geothermal projects are typically developed over a long time span (from feasibility study to electricity generation), and with high up-front costs. It is important that project developers are not exposed to additional development or offtake agreement risks that would further increase costs. The USA has implemented financial incentive programs to reduce costs to developers. One example is a production tax credit that provides a subsidy to the developer, coupled with various risk reduction programs (such as the American Recovery and Reinvestment Act). In recent years, Indonesia has focused on the development of its geothermal resource in national plans, including fiscal and financial incentives; however, these initiatives have had only limited success in increasing the installed geothermal generating capacity. The main reasons were conflicting policy drivers between ministries of forest and ministry of energy, creating barriers to success.
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Globally, biodiesel production relies heavily on two policy instruments: (i) renewable fuel standards and (ii) fiscal and financial incentives. The fuel standards can act as either a compliance mechanism or a voluntary initiative that promotes the use of a minimum proportion of biofuels in transport vehicle fuels. Incentives, on the other hand, foster installation of production capacities by making the necessary investments and returns on them more lucrative. China has presently only employed voluntary targets for fuel standards involving biodiesel, but it is expect to introduce mandatory compliance regulations in the future. Moreover, China employs financial incentives in the form of tax subsidies to foster production.
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Landfill Gas (LFG) projects are heavily influenced by both the national air emission standards and the locally applicable incentive schemes that tend to make LFG to energy (LFGE) projects more lucrative. The USA has had considerable success in fostering LFGE projects through the application of state-level incentives leading to a 300% rise in LFGE projects between 1995 and 2012. However, the low natural gas prices and deflated carbon market continues to strangle the development of some LFGE projects. In addition, LFGE projects remain capital
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and technology intensive, which suggests that local innovation and a favourable incentive framework will likely have to support future developments of LFGE initiatives. â–ş
Building Energy Management Systems (BEMS) are energy management systems developed specifically to address the energy efficiency of the building, through the reduction in electricity consumption. In order to promote BEMS, legal framework for both construction of new building and retrofits in existing building can be considered. As BEMS requires specific technical expertise, training is also a key factor for the long-term utilisation of BEMS. Indonesia has been adopting BEMS, starting with government buildings; however, the deployment rate remains low and users have not been supportive. The European Union provides a useful case study of supporting policies and frameworks for BEMS, including pilot project development and financial support of energy efficiency improvement in buildings, and supporting the introduction of green buildings in EU countries.
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The re-use of slag from steel production is a commercially attractive technology that has been implemented in a range of countries around the world. The top two steel producing countries were selected as examples of international leading practice, as China is a proactive adopter of the concept of the Circular Economy and have categorized slag as non-waste, while the EU is continuing its debate on the categorisation of steel slag. The case from the EU enables us to highlight the inefficiencies arising from unclear categorisation. Steel slag is currently classified as waste in the EU and several inefficiencies have been identified in this report. This has several implications for Indonesia, where slag is currently categorized as a hazardous waste. Indonesia could consider the foregone value from categorizing slag as hazardous waste considering the green growth benefits outlined in the report. However, the risks of classifying slag as a non-hazardous waste, namely its negative environmental impacts and health and safety issues must also be taken into account. Both countries mitigate these associated risks and the report outlines the case of REACH regulation set by the EU.
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2. Purpose and Background 2.1 The GGGI Green Industry Mapping Strategy Project The Green Industry Mapping Strategy (GIMS) program is part of Component 1 (GGGI, 2013) of the Green Growth Program, with the key dimensions of the GIMS program shown in Table 1.
Table 1 : Dimensions of GIMS Indonesia
Objective of the program Primary Goal Output
Counterpart(s) of the program
Accelerate the development of high-potential green industries in Indonesia by identifying opportunities for investment in renewable energy, energy efficiency and waste management. Support the economic development of Indonesia through the evaluation and business case development for near-to-market energy and efficiency opportunities Assessment of green industry value chains Deep dive economic and environmental impact analysis Regionally-based project business cases ESDM (Ministry of Energy and Mineral Resources) BPPT (Agency for the Assessment and Application of Technology) Institute of Economic and Social Research, University of Indonesia Central and regional government administration
To deliver the GIMS objectives (Table 1), the GGGI Hybrid Team designed a set of activities (Figure 1) that build on each other to deliver the overall GIMS program. This report is the culmination of Stage 1 of the program, the deep dive analysis of the top six priority technologies.
Figure 1: Milestones of the GIMS program
The Green Industry Potential of Indonesia component of the project has been completed: six priority technologies solar PV, geothermal energy, landfill gas, biodiesel, building energy management systems and industrial waste (slag) – were identified, and analytical and modelling work was carried out to understand in further detail their potential contribution to green growth in Indonesia. Along with this deep dive analysis, a macro-economic impact analysis of the six priority technologies was carried out by the University of Indonesia (see separate report).
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This report – International Leading Practice - considers the policy and technology setting for these priority technologies: leading countries for each of the six selected technologies are identified, and the major drivers for development of the technologies are compared to the current status of Indonesia compared to leading practices in order to figure out the potential opportunities for policy reform.
2.2 International Leading Practice (ILP) The purpose of the international Leading Practice (ILP) analysis is to identify the approaches adopted by countries at the forefront of the technologies in question, including technical, regulatory and commercial practices. The analysis , carry out a comparative analysis between these best practices and the equivalent actions in Indonesia, and (where differences exist) propose a set of interventions that would support the selected domestic value chains in Indonesia in moving towards leading practice operation. The structure of the report is set out in Error! Reference source not found., nd includes: Chapter 3, Global Market Review: Identifying market trends of not only the technology itself, but also value chain components, provides an outline of the current major production countries for each technology. For the global industry, global market size is identified: producer and consumer countries with key global players for each technology are introduced. Finally, technology and IP generators and implementers for each technology are also addressed. Chapter 4, Comparative Assessment of Indonesia Country Context: To assess the business environment in Indonesia, the report examines the Ease of Doing Business (EDB) database published by the World Bank, together with the Renewable Energy Country Attractiveness Index (RECAI) database developed by EY. Second, current policies in Indonesia regarding green technology are identified, and the risks and opportunities from current Indonesia policies highlighted. Lastly, drivers including policies for green technology development for each identified country have been outlined, and key success factors analysed. Chapter 5, Identification of International Leading Practices: This chapter identifies leading countries for each technology, and the types of policies that have been implemented to support the selected countries’ initiatives. The approach and the areas of concentration are set out in Error! Reference source not found.. The priority technologies ave been clustered into three different approaches to address energy supply, energy demand and waste management technologies. Chapter 6, Pathway impacts and policy recommendation: This analysis identifies opportunities for Indonesia with respect to international leading practice, along with Indonesia’s potential. Policy recommendations are made and the consequences of implementation are analysed in this stage as well.
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Structure of International Leading Practice Report Global Market Review Market Size & Growth Producers & Consumers
Processes / Activities
Production in the VC
Identification of ILP / Comparative Assessment
Policy Opportunities and Partner Engagement
Comparative Assessment of Business / Policy Environment
Identification of ILP
Country Identification and Interaction
Final Consumption Tech/IP Generator/Implementers
Output / Deliverables
Identify Market Trends
Comparative Assessment between ILP / Indonesia
Identify Leading Country’s Policies
Gap Analysis Figure 2: Structure of International Leading Practice Report
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Moving Towards Best Practice
3. Global Market Review 3.1 Introduction This chapter identifies the leading countries in terms of trade activities pertaining to each of the value-chain components of the six technologies: solar PV, geothermal, biodiesel, LFG, slag and building energy management systems (BEMS). In addition, a review has been done to analyse and establish trends in global market size and growth potential of each technology. The discussion of each technology is systematically broken down in to the following sections: â–ş
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Global trends: this section concentrates on reviewing the market size and growth characteristics of each technology. To the extent that data is available, trends have been identified for value chain components of a technology, both from the demand and supply perspectives. Producer and consumer countries: this section primarily focuses on drawing out analysis based on trade data of each value chain component of a technology. The purpose is to identify countries leading in both supply and demand of the related components. The analysis is based on trade data that has been primarily sourced from the UN Commtrade portal based on HS codes for each value chain component of a technology. Technology and IP generators and implementers: this section reviews the patenting information on the technology to identify the innovative countries in each field. Data for patenting is drawn from European Patent Office database and a UNEP report on patenting trends in clean energy technologies.
This set of analyses identifies the leading countries in each of the six technologies. They can effectively serve as partners in trade and technology transfer for Indonesia as they look to build on these technologies. Additionally, these countries would also represent as benchmarks, against which Indonesia could measure its own progress.
3.2 Solar Photo Voltaic Global Trends Solar PV installation has experienced aggressive growth over the last decade (see Figure 3), clocking a compound annual growth rate (CAGR) of 143% between 2000 and 2012, and is potentially on its way to becoming a major source of power generation for the world (Masson, et al., 2012).
Figure 3: Global Installed PV Capacity (Masson, et al., 2012)
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While installation rates suffered during 2009, a time when the global economy was struggling under recessionary pressures emanating out of the financial crisis, installation rates rebounded to particularly high levels in 2010 and 2011. More than 30GW of incremental capacity was added in both these years, with Europe being a clear frontrunner and accounting for 55% of the newly installed capacity in 2012. For the seventh time in the last 13 years, Germany was the world’s top PV market, with 7.6GW of newly connected systems; China was second with an assumed 5GW, followed closely by Italy (3.4GW), the USA (3.3GW) and Japan with an estimated 2GW (Masson, et al., 2012). The European Photovoltaic Industry Association (EPIA) has forecast that solar PV installations will continue to demonstrate an impressive CAGR of 123% under BAU scenario and 133% under a policy-driven scenario between 2012 and 2017 (Figure 4) (Masson, et al., 2012). It is estimated by IEA that, by 2050, 11% of the global electricity will be coming from PV installations (Frankl, et al., 2010). Europe and China will remain the more dominant markets.
Figure 4: Solar PV installed capacity (in MW) – forecast
The key trends observable in the global solar PV market can be summarized as follows: ► The PV global market has grown against a backdrop of production overcapacity with module production capacity ranging between 150-230% higher than annual global installations (Masson, et al., 2012). Production capacity, like demand, has remained concentrated in Europe and China, with China emerging strongly as the leading manufacturers of solar cells and modules (Jäger-Waldau, 2012). The over-capacity of solar module production has led to price variations, which have rendered the outlook of the market uncertain. ► The solar PV market will remain a policy-driven one, linked to changing political environments and commitments from national and regional government. While declining PV module prices have contributed to increased installations, favourable policies and incentives are likely to stimulate further installations. The introduction or expansion of feed-in-tariffs, in particular, is expected to be a large additional stimulant for ongrid solar PV system installations for both distributed and centralized solar power plants (Jäger-Waldau, 2012). ► While incentives tend to support solar investment, they could also raise the cost of electricity for end consumers. Germany, which has long attracted renewable energy investments (including solar) through incentive based subsidy, has experienced a gradual increase in power prices over time. In 2013, the total cost of renewable energy subsidies was EUR16b. In addition to an already higher cost of generating electricity in the country, this has adversely affected the relative competitive advantage of several export-oriented industrial enterprises with respect to their competitors in the USA. However, policy measures for PV remain a small component of these cost increases to consumers. ► Electricity networks need to be able to manage the additional variability in electricity supply caused by the large-scale deployment of solar PV, which may include additional reserve generating capacity or more active demand management.
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►
As countries aspire to increase the uptake of solar energy, they stand to potentially benefit from the existing programs of international development agencies. For instance, various multilateral bodies have been active in funding solar projects in APAC countries. Of these, the Asian Development Bank (ADB) is one of the most significant organisations. The ADB launched an Asian Solar Energy Initiative (ASEI) in 2010 to create solar energy investments in the APAC region, toward achieving grid parity, with the three fundamental instruments of this program being: o Knowledge management - Development of a regional knowledge platform dedicated to solar energy in Asia and the Pacific. o Project Development - Providing $2.25 billion (€1.73 billion) to finance the project development, which is expected to leverage an additional $6.75 billion (€5.19 billion) in solar power investments over the period (Jäger-Waldau, 2012). o Innovative finance instruments - A separate and targeted Asia Accelerated Solar Energy Development Fund, set up to mitigate risks associated with solar energy. The fund is to be used for a buy down programme to reduce the up-front costs of solar energy for final customers. ADB aims to raise $500 million (€385 million) and design innovative financing mechanisms in order to encourage commercial banks and the private sector to invest in solar energy technologies and projects (Jäger-Waldau, 2012).
Trading Activity The value chain of Solar PV primarily comprises four major components: Polysilicon Ingots; Wafer; Solar cells/modules; and Inverters. Figure 5 illustrates the top three exporting and importing countries across the solar value chain in 2012. The percentage figures in brackets next to a country denote its share of trade as proportion of global trade in 2012.
Figure 5: Top Export / Import Countries across Solar Value Chain in 2012 (UN, 2013)
The key trends observed across the solar value chain components suggest the following: ► China features heavily across all value chain components in both exports and imports barring exports for polysilicon ingots. This is clearly indicative of China’s significance in both the manufacturing of solar PV components as well installation of solar PV capacity. ► Policy measures continue to play a key role in driving trading activity in solar PV components. For instance, China has heavily influenced the solar PV market through mechanisms such as (Cao & Groba, 2013): o National and provincial targets for renewable energy based power generation o Increased R&D spending towards renewable energy technologies
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►
►
Germany, like China, features heavily across solar value chain components in Figure 5. They have benefited from strong policy guidance fostering uptake of renewable energy as it aims to completely replace nuclear based power capacity, which supplied approximately 20% of net power generation in 2012 (Bloomberg, 2012). Asia, in general, is experiencing strong traction with respect to trading activities. This aligns with future projections suggesting Asia is likely to contribute 10-20GW of annual incremental capacity in solar PV installations until 2017 (Masson, et al., 2012).
Technology and IP Generators and Implementers Typical applications of solar PV technologies are for both grid-connected and off-grid systems. PV is based on photovoltaic modules (based on PV cells), the rest of the system being made up of an inverter, a battery, electronics and other components. PV is currently experiencing significant growth in Europe, Japan and the USA. Consequently, costs are in general coming down correspondingly. The technology is also becoming more diverse, with various options using silicon, thin-film and other forms of PV cells. Developing countries, including emerging economies like China and India, are becoming significant producers of PV cells and modules. Expansion is running at approximately 30% annually in developing countries, mainly in rural areas where electricity from the grid is either unavailable or unreliable. An analysis of the patenting activities in the solar sector suggests that the top five countries are: ► Japan ► USA ► Germany ► Rep. of Korea ► France However, when compared to the overall number of patents in the country, countries like Thailand, Greece, Chinese Taipei and Rep. of Korea stand out in particular. In addition, China does not feature in the top five patenting countries, despite having one of the largest producers and manufacturers of solar PV (UNEP, 2010). The top five countries in Figure 6 comprise more than 85% of all worldwide patents in the solar technology sector, with Japan responsible for almost half of them, suggesting that although countries like India and China have been leading producers in the field of solar PV, they do not feature strongly as technology proprietors.
Figure 6: Proportion of patents held in solar PV (UNEP, 2010)
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Summary Both China and Germany are leading countries when it comes to installed capacity; they are also feature significantly in the trade market for solar PV technology. However, their market characteristics differ completely in the following aspect: while Germany is the third highest IP generator in the world for solar, China is a major manufacturer and supplier of solar PV technology but does not generate the same volume of patents. This is likely a developed versus developing country divide. In developed nations like the Japan, USA and Germany, IP generation is a consequence of sophisticated manufacturing capabilities based on targeted research and development. This is not the case in developing nations such as China and India, which are large producers of solar PV technology but still lag the developed countries in terms of manufacturing competencies and resources.
3.3 Geothermal Global Trends Geothermal power has experienced rapid growth over the years and generated twice the amount of electricity when compared to solar in 2010. (Jennejohn, et al., 2012). As of May 2012, approximately 11,224MW of installed geothermal power capacity was operational globally (Jennejohn, et al., 2012). Figure 7 provides the electricity capacity and generation from geothermal resources across several countries.
Figure 7: Geothermal Energy across Countries in 2010
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Geothermal electricity generation is estimated to reach 200GWe by 2050, with a significant 32.5% share coming from the Developing Asia region, and 25% in OECD North America (see Figure 8). By 2050, geothermal electricity generation could deliver 1,400TWh per year, which would amount to 3.5% of global electricity production: this would avoid around 800MtCO2 emissions per year (Beerepoot, 2011). Figure 8: Potential of Geothermal energy by 2050 (Beerepoot, 2011)
The key trends observed in the global geothermal market are: ► Geothermal growth is currently influenced by a number of factors: economic growth, especially in developing markets: the electrification of low-income and rural communities and increasing concerns regarding energy security and its impact on economic security. ► Government policies are fostering the exploitation of geothermal resources for power generation in several countries. o For instance, the Philippines is promoting the development of geothermal resources to meet growing electricity demand, reduce dependency on fossil fuels, and increase its energy security. In its 2009– 2030 Energy Plan, the Philippines set a target to increase operating geothermal capacity to 3,447MW by 2030 (Jennejohn, et al., 2012). As of 2012, installed capacity of geothermal stood at 1,848MW (Ogena & Fronda, 2013). o In the USA, federal and state policies have been the drivers for renewable generation. At the federal level, since 2005 geothermal and all other renewable technologies have been afforded important tax incentives to attract investors. In addition, most states have adopted renewable production requirements for their electric utilities (Jennejohn, et al., 2012). ► New technology appears to be underpinning geothermal expansion in some regions that have already seen significant development of their conventional resources. In the USA and Europe, for example, the geothermal industry is increasingly using binary technology that can utilize more moderate and low temperature resources to generate electricity. ► According to WWF, Indonesia, Southeast Asia’s largest producer and consumer of electricity from geothermal generation, possesses significant geothermal resources. The country’s total potential geothermal resources and reserves are estimated at 28,994MWe (megawatts-electrical) with an installed capacity of 1,196MWe (approximately 4% of the total resources and reserves) (Simatupang, n.d.).
Trading Activity The value chain of geothermal primarily comprises four major components Flash Tanks ► Heat Pumps ► H2S removal unit ► HDPE Pipes ►
Figure 9 illustrates the top three exporting and importing countries across the geothermal value chain in 2012. The percentage figures denote a countries share of trade as a proportion of global trade in 2012.
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Figure 9: Top Export / Import Countries across Geothermal Value Chain in 2012 (UN, 2013)
The key trends observed across the geothermal value chain components suggest the following: â–ş Germany, along with other European countries, features strongly in the geothermal value chain. It appears that Germany continues to benefit heavily from a supportive policy framework that fosters renewable energy development. The German Renewable Energy Association estimates that 600MW of geothermal electricity generation will be installed by 2020 (Jennejohn, et al., 2012).
Technology and IP Generators and Implementers Typical technologies in the geothermal sector can be classified under three main applications: power generation, direct heat and ground-source heat pumps. Commercial geothermal power plants range from those based on dry steam to the organic Rankine cycle. Concepts relating to deep geothermal heat and small-scale applications are under development, with prospects for rapid commercialisation. The USA is the most active country in terms of IP generation in the geothermal sector, accounting for one-fifth of global patent filings associated with the technology over the period 1998 to 2007 (Figure 10). The USA together with Germany and Japan, account for over 50% of global IP generation in the sector.
Figure 10: Proportion of Patents in Geothermal (UNEP, 2010)
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Summary Geothermal resources tend to be concentrated in a small number of countries, with significant differences in the proportion of resources developed by country. There is a strong correlation between IP generating countries and countries that generate value from meeting the supply chain demands of the sector; however, the relationship between resource and either IP generation or value creation is variable. The USA and Germany are significant IP generators, yet the geothermal resource (and installed capacity) of Germany is very small compared to that of the USA.
3.4 Biodiesel Global Trends Biofuels have the potential to provide 27% of total transport fuel by 2050 and contribute in particular to the replacement of diesel, kerosene and jet fuel (Brown & Fulton, 2011). The projected use of biofuels could avoid around 2.1GtCO 2 emissions per year when produced sustainably (Eisentraut, et al., 2011). However, to meet this target, substantial improvements would be required in conversion technologies and cost efficiency. Support policies are required to incentivise the most efficient biofuels in terms of life-cycle greenhouse-gas performance, and be backed by a strong policy framework that ensures that food security and biodiversity are not compromised. Western Europe is the major producer of biodiesel (see Figure 11), with a 52% contribution in the total global production. Latin America and the Caribbean rank second with 20% contribution. Among the Latin American countries, Argentina and Brazil are the primary producers of biodiesel. Among the Asia Pacific countries, Malaysia, Thailand and Indonesia are the major producers of biodiesel, closely followed by India and Philippines. Presently, the European countries are the major importers of biodiesel, while Argentina, the USA, Malaysia and Indonesia are the primary exporters. Figure 11: Present production of Biodiesel 2012 (OECD/FAO, 2011)
Various countries have adopted accelerated targets of augmenting their biodiesel production capacities. By 2020, India intends to develop a production capacity of 3,293 million litres/annum from its present capacity of 179 million litres/annum. The cumulative production from the European countries is also expected to be approximately doubled by 2020 and thereafter comprising nearly a half of the global production capacity (see Figure 12). The same is also predicted for Argentina and Brazil. Thus, with the various manufacturing capacities estimated in each country by 2020, the global production of biodiesel is expected to reach 42,000 million litres from its present level of 17,600 million litres.
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Figure 12: Biodiesel production in 2020 (OECD/FAO, 2011)
The market share of the Asia Pacific countries is predicted to increase from 12% to 19% in 2020 (OECD/FAO, 2011). The most important biodiesel feedstock in the developing world should remain vegetable oils based or palm or soybean oil. This results from the strong production increase in Argentina and Brazil, where biodiesel is produced predominately from soybean oil. The share of Jatropha is expected to only account for 10% (19% when excluding Brazil and Argentina) of biodiesel produced in 2020 in the developing world due to the slow growth of cultivation capacities. Rapeseed oil is of minor importance for biodiesel production in developing countries with the exception of Chile where the climatic conditions allow for vast rapeseed cultivation. Biodiesel production from rapeseed oil is also expected to develop in transition countries like Ukraine and Kazakhstan. Less important from a global perspective but notable from a national perspective is the production of biodiesel based on tallow in Paraguay and Uruguay, because of the large livestock sector in these countries
Table 2: Present status of adoption of alternative fuel in various countries (Eisentraut, et al., 2011)
Country/Region
Current mandate
Future mandate
Current status
Argentina Australia
E5, B7 NSW: E4, B2
Mandate Mandate
Bolivia Brazil Canada China European Union India Indonesia Jamaica
E10, B2.5 E20-25, B5 E5 (up to E8.5 in 4 provinces), B2-B3 (in 3 provinces) E10 5.75% biofuels E5 E3, B2.5 E10
NA NSW: E6 (2011), B5 (2012); QL: E5 (on hold until autumn 2011) B20 (2015) NA B2 (nationwide) (2012)
Mandate Target Mandate Mandate Mandate
Japan Kenya Korea Malaysia Mexico
500 Ml/y (oil equivalent) E10 (in Kisumu) B2 B5 E2 (in Guadalajara)
NA 10% renewable energy in transport E20, B20 (2017) E5, B5 (2015); E15, B20 (2025) Renewable energy in transport: 11% (2012); 12.5% (2015); 20% (2030) 800 Ml/y (2018) NA B2.5 (2011); B3 (2012) NA E2 (in Monterreyand Mexico City; 2012)
Mozambique Norway
NA 3.5% biofuels
NA Mandate
Nigeria Paraguay Peru Philippines South Africa Taiwan Uruguay USA
E10 E24, B1 E7.8, B2 E5, B2 NA B2, E3 B2 48 billion litres, of which 0.02b is cellulosic-ethanol E10 NA
E10, B5 (2015) 5% proposed for 2011; possible alignment with EU mandate NA NA B5 (2011) B5 (2011), E10 (Feb. 2012) 2% (2013) NA E5 (2015), B5 (2012) 136 billion litres, of which 60b is cellulosicethanol (2022) NA 50 Ml biodiesel, 500 Ml ethanol (2020)
Venezuela Vietnam
Target Mandate Mandate
Target Mandate Mandate Mandate Mandate
Target Mandate Mandate Mandate NA Mandate Mandate Mandate Target NA
B = biodiesel (B2 = 2% biodiesel blend); E = ethanol (E2 = 2% ethanol blend); Ml/d = million litres per day.
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With due consideration of the capacity expansion in manufacturing biodiesel, various countries have adopted short term and long term strategies for accelerating the use of biodiesel in the transport sector. More than 50 countries, including several non-OECD countries, have adopted blending targets or mandates and several more have announced biofuel quotas for future years.
Trading Activity The value chain of Biodiesel primarily comprises two major components ► ►
Reactor Separator
Figure 13 illustrates the top three exporting and importing countries across the biodiesel value chain. The percentage figures denote a country’s share of trade, as a proportion of global trade in 2012.
Figure 13: Top Export / Import Countries across Biodiesel Value Chain in 2012 (UN, 2013)
The key trends observed across the biodiesel value chain components suggest the following: Germany is a major exporter of biodiesel technology and figures heavily in Figure 13. Germany has also maintained a steady flow of exports of the last few years, which indicates that it is a major manufacturing hub for biodiesel technology. ► China dominates the import market, closely followed by Russia. China and Russia are working on increasing the share of biodiesel in their fuel mix that is forcing them to import large quantities of biodiesel technology. ►
Technology and IP Generators and Implementers An analysis of the patenting activities in the biofuels sector reveals that the top five countries are (UNEP, 2010):
1. 2. 3. 4. 5.
USA Germany Japan France UK
When the number of biofuel patents is compared to the overall number of patents in the country, Ukraine and Brazil stand out. This would suggest that Ukraine and Brazil have a biased focus on proprietary technology development related to biofuels. With the amount of ethanol production in Brazil, it is only expected that Brazil would have relatively
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higher patents in biofuel technologies compared to other fields. However, China still matches Brazil for the total number of biofuel patents thereby suggesting Brazil is focused more closely on production rather than the development of cutting-edge technology (UNEP, 2010). Figure 14 illustrates that the top five countries comprise almost 70% of the overall patents worldwide in biofuels.
Figure 14: Proportion of patents in biofuels (UNEP, 2010)
Summary Biodiesel: Biodiesel production is dependent on input feedstock (crops) to the process. Currently more than 50% of the world’s biodiesel is produced in Europe, followed by the Caribbean and Latin America. Germany is the major exporter of biodiesel and a leading IP generator in the biofuels technology market. This likely suggests that Germany is a producer of both leading technology, as well as a leader in biodiesel production. This is in sharp contrast to Brazil. Despite having larger biofuel production base, Brazil has approximately only as many biodiesel technology patents as China. This suggests that Brazil still mostly functions as a production hub and does not yet produce large quantities of cutting-edge technology.
3.5 Landfill Gas (LFG) Global Trends Solid waste disposal sites can act as attractive opportunities for energy solutions. LFG – a mixture of methane, carbon dioxide and trace constituents – can typically be used to generate energy through the combustion of methane to carbon dioxide and water. This energy generation has the added incentive of conversion of methane, which is a potent greenhouse gas. Many countries regularly capture LFG as a strategy to improve landfill safety, reduce odours, generate electricity, reduce GHG emissions, and to earn GHG reduction credits. Developed countries have addressed growing concerns about climate change while making a profit from energy projects using landfill gas: while projects in developing countries are taking advantage of the UNFCCC Clean Development Mechanism (CDM) to earn GHG credits by capturing and combusting methane. The nature of the waste disposal site contributes greatly to the amount of LFG generated. There are three different classifications for waste disposal sites, depending on management practices (Morrissey & Kerr, 2009): ► open dump,
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► ►
controlled or managed dump, sanitary landfill.
Open dumps are spread over wide areas and contain uncovered waste that are prone to periodic fires, no monitoring, and supervision of waste placement or compaction, little cover, and unmanaged leachate and landfill gas. Managed dumps are better maintained, with measures like rainwater management, simple cover materials and improved inspection of incoming waste (Morrissey & Kerr, 2009). However, both open and managed dumps do not produce much landfill gas because of aerobic conditions, shallow layers, and unconsolidated disposal (Morrissey & Kerr, 2009). Sanitary landfills employ more advanced waste management practices like mechanical waste compacting and the use of liners, daily cover, and a final cap. They produce more landfill gas than open dumps because of the more enabling anaerobic conditions. Developed countries are more likely to have sanitary landfills, where LFG regulation and utilisation help to decrease the overall emissions. Developing countries tend to have more of open and managed dumps than sanitary ones. Large cities would often have the more advanced sanitary landfills while managed dumps would be present in smaller cities and towns and open dumps in rural and semi-urban locations (Morrissey & Kerr, 2009). The following section provides a brief overview of the regional solid waste management characteristics that can have strong influence on LFG to energy practices: ►
►
►
►
►
Africa: Most of the African waste disposal sites are open dumps. Despite regulatory requirements for the construction of sanitary landfills, lack of financial and human resources leads to non-compliance. Environmental and public safety considerations are overridden by factors like access to collection vehicles when choosing land fill sites. Construction often overlooks the inclusion of good waste management practices like liners, fences, or the application of a daily cover. LFG management is also rare due to high costs and lack of technically capable manpower. Countries like Egypt, Tunisia, and South Africa are showing recent trends in improvements to landfill practices (Morrissey & Kerr, 2009). The South African waste-to-energy market, for instance, is dominated by landfill gas to electricity projects. As of 2012, Durban landfill projects generate about 10MW of electricity (CEF, 2012). East Asia and the Pacific: Here, sanitary landfills are the predominant means of waste disposal. Over time, stricter environmental regulations and depleting space have adversely affected the costs of landfilling (Morrissey & Kerr, 2009). Countries like Japan and Australia differentiate between landfills as per the presence of hazardous waste, and implement leachate and gas control measures (Morrissey & Kerr, 2009). In the lesser developed countries in this region, open dumping is widely practised with minimum consideration for leachate or gas control. Anaerobic digestion from the high percentage of organics and plastics often produce, copious amounts of landfill gas and lead to fires, as have been evident in Bangkok and Manila (Morrissey & Kerr, 2009). South and West Asia: Open dumps, with little or no cover, are the most commonly used forms of waste disposal here.. Even designated landfill sites in metropolitan areas lack the conditions of a sanitary landfill like covers, leachate collection/treatment, compaction and proper site design (Morrissey & Kerr, 2009). LFG capture is only practised on an exploratory basis.. Europe: Over the last two decades, this region has implemented increasingly advanced landfill practices, going from small, less controlled municipal landfills to regional systems having adequate safety and pollution control features like LFG and leachate management systems. Increasingly stringent environmental standards have led to improving economies of scale for large, capital-intensive landfill constructions. European landfills generally flare or utilize LFG to minimize pollution and GHG emissions. Also, several bioreactor landfills are in place, where moisture – sometimes leachate – is recirculated to stabilise the landfill.. In UK, Energy recovered from landfill gas contributes roughly one-third of the overall electricity generated from renewables (REA, 2011). Latin America and the Caribbean: This region is experiencing gradually improving standards in solid waste management practices. Several landfills can be classified as managed dumps. Daily covers are fairly common, although no liner, leachate collection, and environmental monitoring measures are evident. In some larger cities, however, liners and leachate management systems can be seen in place. Although the organic content
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of the waste can potentially produce a lot of LFG, only a few landfills have actually implemented gas collection systems. ► North America: Over 60% of municipal solid waste in this region is dumped in landfills, although the proportion has been steadily on decline.. Landfills in North America typically have liners, leachate collection systems, final covers, and other features designed to mitigate adverse environmental impacts (Morrissey & Kerr, 2009). LFGE is a technologically proven and commercially viable initiative, with number of projects increasing around 300% between 1995 and 2012. Figure 15 illustrates the LFG to energy potential in different regions of the world.
Figure 15: LFG to energy - future regions (Pirker, 2010)
Trading Activity The value chain of LFG primarily comprises two major components ► CH4 Indicator ► Ignition Chamber
Figure 16 illustrates the top three exporting and importing countries across the LFG value chain. The percentage figure in brackets next to a country denotes its share of trade as proportion of global trade in 2012. The key trends observed across the biodiesel value chain components suggest the following: ► Germany and China are the major exporters of LFG technology. However, both China and USA are exporters
and major importers of LFG technology, which means that both countries act as trading hubs for LFG technology.
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Technology and IP Generators and Implementers A search was conducted on the European Patent Office database as per the International Patent Classification (IPC) categories to find the number of patents relevant for LFG. The search was based on the following set of criteria: ► The words “landfill gas” should be in the patent application title ► Patents should belong to the IPC category of Y02E i.e. “climate change mitigation technologies in energy generation, transmission and distribution” ► Under Y02B, all sub-categories were included:
Figure 16: Top Export / Import Countries across LFG Value Chain in 2012 (UN, 2013)
Based on the above search, 75 unique patents were found on the worldwide database comprising patent publications from more than 90 countries (EPO, 2012). Analysis shows that the top three countries having proprietary technologies in the BEMS sectors are: 1. China (with 25 patents), 2. USA (with 19 patents), and 3. Rep. of Korea (with 14 patents)
Summary Landfill quality differs greatly from one geographical region to another. While Europe and North America have highly evolved safety systems for landfills, countries in Asia and Africa lack these safeguards. It is unsurprising that most of the major importers of LFG technology tend to be Asian nations like China and India who have large, open dumps that create serious environmental hazards. The LFG market is expected to grow as developing nations in Asia and Africa start implementing landfill safeguards at an increasing rate.
3.6 Building Energy Management Systems (BEMS) Global Trends Buildings consume almost one third of final energy use globally and are a notable contributor to CO2 emissions (Paryudi, et al., 2013). Space heating and cooling as well as hot water are estimated to be responsible for approximately half of global energy consumption in buildings. These end-uses represent significant opportunities to reduce energy consumption and thereby reduce CO2 emissions since the energy required for space and water heating is dominated by fossil fuels.
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In Indonesia, electricity consumption in buildings account for 40.8% of the overall electricity consumption in the country (Paryudi, et al., 2013). Energy demand in this sector is expected to increase at steady rate into the future. The household sector in Indonesia consumes almost double the quantity of energy consumed in the commercial sector. It is estimated that in 2015, the use of electricity in the household sector will increase to 127TWh from 61TWh in 2010 i.e. increasing by nearly 100% in 5 years. While for commercial sector, the energy demand in 2015 is estimated to reach 46.2 million BOE (APEC, 2012). Various types of buildings have different energy requirements and hence the opportunity of improvement in them varies: ► In domestic buildings with different design issues as per the number of occupants, thermal comfort, hot water,
and appliances should be the primary areas of focus for the greatest operational efficiencies. ► Tenant demand is an important factor for commercial office space. A well- designed office building can reduce
energy and operational costs significantly. ► Healthcare buildings in particular require a large degree of control due to the importance of comfort and
hygiene for patients. The challenge is to reduce energy and water use in these facilities while ensuring that patient requirements are met. ► The retail sector is generally comprised of large spaces requiring heating and cooling, lighting, which attract a
significant volume of private vehicle trips. This overall creates an energy intensive environment. Much can be accomplished with control systems and technology, but these measures are likely to be balanced with a demand to increase the consumers comfort and retail experience. ► Supermarkets are quite consistent in their large energy needs for refrigeration and lighting. However, they do
offer substantial opportunities through the size and layout of sites to incorporate green measures. ► Hotels present substantial challenges and opportunities for sustainability. Businesses are unwillingly to
compromise the guest experience and so typically water, energy and resource use are all high. Ecotourism is a niche market that is attracting a more discerning customer in some regions. The use of local and natural resources are often attractive as well as sustainable in this tourism sector. Hence, the relevance and usage of building energy management systems varies as per the nature of the buildings. BEMS sensors include a variety of devices that can measure parameters such as temperatures, pressures, flow rates, and power. Sensors can also measure room occupancy, occupant activity levels, light intensities on work surfaces, and plug loads (energy consumption of plug-connected equipment). The applicability of a particular BEMS can be controlled to suit the requirement of a particular type of building. The Green Building Council Indonesia (GBCI) promotes awareness of Green Practices in Indonesia, encourages government and market support for Green Building Practices in Indonesia, as well as social responsibility from the community when considering energy usage in buildings. Therefore, the adoption of Building Energy Management Systems, suited to the specific needs as per the type of the building, is likely to be promoted by GBCI for its large-scale implementation in the commercial as well as household sector of Indonesia. Significant technological developments have occurred within the building sector in recent times. New cloud-based services can provide diagnostics and control, sometimes called ‘autonomous continuous commissioning’, that exposes building functionality to third party web services and utility-facing applications like automated demand response systems. Key sector/technology coverage areas include: ► Building Management Systems like Trane and Johnson Controls. ► Bridging Technologies/Products like Cisco Mediator or Echelon SmartServer. ► Networked Application Specific Systems such as Lighting Control Systems like Adura Technologies (covered in the Lighting section), HVAC systems like Cypress Envirosystems, or data centre management systems like SynapSense. ► Autonomous Continuous Commissioning vendors like BuildingIQ and Serious Energy. ► Commercial, Industrial and Residential end devices and technologies including Control4 or EnOcean.
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Successful implementation of Building Energy Management Systems and promotion of the business market is subject to various barriers including: ► Fragmented markets ► Upfront costs and high hurdle rates ► Lack of information and awareness ► Split or misplaced incentives ► Financing difficulties ► “Hidden” costs, including search and transactions costs and amenity losses ► Mispricing ► Lack of attention and materiality China, Germany and the USA are major leaders in implementation of energy efficiency measures for buildings (Amecke, et al., 2013). China: China can save a substantial amount of energy by ensuring high energy efficiency standards for new construction. Much of Northern China relies on district heating, making it difficult to incentivise conservation using prices. Current lifestyle practices are not energy-intensive, but energy demand is growing rapidly; China is seeking to balance low-energy traditions with improvements in comfort and services. Rapid building construction and growth in equipment use means that energy use will continue to increase, and that potential savings from energy efficiencies are large. Germany: Germany’s long-lived building stock and declining population imply that the efficiency of existing buildings is of central importance. As in other countries, additional reduction potential lies in improving equipment efficiency and promoting energy conservation behaviours. Germany’s building energy use is already decreasing, and it has set significant sector-specific energy reduction targets. USA: The USA faces the twin challenges of substantial new construction and a long-lived building stock. Historically low energy prices have contributed to building occupants having relatively energy intensive behaviours. Equipment consumes a large share of energy in the United States.
Trading Activity The value chain of BEMS primarily comprises two major components ► ►
Direct Digital Controller Actuators-Sensors
Figure 17 illustrates the top three exporting and importing countries across the BEMS value chain. The percentage figures denote a country’s share of trade as a proportion of global trade in 2012.
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Figure 17: Top Export / Import Countries across BEMS Value Chain in 2012 (UN, 2013)
The key trends observed across the BEMS value chain components suggest the following: ►
►
China and Germany feature heavily when it comes to exports of BEMS technology. Germany’s supportive policy framework is promoting high levels of energy efficiency in buildings but a declining population leaves a lot of scope to generate exports. The USA is the major importer of BEMS technology and features heavily in Error! Reference source not found. SA has a large stock of existing building that need to be refitted to improve efficiency. This is prompting USA to import BEMS technology.
Technology and IP Generators and Implementers Traditionally, building energy management patent activities are not easily available. A search was conducted on the European Patent Office database as per the International Patent Classification (IPC) categories. The search was based on the following set of criteria: ► The words “building” and “energy” should be in the patent application title ► Patents should belong to the IPC category of Y02B i.e. “climate change mitigation technologies in buildings, including the residential sector” ► Under Y02B, the sub-categories should be one of the following: o 20/00: Energy efficient lighting technologies o 40/00: Technologies aiming at improving the efficiency of home appliances o 60/00: Information and communication technologies (ICT) aiming at the reduction of own energy use o 70/00: Technologies for an efficient end-user side electric power management and consumption o 90/00: Enabling technologies or technologies with a potential or indirect contribution to GHG emissions mitigation Based on the above search, 49 unique patents were found on the worldwide database comprising patent publications from more than 90 countries (EPO, 2012). Analysis shows that the top three countries having proprietary technologies in the BEMS sectors are: ► China (with 12 patents), ► USA (with 10 patents), and ► Germany (with eight patents).
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Summary Buildings account for a large portion of global energy consumption, and thus are also responsible for a sizeable share of global CO2 emissions. Buildings in Europe and North America are typically quite energy efficient, however the amount of energy consumed is still quite high. Conversely, in Asia and Africa, buildings are less energy efficient but the volume of energy consumed is low compared to Europe and North America. However, as developing economies continue to grow in Africa and Asia so will the number of buildings and their energy consumption and carbon emissions. Therefore, it is critical that these countries improve their building energy-efficiency as they develop, unlike the path taken by many developed nations. When considering patents, China is the world leader followed closely by the USA and Germany. These three countries are also major stakeholders in the global BEMS trade market, therefore a correlation exists between IP generation and value generation.
3.7 Slag from Steel Manufacture Global Trends Steelmaking operations, such as Basic Oxygen Furnace Process (BOF), Electric Arc Furnace (EAF) process and, Open Hearth Furnace (OHR) process produce slag with different compositions. The increase in steel consumption has catalysed an increase in slag generation, and hence slag volumes globally. This increase in volumes has prompted the development of new methods to best utilise this increasing resource. Direct slag production data for the world are unavailable. Therefore, annual world iron and steel slag output is estimated based on typical ratios of slag to crude iron and steel output. Figure 17 provides the estimates on steel slag production between 2000 and 2010 (Sofilic, et al., 2012).
Figure 18: Global Production of Iron and Steel Slag (Sofilic, et al., 2012)
Trading Activity The value chain of Slag primarily comprises four major components ► ► ► ►
Bucket Elevator Loading Hopper Vibrating Feeder Mill
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Figure 18 illustrates the top three exporting and importing countries across the Slag value chain. The percentage figures denote a countries share of trade as proportion of global trade in 2012.
Figure 19: Top Export / Import Countries across the Slag Value Chain in 2012 (UN, 2013)
The key trends observed across the slag value chain components suggest the following: â–ş
â–ş
China and Germany are major exporters of slag technology and feature heavily in Error! Reference source not found.. Germany’s inefficient industrial sector allows it to have cutting-edge slag technology that is extremely suitable for exports. The case of China is interesting as it features heavily both as an exporter and as an importer of slag technology, indicating that China is becoming a major trading hub for slag technology.
Technology and IP Generators and Implementers Insufficient data is available on the subject to draw any meaningful trends.
Summary Slag is a by-product of steel and iron production, making it somewhat difficult to estimate the production of slag, as rarely is it recorded accurately. It is however, safe to assume that countries that produce major quantities of steel or iron like Germany, the USA and China would probably be leading producers of slag as well. In the absence of IP related data, it is assumed that the major producers of slag are also the nations at the forefront of slag related technologies, increasing its utility.
3.8 Conclusion The analysis presented in this chapter reveals some leading countries that appear repeatedly across the six priority technologies. Table 3, Table 4 and Table 5 illustrate the top two countries in terms of export, import, global industry trends and technology and IP generation capabilities.
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Table 3: Leading countries for solar and LFG technologies
Solar
LFG
Criteria
Rank
Polysilicon Ingot
Wafer
Solar cell; Module
Inverter
CH4 indicator
Ignition chamber
Export
1 2
USA Germany
Japan China
China Germany
China Germany
Germany USA
China Italy
Import
1 2
China Japan
Rep. of Korea NA
Germany China
USA China
USA Germany
China Russia
1
EU
USA
2
China
China
1
Japan
China
2
USA
USA
Global trends
industry
Technology generators
Table 4: Leading countries for slag and biodiesel technologies
Slag
Biodiesel
Criteria
Rank
Bucket elevator
Loading hopper
Vibrating feeder
Mill
Reactor
Separator
Export
1
China
Germany
Germany
China
Germany
Germany
Import
2 1 2
Germany China Indonesia
USA USA Canada
China China USA
Germany Russia China
Rep. of Korea China Russia
USA China USA
1
China
Germany
2
EU
USA
1
NA
USA
2
NA
Germany
Global trends
industry
Technology generators
Table 5: Leading countries for geothermal and BEMS technologies
Geothermal
BEMS
Criteria
Rank
Flash Tank
Heat Pump
Removal Unit
HDPE Pipe
Export
1
Rep. of Korea
France
Germany
Import
2 1 2
Italy USA Germany
Germany Canada France
South Africa USA Germany
1
USA
EU
2
Philippines
USA
1
USA
China
2
Germany
USA
Global trends
industry
Technology generators
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ActuatorsSensors
Germany
Direct Digital Controller Germany
China France China
USA USA China
Rep. of Korea USA China
China
A consolidation of tables 3, 4 and 5 suggests that China, Germany and the USA are the leading countries within these fields. Table 6 illustrates the point. To read the table, consider, for instance, the category of exports. Out of a total of 36 instances of top two countries across the value chains of six priority technologies, China appears nine times, Germany 14 times and USA 5 times. Together, they comprise 78% of the top two ranked countries in terms of exports across the six technologies. The evidence is therefore compelling that China, Germany and the USA are indeed the leading countries that are worth exploring further to identify the good practices that can potentially foster the development of the six prioritized technologies in Indonesia.
Table 6: China, Germany and USA dominate global industry landscape of six priority technologies
Exports (36)
Imports (36)
Global industry trends (12)
Technology generators (12)
China
9
12
3
2
Germany
14
4
0
2
USA
5
9
4
5
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4. Comparative Assessment of Indonesia Country Context 4.1 Introduction This chapter sets out to draw a comparative analysis of Indonesia’s country context while also exploring its relevant policy landscape related to the six prioritized green growth technologies. Before that, however, a brief analysis is presented on the energy scenario of Indonesia and the emerging trends thereof. Indonesia possesses significant reserves of oil, gas and coal, which have all played a vital role in driving economic growth within the country. In 2010, Indonesia produced 945 thousand barrels per day of crude oil, 9,336 million cubic feet per day of natural gas and 275 million tonnes of coal (APEC, 2013). Indonesia is the world’s largest exporter of steam coal, and currently the world’s third largest LNG exporter (APEC, 2013). The electricity generation sector too demonstrates a strong reliance on fossil fuel based energy, in line with the available reserves. As of 2009, renewable energy contributed only 13.3% of total electricity generation in Indonesia (APEC, 2013). In terms of energy consumption, the share of industry has been on the rise reaching 40% in 2009 from 31% in 1990. Because of substitutions of inefficient biomass fuels with modern fuels (LPG, kerosene or electricity), the share of the households, services and agriculture sector decreased from 55% in 1990 to 43% in 2009. This has occurred despite the increasing incomes in the household sector. The share of transport is 18%, up 4% from the 1990 level (ABB, 2011). Overall, the noticeable trends in the energy sector of Indonesia demonstrate the following (Sukarna, 2012): ► Energy consumption is growing at approximately 7% annually ► Dependence on fossil fuel is heavy, despite gradually depleting resources ► Development of energy infrastructure in rural/remote areas is significantly less than is occurring within the populous regions ► Utilisation of renewable energy and implementation of energy conservation is not optimal. Public access to energy is still limited with an electrification rate of 73% in 2011 (Sukarna, 2012). Energy concerns in Indonesia are accelerated due to three major reasons: i. National population increase ii. Increasing rate of urbanisation iii. GDP and Energy Demand increase (i) National Population Increase: From 2010 to 2025, population is expected to increase at 1.25% CAGR. (BPPT, 2012) This is higher than the world average of 1.15% (World Bank, 2013) and by 2025 Indonesia is expected to be the 4th most populous country in the world (IEA, 2013). This is likely to increase energy demand over time thereby straining Indonesia’s existing reserves. (ii) Increasing Rate of Urbanisation Figure 20 utilises 2010 to 2012 actual urban population data from the World Bank (World Bank, 2013) and 2025 forecasted urban population data (68% by 2025) (World Bank , 2014) and assumes constant growth from then. The rate of urbanisation in Indonesia is the highest amongst South East Asia. Since 2009, more people are living in urban areas than in rural areas in Indonesia (UN, 2009). The urbanisation rate is three times the population growth rate, thereby implying that a disproportionate amount of people are living in urbanised areas (World Bank, 2011). Heightened energy demand for a concentrated region has several implications for Indonesia: As population density increases, energy supply must be increased to meet this demand, placing emphasis on energy efficiency, especially in buildings. (iii) GDP and Energy Demand Increase Increase in energy demand is demonstrated at a CAGR of 8% growth – nearly a three-fold jump from 2010 to 2025. Incorporating population and GDP growth rate, energy demand has been projected.
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Figure 20: Population and urbanisation projection until 2025(World Development Indicators; EY Analysis)
Figure 21: Energy Demand Projections (EY Analysis)
Projection from Figure 21 demonstrates that energy demand is likely to double within 15 years. Doubts exist whether Indonesia has the capacity to meet this surging demand. Figure 22 demonstrates energy supply projection under two scenarios, BAU and MP3EI (Indonesia’s master plan for acceleration and expansion of Indonesia’s economic development to achieve its goal of becoming one of the world’s largest economies by 2025). The MP3EI forecast sets out an alternate, high growth pathway for Indonesia from 2010 to 2025 and different scenarios have a major impact on electricity demand (which in turn alters the analysis of electricity-related technologies such as solar PV, Landfill gas, and Geothermal). This analysis indicates that the adoption of six prioritised technologies will be crucial to Indonesia’s twin objectives of increasing the share of renewable energy and reducing energy demand. On a cumulative basis, the six technologies when deployed as per the analysis scenarios will likely also lead to a reduction of 10% of forecast GHG emissions for
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Indonesia by 2025. Figure 23 provides a break-up of the GHG impact of the different technologies.
Figure 22: Energy Supply Projection from 2010-2025(EY Analysis)
Figure 23: Relative GHG Impact of Technologies
To understand the business environment in which these developments could be made, the Ease of Doing Business (EDB) review of Indonesia, and the Renewable Energy Country Attractiveness Index (RECAI), have both been used. A policy review will follow to draw key observations and challenges facing Indonesia with respect to renewable energy, energy efficiency and waste management. These three sectors together encompass the six chosen technologies, and thus will help to establish the context against which they will gradually have to be deployed. Notably, the EDB and RECAI analysis will also allow the identification of benchmark countries, who would serve as case studies for the international leading practices review in Chapter 4.
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4.2 Comparative Analysis of Indonesia Business Environment EDB Analysis for Indonesia National Indonesia experienced a highly challenging economic situation and grave political instability following the 1997 Asian Economic Crisis. This was further complicated by the collapse of the banking system, because of injudicious lending and other practices. Over the next decade, political and economic vibrancy was restored through implementation of sound economic and financial policy that lowered the national deficit from 89% of GDP in 2000 to less than 30% in 2011 (KPMG, 2013). This translated into Indonesia being less affected by the recent global financial crisis compared to many neighbouring economies. Its resilience was underpinned by strong domestic spending and relatively low dependence on exports that make up a small 1.7% proportion of the country’s GDP. As an investment destination, Indonesia is often spoken of in the same bracket as BRIC countries. The buoyant economic outlook of Indonesia is supported by a growing middle class, which has risen from 38% in 2003 to 57% in 2010 (KPMG, 2013), wage growth and an improving employment landscape. The presence of vast energy resources only adds to Indonesia’s advantages. However, despite all these trends, Indonesia’s business environment has much scope to improve through implementation of better infrastructure and stronger institutions. The World Bank’s EDB tool provides an effective way for analysing Indonesia’s investment attractiveness and business context. Analysis of the EDB dataset reveals that Indonesia scores relatively well against its peers for a number of the 10 indicators included in the dataset (Figure 24). However, significant scopes of improvements exist nonetheless in several aspects like starting a business, enforcing contracts, resolving insolvency and paying taxes.
Figure 24: Distance from Frontier – Indonesia versus World Best Practice
A careful analysis of the EDB results for Indonesia reveals the following insights and their implications on green technologies: ► Indonesia can make significant improvements in the investment climate for prospective investors. Comparable Asian countries like Malaysia, China and Vietnam present a far more efficient scenario in this respect. The process for starting a business in Indonesia could be streamlined to the number of procedures, reducing both the time and
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cost associated with establishing new business operations. An improved scenario for starting new businesses in general will help attract new (both domestic and foreign) investors in green technologies. ► Improvements in legalities and government regulations involved in enforcing contracts and resolving insolvency will ensure the development of a more attractive investment environment. Indonesia scores relatively better in areas such as trading across the borders and protecting investors. Thus, these areas should be promoted extensively in drawing the attention of foreign investors and improving import-export terms with major players in the renewable energy sector. At the same time, Indonesia could aspire to improve the time to perform trading operations, which would improve their standing in exports and imports. ► Indonesia’s performance in the overall ranking has not seen any significant movement between 2010 and 2014 (Figure 25). This suggests that Indonesia is lagging in its commitment to improve its business environment. Hence, government interventions must be effective in revisiting and strengthening the policies and regulations within the country to improve the ease of doing business. ►
Figure 25: Distance from Frontier - Change over time
Subnational Different cities of Indonesia have also been reviewed for their performance under starting a business, dealing with construction permits and ease of registering property (Figure 26). There is substantial variation between the cities in terms of their business environment, with no particular city excelling against the three parameters. This model can serve as the basis for internal benchmarking of business environment of the different regions within Indonesia, providing a platform to determine overall improvement in the business climate in Indonesia.
Application of EDB to priority technologies A limitation of the EDB dataset is that it provides insight from an “average business” perspective: it does not provide technology-specific or green growth-specific indicators or results. This limitation is addressed here through a detailed analysis of the RECAI dataset, which is focused on renewables, and includes specific analysis for two of the six priority technologies included in the analysis. To address further this limitation, further refinement of the EDB dataset have been carried out to test the sensitivity of its results to the different priority technologies. The approach, and findings, from this analysis are presented below
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Figure 26: Comparison of various regions in Indonesia as per EDB
Technology-specific application of the EDB The development and deployment of different priority technologies is impacted to a greater or lesser extent on different aspects of the business environment. For example, the administrative burden associated with starting a business may have little relevance to two existing companies seeking to sell and buy slag for use in cement manufacture, but may be of central importance to a PV manufacturer seeking to establish a new company to produce solar PV modules in Indonesia. By identifying and weighting the different criteria within the EDB dataset to reflect the specific circumstances of each of the six priority technologies (Table 7), technology-specific EDB rankings were developed for each of the six priority technologies.
Dealing with Constructi on Permits Getting
Registerin g Property
Getting Credit
Protecting Investors
Paying Taxes
Trading Across Borders Enforcing Contracts
Resolving Insolvency
Solar manufacturing
100%
100%
66%
66%
66%
66%
33%
66%
100%
0%
Solar deployment Geothermal
33%
66%
0%
100%
33%
33%
33%
0%
100%
0%
-
Electricity
Starting a Business
Table 7: Technology specific weightings for the EDB dataset
66%
100%
0%
66%
66%
66%
33%
0%
100%
0%
Biodiesel
100%
66%
0%
0%
33%
66%
100%
100%
66%
33%
BEMS
66%
0%
100%
66%
33%
66%
0%
66%
33%
0%
Slag
66%
100%
0%
66%
66%
33%
0%
0%
66%
0%
LFG
100%
66%
0%
66%
33%
33%
66%
33%
100%
0%
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Using this weighting matrix, the EDB rankings have been re-calculated to represent technology-specific investments (Figure 27). Energy generation technologies such as LFG solar PV, geothermal and biodiesel score more favourably compared to BEMS; however, overall the re-weighting of the EDB dataset resulted in limited differences between the technologies. This suggests that the priority technologies considered in this report are relatively equally affected by the business environment as measured by the EDB.
Figure 27: Technology-specific Ranking: component and overall
RECAI The Renewable Energy Country Attractiveness Index is EY’s proprietary tool for scoring the various countries on the attractiveness of their renewable energy investment and deployment opportunities, based on a number of macro, energy market and technology-specific indicators. Indonesia does not appear in the list of top 40 countries as published in the RECAI publication of August 2013; however, data on Indonesia has been gathered, allowing comparison against the top 40 renewable energy countries reported as part of the RECAI. Overall, Indonesia ranks poorly against virtually all other countries on a macro driver and energy markets driver basis. Although technology specific drivers are encouraging for Indonesia, the overall scoring of Indonesia is a consequence of its poor performance against the two core parameters of energy markets and macro drivers. Synopsis of Indonesia’s individual scores is given in Figure 28. The key observations from the RECAI analysis are as follows: ►
►
Under the Economic Stability indicator, although Indonesia demonstrates a good GDP growth rate of 6.1%, it has high inflation and low sovereign credit rating. These could likely act as deterrents to foreign investors seeking to enter into Indonesia. Ease of doing business is also found to be significantly low, as already highlighted under the EDB section earlier. However, Indonesia is observed to have an average strength of investor protection, moderate restriction on capital flows, moderate ease of access to capital, and moderate flow of FDI.
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Figure 28: RECAI Assessment of Indonesia
►
►
►
In the energy market driver, Indonesia has a high electricity consumption growth rate and has a low percentage of renewable energy contribution in the final energy mix in the country. This suggests that, if the right strategies and policies are put in place, there will be significant opportunities for Indonesia to exploit its renewable energy potential. With a positive score in transparency in government policy making, Indonesia can effectively create a highly enabling policy environment that will catalyse the uptake of renewable energy options. Energy market accessibility is also observed to be low in Indonesia due to significant energy subsidies from Government, a lack of financial incentives for renewable energy, and low fragmentation of supply and moderate fragmentation in generation. This would suggest that Indonesia could benefit from opening up the energy markets, especially to private investors. Bankability of renewable energy is poor in Indonesia due to the lack of adequate financing, low energy market connectivity, poor power infrastructure, and the high cost and low availability of finance.
Renewable Energy Country Attractiveness Index The scoring of countries is done on the basis of their performance on three dimensions: Macro Drivers: These include ‘macro stability’ factors and ‘ease of doing’ business. Macro stability factors capture economic and political stability, while Ease of Doing Business is an indicator of the investment climate of the country. Energy market drivers: These include ‘prioritization of renewables’ and ‘bankability of renewables’, which assess energy supply and demand, level of political support, competitiveness of renewables, importance of decarbonisation in the country, assessment of cost, availability of finance, power infrastructure, ease of accessing the energy market and extent of liquidity in the transactions market. Technology specific drivers: These represent the potential of a particular renewable technology to be deployed in the country. They assess the project attractiveness of renewables in the country and are specific to each technology. This parameter is a cumulative score of the country on various sub-factors like strength of natural resource, power offtake attractiveness, technology maturity, technology growth profile and strength of local supply chain.
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Solar PV Overall, Indonesia scores relatively poorly in the Solar PV sector relative to other countries. This is primarily due to low installed capacity, low forecast capacity, and minor contribution of local solar technology suppliers. The result of macro and energy market drivers is expected, as many countries score better than Indonesia in these categories (see Figure 29). The poor score for PV-specific drivers is unexpected: Indonesia has a large solar resource, and while the complex landscape makes the provision of ubiquitous grid-based renewable electricity supplies, a complex and costly task in Indonesia, distributed solar PV could still be expected to score well. The country attractiveness for solar PV technology in Indonesia would be significantly improved with enhanced focus and government interventions to improve power offtake and increased national target for installation.
Comparison of macro drivers and energy market drivers with other countries for Solar technology Better Germany USA UK
Japan
Macro Drivers
Italy
Australia
China France India
Canada South Korea
Taiwan
Thailand Indonesia Ukraine
Better
Energy market drivers Size of the bubble indicates Solar technology specific drivers, the bigger the size the better.
Figure 29: Comparison of macro drivers and energy market drivers with other countries for Solar Technology
Geothermal Indonesia has the largest resource of geothermal energy in the world and the sector presents immense potential for growth and development in the country especially with continued support from the Government. At present, Indonesia has the largest installed capacity for power generation from geothermal energy and the country has aggressive development plans. As such for geothermal technology, Indonesia scores highest in the world. However, this high score in geothermal technology is impeded by the low scores in macro drivers and energy market drivers, resulting in poor overall country attractiveness for Indonesia (see Figure 30).
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Comparison of macro drivers and energy market drivers with other countries for Geothermal technology Better
Germany
Macro Drivers
USA
Japan
Italy
China
Australia
South Korea
India
UK
France
Canada
Taiwan Thailand Indonesia
Indonesia scores the highest in terms of Geothermal technology specific drivers. However, Indonesia scores low on Macro drivers and Energy market drivers. Better
Energy market drivers Size of the bubble indicates Geothermal technology specific drivers, the bigger the size the better.
Figure 30: Comparison of macro drivers and energy market drivers with other countries for Geothermal Technology
4.3 Policy Assessment of Indonesia Energy Policies in Indonesia Energy demand has been rising rapidly and it is expected to increase significantly in the future based on population and urbanisation trends. The Indonesian government has taken actions to deal with energy supply and demand issues. National energy policies in Indonesia are focused on three sectors as major key drivers (Figure 31). These three drivers are expected to influence positively energy supply, energy demand and waste management.
(1) Equity: to provide equal access to energy while guarding environmental protection As an archipelago with over 17,000 islands, some 80,000km of coastline and a population of around 250 million people, one of the biggest challenges that Indonesia has been facing is electricity distribution to its many regions. Due to geographical aspects, electricity has not been distributed equally all over the country; rather it was more focused on developed regions, namely East Java and Sumatra. Ensuring the availability of electricity in sufficient quantity, good quality and reasonable price will also likely translate to an improvement in the welfare of the people. Indonesia is well known for possessing the highest renewable energy potential in Southeast Asia especially for geothermal and solar. Indonesia possesses approximately 28,000MW of geothermal reserves that contributes 40% of the world’s potential geothermal resources (Allard, 2010). Meanwhile, estimated average solar irradiance across Indonesia is 4.8kWh/m2/day, a significant renewable energy for the country (Ipsos, 2010). Although Indonesia has a good amount of renewable resources, the utilisation has not been enough to meet the energy demand of people, especially in remote areas. The current national electrification rate in Indonesia reached 73% on average, but some regions such as West Nusa Tenggara, East Nusa Tenggara and Papua have less than 50% access to the power grid (PT. PLN, 2013). Abundant renewable resources of geothermal and solar can be effectively utilised as alternative energy supply sources by using currently available technologies.
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Figure 31: Drivers of energy policies in Indonesia
Figure 32: Electrification ratio with potential of geothermal and solar energy development in Indonesia (PT. PLN, 2013) (INAGA, 2013) (Wirasaputra, 2012)
(2) Security: to guarantee stable energy supply based on sustainable energy mix The dependence on fossil fuel has been a serious problem because (a) the fossil fuel is heavily dependent on the global commodity prices and fluctuating economic tendency (b) a greater-than-average level of subsidies on fossil fuel. Subsidies on fossil fuels have been demonstrated to unbalance the competitive opportunities for renewable energy forms, and negatively impacted on their development (Tumiwa, 2008). According to APRECs Energy Security Indicators that assess the status of one’s energy security, Indonesia is in the position that it should be ready for the energy security in coming years because it has high dependency on fossil fuel such as oil and coal, of more than 85% (The World Bank, 2014) (Tumiwa, 2008). Indonesia became a net oil importer in
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2004, and left the Organization of Petroleum Exporting Countries (OPEC) in 2008. This has become a critical issue pertaining to energy security, encouraging the diversification of the energy supply portfolio, especially expanding the proportion of new and renewable energy sources.
Figure 33: Indonesia crude oil production & consumption by year (EIA, 2014)
(3) Efficiency: to decrease energy intensity for Indonesia economy Energy elasticity of Indonesia is high (2.69) compared to Singapore (1.1), Thailand (1.4), and other developed countries (0.1 to 0.6), suggesting an inefficient use of energy as the economy grows: higher energy elasticity of demand drives higher energy use to generate additional GDP. In the light of energy elasticity, a ratio between growth in national economy and energy consumption, Indonesia falls behind the global average and its peer group such as Thailand. This shows Indonesia has much potential for improvement (EECCHI, 2009). Potential energy savings across industry, commerce and household have been estimated at 15-30%, 25% and 10-30% respectively, according to the National Energy Conservation Master Plan (RIKEN, 2005). The Indonesian government has recognised the importance of utilising renewable energy sources and the urgency of energy conservation since 2005. Presidential decree (No. 5/2006 on National Energy Policy) set the national energy policy direction, including a target to achieve an energy elasticity of demand below that for 2005, and a renewable energy target of 17% of total generation by 2025. In 2010, it expanded target of portion of new and renewable energy generation to 25% by changing the paradigm for national energy management from supply side to demand side as known as Vision 25/25 (ESDM, 2012). The two key commitments that Indonesia made was to: â–ş â–ş
Increase utilisation of renewable energy to 25% by 2025 Reduce energy demand by 34% to the business as usual scenario in 2025
Considering that new and renewable energy only covers 5% of total energy supply, the target of 25% by 2025 seems ambitious. Moreover, the target of the government to improve energy elasticity to be less than 1% by 2025, which was 2.69% in 2009, would require an annual 6.6% energy efficiency improvement by 2025. This target seems similarly challenging. In order to achieve the targets and commitments under Vision 25/25, Indonesia needs an effective supporting policy framework with financial resources, participation from private sectors as well as international technology transfer.
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Renewable Energy Policies Government has enacted and implemented wide sets of policies that are expected to support renewable energy target. Three main policy areas need to be coordinated: regulatory policies and targets; fiscal incentives; and public financing (Table 8 & Table 9). (For more detailed policy schemes, refer to Annex 1). Table 8: Renewable Energy Policy in Indonesia (IEA, 2013)
Title Power purchase from solar photovoltaic plants (Solar auction programme)
Year 2013 (June 12th)
Policy Status
Policy type
Target Energy
In Force
Economic Instruments, Fiscal/financial incentives, Feed-in tariffs/premiums
Solar, Solar photovoltaic Multiple RE Sources, Multiple RE Sources, Power, Bioenergy, Hydropower
Electricity Purchase from Small and Medium Scale Renewable Energy and Excess Power
2012 (June 2nd)
In Force
Economic Instruments, Fiscal/financial incentives, Feed-in tariffs/premiums
Purchase of electricity from geothermal plants
2011 (last updated 2012)
In Force
Economic Instruments, Fiscal/financial incentives, Feed-in tariffs/premiums
Geothermal, Power
Tax incentive for geothermal exploration
2011
In Force
Economic Instruments, Fiscal/financial incentives, Tax relief
Geothermal
Economic Instruments, Fiscal/financial incentives, Feed-in tariffs/premiums
Multiple RE Sources, Power, , Bioenergy, Hydropower
Tariffs for Small and Medium Scale Power Generation using Renewable Energy
2009 (December)
Superseded
Biofuel Decree (Biofuel consumption mandates)
2009
In Force
Financial Support Policy for Geothermal
2008
In Force
2006
In Force
2006
In Force
National Energy Blueprint
2005
In Force
Geothermal Law No 27/2003
2003
In Force
National Energy Policy of Indonesia National Biofuel Roadmap 2006 - 2025
Regulatory Instruments, Codes and standards Economic Instruments, Fiscal/financial incentives, Grants and subsidies Policy Support, Strategic planning Policy Support, Strategic planning Policy Support, Strategic planning
Bioenergy, Biomass for power
Regulatory Instruments
Geothermal, Power
Geothermal Bioenergy, Multiple RE Sources Bioenergy, Biomass for power Multiple RE Sources, Power
Indonesia currently has a wide variety of supporting policies along with a strong will from the government to expand utilisation of renewable energy sources. However, policies have been largely ineffective in terms of market development, leading to only single digit MW increases in the capacity of new and renewable technologies (BMZ, 2012). This requires an assessment of current policy risks s in order to boost the renewable energy market and encourage active participation from both public and private sectors. For instance, it is found that only certain renewable technologies have specific laws, such as geothermal and biodiesel (Table 9).
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The progress of RE development is affected by numerous factors: regulation and policy feature, but others such as competence, economic environment, level of technology available, administrative environment, financing, energy market, infrastructure and social cultural factors.
Table 9: Renewable Energy Policy by Country (REN21, 2012)
Regulatory Policies and Targets
Public Financing
Public Competitive Bidding, Public Tendering Investment, Loans, Grants Energy Production Payment Reduction in sales, Energy, CO2, VAT or Other Investment/ Taxes Production Tax Credits Capital Subsidy, Grant, Rebate
Tradable REC
Biofuels Obligation Mandate Net Metering
Utility Quota Obligation / RPS
Provinc ial Level Indonesia
FiT/Premium Payment
RE Target
National Level
Fiscal Incentives
Assessment - Risks / Opportunities Indonesia’s Policy Risks Even though several renewable energy-promoting policies have been adopted, they have been largely ineffective and have led to limited capacity increase in single digit MW range (BMZ, 2012).
Figure 34: Success Factors mapped with respect to deployment stages (IRENA, 2013), (IEA, 2011)
The literature (IEA, 2011) (IRENA, 2013) has identified numerous factors which determine the success in renewable energy deployment. These factors play a significant role over the course of deployment and the risks of implemented policies are analysed with respect to the criteria outlined above. It is important to note that policy priorities change as deployment level increases. Figure 34 maps success factors over the course of renewable energy policy deployment stages. Indonesia’s risks are
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identified in both areas of financing and regulatory environment / governance / administration. These factors play a significant role in both the inception stage and deployment stage. They serve as a foundation for a successful implementation of policies and determine the degree of success in the earlier stages. Risks are acknowledged in the market, infrastructure and public acceptance aspects. These are considered crucial in the deployment and consolidation stage, implying that these factors determine the longevity and continuity of renewable energy policies.
Regulatory Environment / Governance / Administrative
Lack of Coordination
Coordination issues have been raised between the local government and central government in the case of several geothermal projects, as local governments promised FiTs that exceeded the ceiling set by the central government (IISD, 2012).
Conflicting jurisdictions of different ministries
Divided stance between government institutions can determine the success of renewable energy projects. IISD (IISD, 2012) highlights the importance of aligning policy goals and details. In the case of geothermal projects, disagreements between the Ministry of Forestry and the Ministry of Energy and Mineral Resources stalled a number of projects. Incentives for biofuels remain weak due to disagreements about the fuel’s sustainability and its impacts on food markets. This is covered in the Comparative Business Environment Section as well.
Lack of Financing In 2012, energy subsidies were over 22 billion USD to help cover increases in oil prices: at the same time, less than 2% of energy subsidies were targeted at renewable energies (UNESCAP, 2012). Most of financing comes from the public sector and governmental agencies and there is a need to open the market to private investors and to target renewable energy deployment. Moreover, few are willing to lend money to technologies that are new or emerging (International Trade Administration, US Dep. of Commerce, 2010). In these cases, sovereign debt guarantee could incentivise lending. The microfinance industry also requires assistance, with action needed in helping developers apply for finance alongside a system that helps banks better assess the viability of renewable energy projects as reasonable investments (IISD, 2012).
Lack of FDI (“Negative Investment List”)
Law No.25, 2007 on investment sets out guidelines regarding establishment and operation. The law influences projects by determining which business activities should be closed or opened to private investors which is known as the “Negative Investment List”. For instance, Indonesian government restricts foreign investment in power plants producing less than 10MW and limits micro power plants of less than 1MW to only small enterprises (IISD, 2012). Furthermore, foreign investment in some of the energy sectors is limited to a certain level (International Trade Administration, US Dep. of Commerce, 2010). Foreign companies possess necessary technical expertise and capital to develop renewable energy projects. Indonesia may be better off by absorbing the technology from foreign companies through technological transfer rather than building up capacity on its own, as this requires a significant amount of time and capital, incurring opportunity cost. Indonesia is currently revising its 2007 Investment Law. Insufficient investment affects many aspects of green growth and incentives must be expanded in order to attract international companies to enter the local market.
Market Structure PPA Indonesia’s oligopolistic energy market structure is heavily regulated and dominated by only a few entities. The Asian financial crisis facilitated the deregulation of the market from state-owned companies having monopoly rights in the early 2000s. Now several entities do exist but state-owned companies still maintain a dominant position (IISD, 2012). Aside from market structure, the limited financial resource of PLN is another impediment to the renewable energy market. Current electricity tariff structure does not guarantee that PLN receives a sufficient level of revenue when purchasing electricity from IPPs; however, this position is highly contingent on the cost of renewable electricity generation, and the treatment of avoided costs. For some technologies such as solar PV, rapid cost decreases in recent
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years challenge the assumption that renewable electricity generation is a costlier source of electricity than centralized generation. At the same time, centralized generation relies on extensive grid reinforcement and expansion to bring electricity to customers: renewable electricity generation has the potential to both avoid some grid upgrade costs, and to avoid new grid development in increasingly remote (and hence costly) regions of Indonesia. Transmission and distribution in Indonesia are still controlled solely by the state utility and IPPs have little bargaining power in securing PPAs and tariffs (Business Monitor International, 2013).
High Fossil Fuel (especially oil) Dependency In 2011, approximately 90% of the total energy resource was dominated by fossil fuels (BPPT, 2012) refer to Deep-Dive Model). When analysing the projections and targets for Vision 25/25, the share of fossil fuel remains high at 75%. Continuous, on-going subsidies for fossil fuels and several GW of additional coal-based power capacity construction are under way. Thus, it is clear that policy-makers still regard fossil fuels as the fundamental pillar of the country’s future electricity supply (IISD, 2012). In 2011, Indonesia spent EUR10.8b on fuel subsidies and EUR5.5b on electricity subsidies (BMZ, 2012). Such high subsidies on electricity promote exploitation, production and export of fossil fuels. With this development rate and plans, it is unclear if the 2025 targets will be met (BMZ, 2012). In addition, continuing subsidisation of gasoline and under-pricing of electricity generation undermine the effectiveness of investment incentives for renewable energy (IISD, 2012).
Infrastructure - Grid Connection The Indonesian national grid is fragmented, and grid connection issues are concerning with respect to the deployment of renewable energy. Currently, one-third of Indonesia’s population is without access to grid electricity (BMZ, 2012). Grid structure needs improvement in terms of coverage, as islands except Java-Bali only have limited low voltage networks. According to Business Monitor International (Business Monitor International, 2013), grid infrastructure in the country will be insufficient and requires investment to absorb all planned renewable capacity; however, given forecast increases in electricity demand, major investment in the electricity grid will be required irrespective of the rate of deployment of renewables.
Stakeholder Perception / Public Acceptance Indonesia considers renewable energy as a means to improve electricity for rural electrification rather than a replacement for a conventional power capacity. For instance, even though some geothermal power is planned to be installed into more developed areas, government does not intend renewable energy to play a significant role in islands such as Java, Bali and Sumatra where much of the fossil-fuel powered generation plants are installed (BMZ, 2012). Small scale PV and other renewable energy technologies are developed to provide electricity in rural areas.
Plans for Economic Growth versus Renewable Energy (Parallel Visions of Modernisation in Indonesia) Vision 25/25 target and 2011’s economic master plan with a target of being one of the world’s 10 largest economies by GDP by 2025, highlights the tensions between national economic growth and renewable energy promotion (IRENA, 2013). However, forecasts of future energy supply and demand suggest a major expansion of fossil fuel usage, and the economic master plan including plans to expand manufacturing, agriculture, fisheries, mining, tourism, telecommunications, energy and industrial zones, of which the majority rely heavily on fossil fuel: this raises significant challenges for the support and development of renewable energy. To summarize, main issues identified are: ► ► ► ► ►
Administration and Governance - coordination issues between ministries and governments Finance – opening up FDI, decreasing share of fossil fuel subsidy Market Structure – oligopolistic market structure and reduce dependency on fossil fuel and increase the weight of renewable energy in the national energy mix Infrastructure – improve grid connection Public Acceptance – renewable energy realistic substitute for fossil fuel
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Policies for Energy Demand The energy efficiency context in Indonesia has been anchored through four major policy and regulatory initiatives (Table 10).
Table 10: Energy Efficiency Policies in Indonesia (IEA, 2013)
Title
Year
Policy Status
Policy type
Target Energy
The National Energy Policy
2006
In Force
Policy Support, Strategic planning
Multi-Sectoral Policy
National Energy Conservation Program (RIKEN)
1979
In Force
Policy Support, Strategic planning
Multi-Sectoral Policy
National Priority and Action Plan 2010-2014
2010
In Force
Policy Support, Strategic planning
Multi-Sectoral Policy
In Force
Economic Instruments, Fiscal/financial incentives, Grants and subsidies
Energy Utilities, Electricity, Transmission/distribution, Energy Utilities, Electricity, Generation
Clean Technology Fund
2012
The overarching legal framework of the National Energy Policy sets the ground for establishing a supportive framework of policies and institutions in Indonesia, so that they could support the adoption of energy efficient practices across the economy. The National Energy Policy stipulates (Hutapea, 2013): ► Prioritizing the utilisation of new renewable energy and energy efficiencies by the government and regional government ► Providing incentives for energy efficiency and renewable energy ► Energy prices based on market mechanism, but provide subsidies for lower income individuals ► Establishment of National Energy Council ► Development of National Energy Plan and Regional Energy Plan A careful examination of the energy conservation regulations reveals the use of following instruments (Hutapea, 2013) for fostering energy efficiency in Indonesia: ► Companies with energy consumption above 6,000 TOE and the manufacturer of energy efficient appliances are eligible for incentives in forms of: o Tax facilities o Reduction or alleviation of provincial taxes o Custom facilities o Low interest rates from banking sectors o Energy audit through partnership program ► At the same time, non-complying companies will be penalised in the form of warnings, publication in media, fines and reduction of energy supply In the building sector, the National Energy Conservation Program (RIKEN) has established the following targets (APEC, 2013): ► Commercial building sector: Electricity savings of 25% by 2025 ► Residential sector: Electricity savings of 10-30% by 2025
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More specifically, Indonesia has also implemented regulatory standards (APEC, 2013) on the energy performance standards of building related elements and activities, like: ► Overall thermal transfer value of building envelope ► Minimum efficiency of unitary air system equipment or package unit operated by electric ► Average lighting level, colour rendering and colour temperature by room function and the maximum electric power for lighting by location ► Energy audit procedure ► Minimum energy performance testing standards for nine electrical appliances and equipment, with star or energy efficiency labelling appearing on CFL in 2011 and refrigerator and air conditioner in 2012 These have been steadily supported through institutional initiatives like capacity building on energy management of buildings and training individuals to become capable energy managers and auditors. Indonesia has adopted a range of policy initiatives to drive energy efficiency in the economy in general and the building sector in particular. However, several challenges are presently hindering the momentum of the above initiatives.
Institutional Challenges ►
►
► ►
Energy efficiency, in general, has suffered due to lack of sufficient inter-ministerial coordination in Indonesia. As the scope of energy efficiency programs broadens, it will become increasingly difficult for Indonesia to overcome the institutional difficulties relating multi-ministry coordination. The responsibility or role for energy efficiency management in the commercial and residential sectors should be clearly defined. As the design and construction phases are extremely important for the building sector, the Ministry of Public Works need to be actively participating in the energy management of the buildings. Targeted capacity building programs are lacking especially in the residential building sector of Indonesia. These are critical to catalyse the behavioural changes in citizens so that they adopt more energy efficient habits. State owned energy companies and the National Statistical Agency (BPS) are involved in the collection of energy data. The Centre for Data and Information (PUSDATIN) under the Secretary General of the MEMR however has a unique leading role in energy data collection directly and energy data collection from first hand resources that are within the MEMR and from other ministries and agencies. However, the nature of the data collection framework falls well short of the granularity required for sophisticated analysis of energy management. For instance, sub-sector level data on energy consumption by activity is practically absent (APEC, 2013).
Regulatory Challenges ►
► ►
Despite the presence of regulatory standards of different aspects of building energy performance, they are ultimately disparate in nature and do not exist in the form of a consolidated building energy efficiency code. There is a need to link up these separate regulatory items and develop a concrete code for building developers. This has to be supplemented by adequate enforcement mechanisms as well so that compliance can be ensured. The residential building sector lacks sufficient policy guidance on energy performance and management aspects. Primary focus of existing regulations is given to commercial buildings alone. The current labelling program requires expansion beyond the existing equipment such that a minimum energy performance standard could be implemented nationwide
Financing Challenges Funding energy efficiency continues to face typical barriers (following) as experienced in several other countries. This is further complicated by subsidised energy prices, which make energy savings less lucrative. ► Energy efficiency investments in buildings stand against conventional business investments and thereby fail to convince business leaders ► Hurdle rates for typical energy efficiency investments are higher than conventional business investments ► Debt financing for energy efficiency investments are often viewed as reducing the debt capacity for enterprises, thereby potentially limiting business aspirations
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Policies for Waste Management In Indonesia, waste management is governed by the Waste Management Law No.18/2008 introduced in 2008 (AusAid, 2011). The law sought to move the waste management industry in Indonesia away from the old system where waste was managed by a number of parties to a new system where waste is reduced at the source itself. The major features of the Waste Law No.18/2008 are: ► Waste as resources- Waste needs to be managed by all parties and can be segregated into household waste, household-like waste and specific waste. ► The pattern of waste management is prevention and mitigation- Waste should be prevented as much as possible by limiting waste, recycling and reuse. Mitigation measures like waste sorting, collection and transportation from source are also crucial. ► Waste management technologies must be environmentally friendly- As per the Law, all local authorities must prepare a plan to close all open landfill sites within a year of from the enactment of the law, and close the open landfill sites within five years of the enactment of the law. ► Waste management is a shared responsibility of all parties- The responsibility for waste management lies with all waste generators, be they citizens, government bodies or businesses. Activities are also conducted to encourage responsible business practices with extended producer responsibility (EPR) strategy. ► Professional waste management is pushed based on a cooperation strategy- Waste management, as per the Law, is envisaged to be managed professionally by enabling the professional co-operation between/across governments’ cooperation with business entities. ► The pattern of the waste management development is done through the mechanism of incentives and disincentives- the Law will provide incentives for waste reducers and disincentives for those who refuse to reduce waste. The Law will also make provisions for individuals negatively impacted by waste hazards. Along with the Law no.18/2008, the government of Indonesia has also issued policies of waste management programs through the Minister of Public Works Regulation No. 21 (PRT/M/2006 concerning National Policy and Strategy for the Development of Waste management Systems (KNSP-SPP). Using this regulation, the government has issued five policies in waste management in accordance with Waste Law No.18/2008 (AusAid, 2011). These policies are the basis for national strategies and action plans for waste management, which include: ► ► ► ► ►
Waste reduction starts from the source to the maximum extent possible Increasing the active role of community and business / private sector in the management of waste Increasing the service coverage and quality of the management systems Development of institutional, regulatory and legislative setting Development of alternative sources of financing
Table 11 lists the various regulation instruments and their substance for the implementation of Waste Law No.8/2008. These regulations have experienced several challenges that have prevented local governments from immediately pushing for waste management as stipulated by the Law. The following are the constraining factors: ►
Derivative Government Regulations of Law No.18 Year 2008, which can be used as a reference by the local governments for their own regulations, have not yet been published by the Central Government. The major regulations that are needed urgently are: the procedure for using right in the waste management; manufacturer obligations; type, form and procedure for the provision of incentives and disincentives; the financing of waste management; as well as negative impacts and compensation in waste management (AusAid, 2011).
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Table 11: Instruments Regulations and Substance (AusAid, 2011)
No.
Instruments Regulation
1
Presidential Regulation No. 5 Year 2010 concerning RPJMN (Medium Term National Development Plan) 2010 - 2014 Presidential Regulation no. 13 of 2010 concerning Government cooperation with the Business Entities in the Provision of Infrastructure Regulation of Home Affairs Minister No. 33 year 2010 concerning Guidelines for Waste Management
2
3
4
Regulation of Public Work Minister No. 14 Year 2010 concerning Minimum Services Standard of Public Work field and Area Spatial
►
►
►
Substance This Regulation states the waste management objectives are: ► Increasing the amount of waste transported to 75% ► Improving the performance of landfill management that is environmentally guided. In article 4 of this regulation it is stated that transport facilities and disposal site are waste infrastructure for which cooperation with a Business Entity is possible.
This regulation sets about: The necessity for the Local Government to formulate the Waste Reduction and Management Plan in the Strategic Plan and Work Plan of the SKPD (Regional Work units). The waste reduction is done by the way of reducing, recycling, and / or reusing the waste. Which is carried out through: ► monitoring and supervision of the implementation of the plan to use environmentally friendly production materials ► facilitation to the community and business sector The Waste handling is done by providing facilities for waste segregation, collection, transportation, treatment and final processing. In the framework of waste reduction and management, local government may establish waste management institutions. It can be a BLUD (Local Public Service Agency) for waste, which is equal with the working unit in the SKPD for waste management. Local Government may provide incentives and disincentives to individuals, institutions and business entities. Local Government may enter into agreements with other local government or any business entity, with a specific scope within the waste management system. The procedure for granting compensation This regulation contains performance indicators and targets for waste management in 2010 – 2014, which are: i. Availability of urban waste reduction facilities. Target: reduced waste amount by 20% by the year 2014. ii. Availability of urban waste handling system. Target: 70% of waste transportation in 2014.
Regulations on regional cooperation have not yet sufficiently set out clear mechanisms for efficient cooperation, transparency, fairness and mutual benefit, which can be used by the local governments, either with private sector entities or with other local governments (AusAid, 2011). Another major constraint is that the regional cooperation encouragement, which is enshrined in the Law, is not supported by taxation policies currently in use in Indonesia. Policies concerning import duties and value added tax have not yet become incentive instruments to encourage growth of regional cooperation with private entities in the infrastructure procurement for landfill or temporary landfill. There is a lack of practical experience when it comes to setting up and running a joint regional/provincial institution for waste management. There are ambiguities in the sharing of authority and budgets as well as costs related to sustainable waste management, and these ambiguities are exacerbated by the lack of experience and homegrown examples. These concerns restrict regional cooperation in general and waste management in particular.
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Beyond the overarching institutional challenges as noted above, the technological development of landfill gas and slag continue to face other impediments in Indonesia. The major challenges towards development of landfill gas based electricity generation are: High Investment Cost and Low Payback period: Installation of landfill gas based power generation system entails significant capital investment. Moreover, the plant load factor of the landfill gas based electricity generation plants is generally on the lower side compared to fossil fuel based power generation stations, therefore the attractiveness of this technology options is not very high to investors. ► Lack of incentive and/or clear funding mechanism available from the government. ► Lack of knowledge and awareness of stakeholders concerning landfill gas issue. ► Lack of capacity and competency of domestic industry sector in this area. ►
A hurdle towards utilisation of slag for cement production is the availability of quality slag in the country. From discussions with different industry professionals, it was found that the potential of using the slag that is generated in Indonesia for cement production is lower when compared to other countries of a similar opportunity profile. Moreover, this opportunity is currently severely constrained by Indonesian waste policy, which classifies slag from steel smelting as a ‘hazardous waste’ and therefore not allow its re-used (Hazardous Waste [Control of Export, Import and Transit] Act, 122A). Addressing this issue is fundamental to unlocking the potential of slag re-use in Indonesia’s cement production industry. The major barriers towards uptake of slag re-use are: ►
►
►
Technical barrier: From discussions with the cement manufacturers of Indonesia it was found that the slag produced from blast furnace operation in the country is not very suitable for use in cement manufacturing. Therefore ensuring availability of quality slag is a major requirement to ensure successful implementation of this option. Policy level barrier: As outlined in the previous section, slag is classified as a hazardous waste. In addition, Industries are also not supportive of declassifying the same as nonhazardous as the waste sector of the country is not very regulated in the country. This may be due to the reason that the quality of slag generated from steel plants (which would be supplied to the industries) might be poor. Transportation cost and geographic barrier: Iron and steel producing facilities and cement manufacturing units might not be located at the same locality. Therefore, the cost of collecting and transporting the slag from its point of generation can be less efficient than using the materials available at a specific site. Availability of foreign sources may enhance the economic disadvantage introduced by overland transportation costs.
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5. Identification of International Leading Practices The analysis presented here is based on the framework set out in Annex 2.
5.1 Global Renewable Energy Policy Trends The number of policies to support renewable energy has increased across 2012 to 2013 (REN21, 2012). RE support policies are identified in 127 countries, an increase of 18 from 109 countries reported in 2012 where more than twothirds of these countries are developing economies. The pace of adoption is slower compared to the early 2000s and countries are currently focusing on re-shaping its existing policies to adapt to changing market conditions. The renewable energy policy approaches with respect to each global economic status of each country are set out in Table 12. It is clear that most of the countries are proactively seeking to manage renewable resources but adoption rates are lower for low-income countries owing to awareness and capability issues. High-income countries show high adoption rates for fiscal incentives and public financing.
Table 12: Renewable Energy Policy by Country (REN21, 2012)
ď Ž Regulatory Policies and Targets
UK USA
Upper-Middle Income Countries Brazil Chile China Thailand
Lower-Middle Income Countries(Peer Country Groups) Indonesia Philippines Sri Lanka Vietnam
Low Income Countries Bangladesh Kenya Nepal
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Public Competitive Bidding, Tendering
South Korea
Public Investment, Loans, Grants
Germany
Energy Production Payment
Australia France
Reduction in sales, Energy, CO2, VAT or Other Taxes Investment/ Tax Production Credits Subsidy, Capital Grant, Rebate
High Income Countries
Tradable REC
Biofuels Obligation Mandate
Net Metering
Quota Utility Obligation / RPS
FiT/Premium Payment
Provincial Level
RE Target
National Level
Public Financing
Fiscal Incentives
Regulatory Policies and Targets ► ► ► ►
Renewable Energy Targets: Renewable energy goal in terms of capacity, electricity generation and mix within the national energy share. Feed in Tariffs/Premium Payment: guaranteed payment of a fixed (minimum) price per kilowatt- hour (kWh) to renewable energy power producers Utility Quota Obligation / RPS: imposing a minimum share of RE in the overall electricity mix on consumers, retailers, or producers of power Net Metering: a service to an electric consumer under which electric energy generated by that electric consumer from an eligible on-site generating facility and delivered to the local distribution facilities may be used to offset electric energy provided by the electric utility to the electric consumer during the applicable billing period (Federal Energy Regulatory Commission, 2011).
►
Tradable REC: Obligated parties (e.g. utilities) generate renewable energy certificates or the amount of kWh produced and if more electricity from renewable energy sources is produced above the minimum requirements of the quota, exceeding certificates can be sold to other parties that have not yet fulfilled their quota targets.
Fiscal Incentives – all types of incentives aim to reduce the financial or fiscal burden of projects. Public Financing ►
Public Competitive Bidding, Tendering: When project developers submit bids to develop renewable energy projects, they usually specify the capacity and/or production to be achieved and can be technology- or even project/site-specific. Winning parties are offered standard long-term purchase contracts while the price is determined competitively within the tender procedure.
Table 13 shows a detailed analysis, looking at adoption rates based on data Table 9. Data was sourced from 38 highincome countries, 39 upper middle-income countries, 31 lower middle-income countries and 19 low-income countries.
Table 13: Percentage of Adoption (REN21, 2012)
Regulatory Policies and Targets
Energy Production Payment
Public Investment, Loans, Grants
Public Competitive Bidding, Tendering
Reduction in sales, Energy, CO2, VAT or Other Taxes Investment/ Tax Production Credits Subsidy, Capital Grant, Rebate
Tradable REC
Biofuels Obligation Mandate
Net Metering
Quota Utility Obligation / RPS
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FiT/Premium Payment
High Income(ILP) Upper Middle Income Lower Middle Income (Peer) Low Income
RE Target
Economic Status
Public Financing
Fiscal Incentives
92%
71%
32%
34%
66%
45%
71%
42%
63%
21%
74%
37%
85%
56%
15%
33%
38%
5%
33%
18%
62%
13%
49%
41%()
81%
55%
13%
32%
26%
6%()
32%
39% ()
65% ()
19% ()
42%
42% ()
63%
26%
5%
0%
21%
0%
32%
11%
84% ()
5%
37%
11%
In general, there is a positive relationship between economic status and rate of adoption, and this is especially strong for regulatory policies and targets. The data has been analysed in in two categories: economic status and policy category. By Economic Status High income Countries Significant number of countries adopt RE targets / FiT / Capital Subsidy, Grant, Rebate / Public Investment, Loans, Grants Relatively high Tradable REC compared to other countries ► Upper Middle Income Countries Significant number of countries adopt RE targets / Public Competitive Bidding, Tendering / Reduction in sales, Energy, CO2, VAT or Other Taxes RPS halved from high income countries ► Lower Middle Income Countries(Peer group) Significant number of countries adopt RE Targets Relatively high fiscal incentives(39% adoption rate ) where Reduction in sales, Energy, CO 2, VAT or Other Taxes are even higher than high income countries Public Competitive Bidding, Tendering higher than high income countries ► Low Income Countries Less than two thirds adopt RE targets / Excessively high (higher than high income countries) adoption of Reduction in sales, Energy, CO2, VAT or Other Taxes - No Net-Metering, nor Tradable REC ►
By Policy Category ► ► ► ► ► ►
Utility Quota Obligation - RPS halved from high income to upper middle income Tradable REC - dominant in high income country Capital Subsidy, Grant, Rebate - halved from high income and consistent rates of adoption between other countries in different economic status Investment/Production Tax Credits - adoption is excessively high in low-income countries, almost similar to high-income countries. Reduction in sales, Energy, CO2, VAT or Other Taxes - consistent rates show in all countries but, abnormally high in low-income countries. Public Competitive Bidding, Tendering - higher in upper and lower middle income countries than high-income countries.
However, it is crucial to note that economic status is not the root cause of adoption rates: policy-makers consider various country- specific factors (such as technological, political, economic, social, technological and administrative factors) into account in their policy design. For the international leading practice, country-specific policy for each technology is outlined.
Solar PV Country Selection As ILP seeks to identify supporting policy frameworks it is therefore important to look at installed PV capacity to see how policies have contributed or promoted to increased installations. Figure 35 illustrates installed capacity and growth rates of major PV producing countries. The graph clearly shows Germany’s dominance in installed capacity for PV. Total installed PV capacity around the globe in 2011 was 69,684MW (Figure 36), Germany accounted for 35.7% of the world capacity. EDB and CAI rankings are considered as proposed. Germany has ranked 16th on the EDB and 3rd on the CAI rankings. In addition, in the global market review section, Germany has been identified as one of the major
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manufacturers and exporters of the four main manufacturing components of PV. For polysilicon ingot, solar cells/modules and inverters, Germany was the second biggest exporter in the world market and fourth for wafers. Germany was the largest importer of solar cells and modules with shares up to 20% in the world market.
Figure 35: Total Installed Capacity and Growth Rate (Earth Policy institute; Bloomberg; EY Analysis)
Figure 36: Share of Germany’s PV capacity, (EPIA, 2012)
Following the policy outline approach for RES, the types of policies implemented are identified, looking at its mix and design. Secondly, the effectiveness of policies with specific reference to respect to green and growth effects is considered. Finally, the reasons for success, alongside the key risks, are outlined.
Policy Background Currently, Germany is the world's top PV installer, with a capacity of 35,526MW by the end of October 2013. (Federal Network Agency, 2012) This figure approximately accounts for 27% of the global installed capacity (expected to be 130,000MW globally). That the German government sees solar PV as a realistic substitute for non-renewables can be inferred from their national targets, which include:
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A comprehensive renewable energy target to generate of 35% of electricity from renewables by 2020, 50% by 2030, 65% by 2040, and up to 80% by 2050 ► Meet 25% of the national electricity demand from solar PV by 2050 ► Cumulative installation up to 52 GW by 2020 ►
Figure 37: Estimating required rate of growth to achieve 2020 target (BMU, 2013)
In 2012, installed solar PV capacity in Germany was 26,380MW, meaning around 25,620MW in additional deployment would be needed to reach the 2020 target: at the current growth rates, Germany will reach its target of 2020 in mid2014 (Figure 37), implying that the rate of solar PV deployment is more than sufficient. Rationale behind these ambitious targets started with the following factors: ► ► ► ►
Germany being one of only two industrial states without oil resources and no large oil corporation of its own until the late 20th century Germany’s reliance on domestic coal and nuclear energy and the outbreak of the oil crisis of 1970s Chernobyl incident, which had a tremendous impact on renewable energy policy approach Government Initiative - Government prioritizing the issue of climate change in 1987
Policy Mix Germany is regarded as one of the most successful policy adopters around the globe. Their approach to encourage renewable resource to replace fossil fuels started with Stromeinseisungsgesetz (StrEG). Germany has concentrated on market-based incentive approach to solar PV. The main instruments implemented specific to solar PV were Feed-inTariffs and Public Financing and Renewable Energy Targets. (Deutschbank, 2011)
Feed-in-Tariffs Encourages investment and security by obliging utilities and energy companies to purchase electricity from renewable energy producers (guaranteeing grid access) and ensures profitability by system of payment at fixed minimum reimbursement rates over guaranteed period of 20 years. Given Germany’s long-term reliability and continuity of public policies and initiatives, adoption of FiT was regarded as an adequate policy measure.
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Public Financing PV-specific public financing from the early 90s played a vital role in laying out the foundations for solar industry to takeoff. Significant sums of R&D investment, skilled labour force and high quality infrastructure developed the German PV industry in new technologies and aided in pioneering in the sector.
Renewable Energy Targets Policy propels longevity by setting ambitious but achievable targets and energy planning, knowing the limitation of shortlived policies and initiatives. While budgetary issues can affect the continuity of FiTs, German FiTs are designed to reduce budgetary pressure by the shared burden principle.
Considerations in the policy making Germany has considered numerous factors to ensure that their policies addressed the following issues and incorporated identified considerations into their policy design: Promote investment ensuring Transparency, Longevity and Certainty (TLC) / make renewables as a realistic substitute to non-renewables o Adoption of Feed-in-Tariffs (FiTs) ► Ensure continuity o Integrated climate and energy planning with long-term targets(ambitious but attainable) ► Develop renewable energy industry and enhance domestic competencies o Public financing(100,000 Roofs Program) / R&D Investment ► Accumulate growth effects (especially “As a Job Motor for Germany”) (BMU, 2010) ►
While the USA opted for quota obligations, Germany promoted incentive based market approaches, adopting Feed-inTariffs and solar-specific financial incentive programs among other various RES incentives. Through setting ambitious but attainable targets, strong regulatory framework with flexibility, “Best in Class” Feed-in Tariff and renewable electricity policy with simple and lean administrative process, Germany has been a leading and ideal benchmark for national initiatives.
Policy Mix / Details Figure 38 demonstrates how German PV policy evolved since its establishment. To assess how different policy mix affected installed capacity, installed capacity data is incorporated with the changes made to PV policies, as policies have gone through several amendments. This is crucial in evaluating the previously implemented program and assessing how Germany responded. The analysis is illustrated in Error! Reference source not found..
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Figure 38: PV policy and installed capacity (BMU, 2013)
German PV policy can be divided into 4 main phases (Deutschbank, 2011): ► Phase 1 (1991-1999) - Feed-in-Law and the start of 1,000 (capital grant) and 100,000 (loan) Roofs Subsidy Program ► Phase 2 (2000-2008) – Development of FiT / Introduction of Renewable Energy Law(EEG) ► Phase 3 (2009-2011) – Controlling volumes ► Phase 4 (2012-onwards) – Move towards an incentive-free policy paradigm
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Table 14: Solar PV Policy Evaluation and Implication in Germany
Phase 1
Phase 2
Phase 3
Phase 4
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Evaluation
Implication
► Installed capacity increased from 2 to 32MW from 1991 to 1999. ► Effective in getting the renewable market moving forward by introducing purchase obligation for renewables with payment from grid operators to PV electricity producers. ► FiT led new entrants to the market and enlarged the PV industry, raised awareness and interest, increasing the rate of diffusion to large number of cities with local FiT systems and legitimised further PV support. ► However, FiT payment was insufficient for the market to develop substantially: No clear impact on the installed capacity of solar PV, nor was it sufficient to help the PV market to take-off. FiT rates did not come near PV costs even though PV generators were eligible for rebates equivalent to 70% of the system cost. Increase in installed capacity is mainly due to the 1,000 Roofs program (Mez, 2010), which allowed small firms and even individuals to invest in PV development. ► Installed capacity increased five-fold from 60 to 313MW from 2000 to 2003 and from 2004 to 2008, 557 to 4420MW, indicating a more rapid rate of uptake from 2004 onwards. ► New FiTs were starting to attract investment and in combination with the 100,000 Roofs program, catalysed the increase in installed capacity from 2004. Unfortunately, the 100,000 Roofs program ran out of funds and was terminated in 2003. ► Fixed reduction giving investors security by enhancing transparency. ► Reasons for rapid 2004 expansion: Electricity market liberalisation / abolishment of the overall capacity limit. Government initiative • Specific solar PV electricity generation targets from 2004, 12.5% by 2010, 20% by 2020. • Red-green coalition secured support beyond 2007 in the government budget: increased PV rates. • Red-Green Federal Government emphasised ecological modernisation and climate change as well as job creation and socio-economic development. Aimed to phase out nuclear power, strengthen renewables. • Enhance transparency, imposing a requirement to publish data on energy volumes and payments. ► Non-scheduled decreases in reduction rates were made to reflect component prices. ► Corridor reduction schedule revised in 2010. ► Unforeseen developments in the market for PV systems, PV component prices declined sharply in 2009, reducing by 40%, nearly reaching grid parity in 2011. In addition, market growth in 2010 was higher than the government’s expectation of 6GW. ► Therefore, there was a need for a volume management with regards to different scenarios. ► Detailed reduction schedules were established including considerations of installed capacity. ► PV into a new incentive-free policy paradigm to slow down the market growth in near term. ► Continued PV cost decline, nearly reaching grid parity and improving competitiveness with traditional source of electricity signalled for change in the approach in 2012 when 4-year revision cycle was scheduled. The revised policy reduced incentives. ► Market premium payments – average wholesale market price and to begin transition away from incentives. ► Encouraged onsite consumption from generators through 90% sales limit. ► Fukushima crisis and the political backlash against nuclear power – 2022 deadline for a full nuclear phase-out.
► Importance of policy mix: secured access to grid by including obligations to operators but insufficient rates could not stimulate the market. What proved to be effective was the subsidy, which laid out foundations for SMEs and individuals. ► FiT Levels: Level of tariff must be high enough to cover the PV costs. ► Energy Reform Act came into force in 1998, with an opening of the network for all suppliers and free choice of supplier to address the problems associated with near-monopoly industry sector. ► Importance of FiT rates - higher rate had a much more significant impact in installation rates: PV receives a fixed 0.51 Euros / kWh, 0.425 higher than 1991 Feed-in-Law. ► Overall capacity limit discourages the market. ► Liberalised market promotes growth in the market by attracting more entrants. ► Government support (budgetary commitments, solar PV electricity generation targets) ensures investors and market participators transparency, longevity and certainty.
► When market growth is too high interventions need to be made where necessary, revising reduction schedules to manage volumes. ► Align FiT rates with system costs, in order to decelerate growth, where increasing capacity allows learning-by doing effects leading to cost reduction and lower prices of panels. ► When the market matures, need to establish a basis to minimize intervention, by leaving the market to control excess volumes created by formulating market premium payment and encouraging on-site consumption.
Summary Phase 1: FiTs were insufficient but the subsidy program has facilitated market development. The objective is to scale up domestic renewable electricity generation and exemplify how policy can provide TLC to investors. Phase 2: The problem of insufficiency was dealt with the introduction of the new FiT system (EEG) and installation rates started to rise. Phase 3: Rapid development of the PV market resulted in modifying reduction rates and signalled for change in policy setting. Phase 4: Incentives were reduced to cool down the existing overheated market, due to the increasing competitiveness of solar energy against traditional sources of electricity. This also encourages a move towards a new policy paradigm: to reduce incentives to a minimum and establish measures (such as market premium payment), resulting in a market to set controls for volume. Policy Effectiveness Green Effects The most notable effect that can be observed is the amount of GHG emissions avoided as a result of using renewable energy sources. Overall, the amount of GHG emissions avoided by renewable energy use (in all sectors including thermal, heat and transport, Figure 39) in 2012 was approximately 144.6 mtCO2e. Solar PV accounted for 13.1% of the total GHG emissions avoided. Figure 38 highlights the GHG emissions avoided in 2012, with emissions avoided from solar PV being 18,883 tCO2e. Referring to Figure 40, solar PV’s primary contribution has been to the electricity generation sector accounting for 18.7%.
Figure 39: GHG emissions avoided in 2012 (BMU, 2013)
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Figure 40: GHG emission avoided by sectors in 2012 (BMU, 2013)
Figure 41 implies that overall emissions avoided from solar PV, have risen from 1.2mtCO2e to 18.9mtCO2e. From 2008 to 2012, GHG emissions avoided in the electricity sector has grown rapidly, increasing more than five-fold in four years. As solar power capacity has not been significant before 2005, (as low installation rates imply low GHG avoided rates), GHG avoided is only noted from 2005.
Figure 41: GHG avoided versus Installed Capacity (BMU, 2013)
In 2008, the following changes have been made to the German FiT system: â–ş
Transparency enhanced by fixed reduction rates / Increases in FiT rates / removal of program and system size caps
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► ►
Liberalisation of the electricity market Specified RE targets and government’s attempt to phase out nuclear power
Monetizing Green Effects Assuming that the economic benefit of avoiding GHG emissions approximately results in a savings of 80 Euros / tCO2e (best estimate of the harmful climate impacts avoided by using renewables), the overall 147 mtCO 2e leads to avoidance of approximately 11.8 (only CO2 emissions, without partial internalisation or consideration of CO2e and air pollutants) billion Euros (BMU, 2013). However, it is difficult to separate the contribution of solar PV from the total, as different renewable technologies have different costs. As solar PV accounts for 13.1% of the total emissions avoided, an estimate can be derived by calculating the 13.1% of the total damage savings, accounting to 1.55billion Euros. Growth Effects Employment Germany has a strong initiative to empower employment by promoting the renewable energy sector and has plans to develop the sector as a job motor for the country. Referring to Figure 42, total employment in the RE sector in 2012 was approximately 377,800, with Solar PV encompassing 27% of the total employment, with 100,500 employees. From 2004 to 2012, employment has risen 11% and 17% until 2011 in the solar PV industry. There has been a significant decrease in the number of people employed from 2011 to 2012, with the total jobs in the RE sector decreased as well.
Figure 42: Employment from Solar PV (BMU, 2013)
Investment Figure 43 implies that investment in construction for Solar PV has been most significant in years 2011 and 2012, accounting for 57.6% and 65% of the total investment respectively. Total investment has decreased by 14% from 22.9b Euros to 19.6b Euros. Government’s initiative to promote solar PV as one of their main source of renewable energy is shown by its investments both from public and private sources.
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Figure 43: Investment rates (BMU, 2013)
FiT enhanced investor security and investment in RE from 2004, when EEG was first revised. RE investment has peaked in 2010 just before the introduction of the scenario-based corridor reduction system. Decline in 2010 is firstly due to introduction of scenario-based reduction rate changes, which worsened TLC. Secondly, rapid FiT rate decline (Government’s response to decline in PV prices) since 2009 made the German market comparatively less attractive to other markets with high FiT rates. Turnover The turnover from manufacturers, account for 14.9 billion and 13.75 billion Euros in 2012 and 2011 respectively, and increased by 8.4% according to Figure 44. The Solar PV and thermal component manufacture profit has risen as well, by 23%. Turnover from domestic sales and export sales will both contribute to GDP but the proportion of solar PV is not significant.
Figure 44: Turnover from Operation, (BMU, 2013)
Policies adopted by Germany have been successful in achieving both green and growth effects. Following the effectiveness analysis, the reasons for success are identified, in particular how Germany has addressed the general risks of FiT and associated risks.
Success Factors and Associated Risks Overall, German FiT successfully stimulated domestic markets for renewable energy, encouraged technical innovation, created employment, increased efficiency and cost reduction potentials. Reasons behind success â–ş
German policy framework / initiative
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-
Renewable energy goals supported by binding ambitious targets, mature German energy sector, policy framework that exhibits longevity and investor security. Integrated climate and energy planning, GHG reduction targets linked to energy policy targets for renewable electricity. Attainable target setting has given investors and industries clear pathway to government’s long term commitment ► Feed-in-tariffs are known to work best in countries where long-term reliability and continuity of public policies as well as the legal security for individual and relatively small investors are relatively high (Germany’s EDB ranking is 3rd) ► Schedule of automatic reduction supported investor security and transparency during 2000-2009. ► Flexible regulations means regulatory risk for investors and industries are minimised, continuously adjusted to reflect market changes and conditions to support policy ► No major administrative delays ► Skilled labour force and high-quality infrastructure ► R&D, research institutes together with public and private sector efforts to invest in PV investing 175.8 million in R&D in 2007. Also in 2007, Ministry of Education and Research invested 360 million Euros (El-Beyrouty, 2009) Table 15 illustrates how Germany has dealt with the general risks of FiT. In shaping their policies, policy-makers in Germany considered the conventional problems that FiT faces and designed to tackle the issues.
Table 15: General risks of FiT and how the issues has been addressed
General risks
How it has been addressed
Long-term reliability and continuity of public policies / legal security FiT’s effect on the government budget
Penetration speed, expansion rates, correct level of FiT rate controlled through flexible regulations, 4-year cycle review and appropriate interventions German government’s strong initiatives and political will ensures legal security / EDB rankings(3rd) demonstrate Germany’s solidness in investor protection FiT shared burden principle alleviates the cost to suppliers and consumers and less pressure on government budget
Longevity of FiT
Secured for 20 years
Grid access for generators / connection issues
Grid access is secured for renewable energy. The power and utility system is well developed in Germany, ranked 3rd in accessibility criteria. "Federal Network Agency” controls the market and ensures nondiscriminatory third party access to power networks and control fees charged by Germany's TSOs.
FiT does not decrease upfront costs (where, investment tax credits, grants, and rebates reduce the high, up-front capital costs
FiT was adopted in collaboration with the 100,000 subsidy program and from 2003 when it ended, other general RE incentives were in place to support PV.
Difficulties in Design
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Associated Risks Even if the conventional problems associated with FiT are addressed, the following risks have not been dealt with. ► ► ► ► ►
FiT adjustment system: automatic annual decreases and periodic review, did not correct for PV cost declines in 2009 (which has been addressed from 2010 onwards) Automated adjustment risks insufficient investment from new investors and may attract imports of lower cost panels from overseas rather than utilizing domestic manufacturers’ panel sales. Risk of policy arbitrage: commoditisation of panels imply relatively low rates of FiT in Germany leading to reduction in supply of panels in Germany if other countries offer higher FiT 2012 reduction and 52GW threshold creates planning of uncertainty, changing every 3 months, decrease TLC for developers Ninety percent production limit decreases revenue certainty even though it creates an incentive for generators to consume their output on site.
Remarks German case study demonstrates a successful implementation of FiT. However, this is not always the case. Spain has adopted an aggressive and ambitious approach towards renewable energy, by implementing high feed-in tariffs to power generators. The main flaw in the design of this policy was that it kept consumer rates low even when supply costs increased. This meant the real cost had not been passed onto the user. Discrepancy between utility payments to power producer and the revenue collected from customer was surging up to 5.6 billion Euros in 2012 and cumulative deficit in 2013 was approximately 25.5 billion Euros (Forbes, 2014). The experience of Spain highlights the importance of effective policy development: while a reasonable rate of subsidy may be offered to suppliers, subsequent actions may need to be taken (in order provide transparency similar to the German case) as the market evolves.
Geothermal Country Selection As mentioned in the approach, EDB from World Bank and RECAI from Ernst & Young are two criteria for selecting an International Leading country for deeper analysis. The USA was selected for further analysis as it was ranked the first in RECAI analysis for geothermal, and was highly ranked in the EDB (Figure 45). In addition, the geothermal industry in the USA has been growing steadily since 1975, and with approximately 3,386MW of installed capacity it accounts for more than 28% of the global installed capacity (Figure 46).
Policy Background What began in 1960 at the Geysers of California, which are the oldest geothermal field in the USA and largest commercially productive geothermal field in the world, the USA geothermal electric power industry has grown to be the largest in the world. Compared to wind and solar, that are heavily dependent on the weather conditions such as on cloudy days, geothermal energy is relatively stable in the way that it can provide base-load and flexible power whilst also adjusting to fit the needs of variable renewable energy technologies. Considering that the reliability of the power resources and power generation are very critical, it is important to include geothermal as one of the renewable energy power generation sources available in abundance. As geothermal energy is locally produced, an increase in reliance on geothermal energy would reduce the demand on fuel import markets, keeping the national source of energy secure. Starting with California, the Geothermal Act of 1967 at state level provides a concrete definition of geothermal resources as a first step of determining ownership and establishing legal rights of accessibility for geothermal project development.
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Figure 45: Country selection for geothermal
Figure 46: Cumulative Installed Geothermal Electricity-Generating Capacity by Country (Earth Policy Institute, 2010)
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Policy Mix Geothermal electricity production capacity in the USA has increased over time due to different types of policies for supporting technology development, boosting renewable energy market and reducing any associated risks since 1975. With the perspective of developing geothermal in the USA, the policies including technology, market, and deployment, are divided into two phases (Figure 47).
Figure 47: Two phases of government intervention in geothermal energy and their representative policies
At the very beginning period of the initial geothermal development, it is important to let the technology developed and attracts geothermal developer as well as private investment. In order to satisfy this purpose, the government mainly focused on technology development by federal level of high investment on RD&D and initial market development by modifying utility regulations (Table 16:
Geothermal development policies ). This policy had a great impact on
geothermal development as found in Figure 48, which clearly shows the relationship between RD&D investment and installed geothermal capacity. Because it generally takes time for developed technology commercialized in the market, approximately a decade later, the geothermal capacity was increased dramatically.
Table 16: Geothermal development policies (NREL, 2009) (Bloomquist, 2003)
Phase I (1970 – 2004)
Technology development
The federal level of investment policies on RD&D (Research, Development & Demonstration)
Market development
Public Utilities Regulatory Policies Act (PURPA)
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increase the investment on RD&D as project developers new geothermal focused institutions to be structured Public RD&D investment were increased significantly between the late 1970s and early 1980s when rapid growth in geothermal development were experienced afterwards since early 1980s to promote the geothermal market to allow for the generation of electricity by non-utility companies thereby creating the private power industry to require regulated utilities to purchase renewable power at avoided power costs several hundred megawatts of new geothermal generation came online during the 1980s
Figure 48: Relationship between RD&D investment and increase in geothermal capacity1 (NREL, 2009)
This is an important period for attracting additional geothermal development, as well as boosting geothermal consumption against other alternative sources of energy. On these grounds, Government interventions such as fiscal incentives and risk reduction programs to drive the markets are of focus (Table 17:
Fiscal incentives for
geothermal energy ).
Table 17: Fiscal incentives for geothermal energy (NREL, 2009) (John W. Lund, 2012)
Phase II (2004 - )
PTC (Production Tax Credit) – Federal level
Market development
Renewable Portfolio Standards (RPS) – State level
1
a significant subsidy of 2.0cents/kWh (increased from initial tax credit of 1.8cents/kWh) for 10 years for geothermal plants that are placed in service before the expiration of the credit program to impact on three points; geothermal cost, geothermal development and market price it would decrease the levelised cost by 25 to 30% while increasing the competiveness compared to fossil fuels to encourage the development of renewable power generation by ensuring that a minimum amount of renewable energy is included in the electricity portfolio to serve to reduce the uncertainty over whether generated power will be purchased, and to ensure a diversified energy portfolio Minimums range from less than 1% to a high of 30% depending on the legislation of each state
The graph is used directly from NREL as the data for installed geothermal capacity before 1990 is not available.
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Policy Effectiveness A. Green effects Electricity from geothermal is eco-friendly and contributes to GHG emissions reduction. Geothermal power generates CO2 emissions that are far lower than those produced by power generated from burning fossil fuels because of the avoided impacts of fuel combustion on air quality and hazards of fuel transportation and handling. (ESMAP, 2012) 1,020kgCO2/MWh and 514kgCO2/MWh of GHG emissions are emitted from coal-fired power plants and natural gas power plants respectively, which are significantly higher than GHG emissions from geothermal power plants (Figure 49) (GEA, 2012).
Figure 49: GHG emission from geothermal energy production compared to other resources
For instance, the 300MW of geothermal power plants in Nevada can save 4.5 million barrels of oil, avoiding 2.25MtCO2 annually. In addition to power generation, whole processes which include transporting and handling have additional impact on the environment in terms of increased GHG emissions while considering fuel cycles. (2) Growth effects: In general, it is known that geothermal development creates job opportunities that are direct employment in manufacturing, distribution, installation, and operation & management. It is because unlike other renewable technologies such as solar or biodiesel, geothermal technologies are site specific and capital intensive, the jobs created from geothermal remain local and cannot be exported. (EGEC, 2013) Geothermal activities also supply a county tax base that produces tax revenue in the states. Since enactment of Geothermal Steam Act Amendments, substantial revenues from geothermal leasing and production were returned to the state and local governments. Approximately USD27m was collected through six states for FY 2007 and FY 2008. (GEA, 2009) Geothermal is labour intensive and provides a stable source of employment for a wide variety of skills throughout its life cycle. In addition to direct job creation, geothermal development also generated job opportunities indirectly in various industries. It is also important that many of these created jobs be based in rural communities where unemployment rates are relatively high, compared to the national average. As geothermal development takes longer and its developers typically negotiate in longer-term, many new jobs are expected to continue over the long-term.
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Table 18: Induced employment from geothermal development by state
New Power Capacity (MWs) California Nevada Oregon Washington Alaska Arizona Colorado Hawaii Idaho New Mexico Utah
2,400 1,500 380 50 25 20 20 70 860 80 230
Direct and indirect induced employment 10,200 full time jobs/ 38,400 person*yrs 6,375 full time jobs/ 24,000 person*yrs 1,615 full time jobs/ 6,080 person*yrs 212 full time jobs/ 800 person*yrs 106 full time jobs/ 400 person*yrs 85 full time jobs/ 320 person*yrs 85 full time jobs/ 320 person*yrs 298 full time jobs/ 1,120 person*yrs 3,655 full time jobs/ 13,760 person*yrs 340 full time jobs/ 1,280 person*yrs 978 full time jobs/ 3,680 person*yrs
According to GEA, every dollar invested in geothermal energy resulted output growth of USD2.50 to the U.S. economy, or a USD400m of geothermal investment would result in a growth of output of USD1b for the entire U.S. economy. Over 30 years, around 5,600MW of geothermal development would result in USD85b to the U.S. economy. In addition, referring to Figure 50 it was found that with a larger installed capacity, higher 30-year economic output was expected.
Figure 50: Geothermal capacity and its economic value (GEA, 2006)
Success Factors and Associated Risks Reasons behind success â–ş â–ş
The recognition of federal government to focus on geothermal, considering the potential in terms of environment and economy from an early stage. Initial experiences in promoting and developing geothermal projects: Geothermal specific Acts such as California Geothermal Resources Act, Federal Geothermal Steam Act as well as geothermal specific programs
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►
both at federal and state level. This is important because geothermal is characterised as a land-specific technology and it could be beneficial to set strategies and policies at state level where resource potential is differently allocated. California and Nevada has a great potential for geothermal and from an early stage, they enacted state level policies such as fiscal incentives and target settings focusing on geothermal along with national renewable energy policies. The state autonomy depends on its potential and its long-term economic planning and targets are necessary. In terms of time frame, compared to other renewable energy development, geothermal takes approximately 5 to 10 years (feasibility study - resource identification – resource evaluation – test well drilling – production well drilling – plants construction – energy generation) with high up-front cost. The entry barrier and the risks that face investors are relatively high, therefore, protection from default and risk reduction programs by reimbursing and encouraging utilities to purchase the energy generated from geothermal are pivotal.
Associated Risks ►
►
►
Tax incentives: The impact of the tax credits is ambiguous because of limited data on the number or size of the projects that took advantage of it. Because of this reason, the Energy Tax Act is not usually considered as a major driver for geothermal development in the USA. Consistency: Since geothermal development requires an allocated timeframe for the lifecycle of the project, the growth pattern of technologies might depend on policy funding levels and policy consistency over time. Due to the uniqueness of geothermal, associated risks such as less flexibility in changing and modifying policies may occur. Lack of awareness and appropriate audience: Generally, the policies for renewable energy development target one or a few of the relevant stakeholders while stakeholders from a variety of sectors are involved in a project.
The absence of FIT Around the world, at least 65 countries and 27 states are implementing Feed in Tariffs (FIT) in order to boost the development and consumption of renewable energies. FITs have driven geothermal market in Europe although the resource is not as strong as in the USA. Many adopt FIT because it provides investor security, as geothermal development takes longer time and the policy provides a guaranteed revenue stream and table long-term contracts. However, there is a perspective that the appropriate implementers of FIT policies are at the state level because the mechanism of FIT to geothermal projects does not address the regulatory and R&D issues associated with geothermal which is considered as one of disadvantages of FIT. Because of the specificity of the electric markets, state RPS that is currently implemented in the USA is expected to reach renewable energy targets by the states. (NREL, 2011)
Biodiesel Country Selection China was ranked second in the RECAI index, suggesting it is a highly attractive destination for clean energy technologies. In addition to that, China represents the second biggest trading partner of Indonesia in terms of both exports and imports (Simoes, 2011). While USA and EU are global leaders in biodiesel production, China has been selected for identifying international leading practices, as it would lend a local context to the analysis. China has a large and growing biodiesel producing capacity. In 2012, China’s capacity for bio-diesel production is estimated at 3,408 million litres (Scott & Junyang, 2012). Compared to ethanol, the biodiesel projects are smaller and more scattered with much lower utilisation rates. In contrast, biodiesel is much more dominant than ethanol in the EU, making up 70% of the biofuels production. China is a major importer of biodiesel technology, which matches its indicated desire to improve future domestic biodiesel production levels.
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Policy Mix China began biodiesel production in 2001 (IISD, 2008), waste food oil and residues produced during the process of refining fat was used as feedstock. Beginning in 2003, there was a greater focus on biodiesel research and developing the industry. Biodiesel has not yet been promoted as a transport fuel in China, as China is a net importer of vegetable oils. As a result, there is presently no national biodiesel standard nor is biodiesel distributed through petrol stations in China. Under the current set-up, users directly purchase biodiesel from producers without any regulatory mechanisms like taxes or subsidies. In 2006, the estimated production of biodiesel in China was around 190,000 tonnes (IISD, 2008), however, current reports indicate that the volume of production has increased significantly and is now in the 200,000 to 300,000 tonne range. Due a lack of taxation on this volume, the government of China provides an unofficial subsidy of USD 9.4 million per year (foregone consumption- and value-added tax revenue on 200,000 tonnes of biodiesel consumption) (IISD, 2008). China has set itself the target of producing 2 million tonnes of biodiesel by 2020 (IISD, 2008). This is quite an ambitious goal given current production levels and clearly indicates a large-scale push from the government. A major challenge for China is the shortage of crop-based feedstock supply. To address this China has been endeavouring to develop biodiesel from the seeds of energy trees like Jatropha, Xanthoceras sorrbifolia, and Pistacia chinensis. The most promising option is Jatropha, which has become the focus of China’s biodiesel production program. According to published government records, the area under Jatropha cultivation in China reached 15 million hectares in 2008 (IISD, 2008). However, since most of the plants were planted only after 2005, the seed production is still relatively low. Jatropha due to crop requirements is mainly planted in the provinces Yunnan, Sichuan and Guizhou which happens to be sub-tropical. Through active support from the government and the participation of oil companies, the biodiesel industry in these three provinces has grown considerably since 2006. As per China’s Middle and Long -term Development for Renewable Energy, the annual target for biodiesel production is set at 200,000 tonnes for 2010 and the goal is to be revised upward to 2 million tonnes by 2020 (IISD, 2008). To facilitate further development of China’s biodiesel industry, a voluntary biodiesel standard (for 100 percent biodiesel) was introduced in July of 2007. Discussions on standards for B5 and B10 (diesel mixed with 5 to 10 percent of biodiesel) are currently ongoing (IISD, 2008). However, given the lack of use of biodiesel as an automobile fuel, it is not compulsory for biodiesel to conform to these standards yet. China has employed a wide range of incentives mechanisms to support biodiesel production (as seen in Table 19). However, support for biodiesel production from oil-bearing trees (analogous to palm oil) is focused on tax exemption policies. Specific policies have been targeted at the feedstock, conversion and distribution stages of the value chain (Table 20), with support mechanisms tailored to the underlying feedstock. Table 19 and Table 20 present a synthesis of selected policies and measures for supporting biodiesel during the process chain. They clearly suggest that China is employing a mix of compliance mechanisms and financial incentives to promote biodiesel development in the country. While there are no nation-wide biodiesel blending targets, mandatory targets have been set in pilot areas to generate demand of biodiesel. On the supply side, several financial incentives are in place to make the production value chain more economically lucrative.
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Table 19: Synthesis of selected policies and measures for supporting biodiesel during process chain (Chang Shiyan, 2012)
Biodiesel Oil-bearing trees/waste oil Designated
Non-designated oil-bearing trees
Subsidies for energy crops planting Tax Exemption or Refund
Consumer Tax
Value Added Tax
Income Tax Subsidies Wholesale Price Guarantee Mandate Subsidies Retail Price Guarantee
Process Chain
Feedstock
Measures
Waste oil
Subsidies Subsidies for aged-grain used
Conversion
Distribution
Table 20: Relevant policy and measures during the process chain
Process Chain Feedstock
Conversion Distribution
Process Chain Conversion
Distribution
Biodiesel derived from oil-bearing trees Policy Subsidies of 200 Yuan per mu (3000 Yuan per ha.) on unused land are given. Target on major commercial forest land(incl. energy plants) of total forest land Check Method of Forest Energy Planting Base. Guideline of Sustainable Planting of Energy Forest and the Guideline of Sustainable Planting of Jatropha. Reward fund for scale up production of non-grain bioenergy and biochemistry Fuel blending standards Regional mandatory blends as 5% in pilot area Biodiesel derived from waste oil Policy Value-added tax is refund Income tax is relieved by 10% Consumption tax is exempted Fuel blending standards
Policy Effectiveness Green Effects Most notably, biodiesel usage, especially blending with traditional transportation fuels, helps to reduce GHG emissions. At 20 percent blend of biodiesel into regular fossil fuel, carbon monoxide and particulate matter emissions will only be reduced by 12 percent and have no impact on nitrogen oxide emissions. However, biodiesel produced from recycled cooking oil can help to avoid at least 85 per cent of the greenhouse gases emitted by fossil fuel diesel. Biodiesel made from plant oil results in a reduction of only about 40%. Growth Effects Employment
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Many Chinese biofuels plants operate in more remote, rural provinces away from the major coastal cities and provinces, the biofuels sector offer considerable employment opportunities where they are most needed in the country. The National Development and Reform Commission of China (NDRC) estimates that a 100,000 tonne (127 million litres) capacity ethanol fuel plant employs around 1,000 people. However, this number seems high when compared to other countries, where a biofuel facility of around 100,000 tonnes capacity would generally employ 20 to 25 people. The NDRC estimate may refer to total employment generation, including employment in feedstock production, transportation and possibly downstream activities. The high number suggests an aspirational target reflecting the Chinese government’s policy aim of fuel ethanol production alleviating rural unemployment or absorbing state sector workers who are unemployed in rust-belt provinces such as Jilin. Associated industry development In addition to job creation, the biofuels industry acts as an integrated system that can drive the development of other industries, including agriculture, chemicals, plastics, automotive, power generation, transportation and services whilst helping boost domestic demand. Unlike other industries, biofuels help maintain social stability by addressing a number of agriculture-related issues, including increasing farmers’ income and creating jobs for millions of farmers.
Associated Risks Essentially, there continues to be two long-standing uncertainties regarding biodiesel production: the availability of sustainable feedstock (waste cooking oil or oil-bearing tree nuts (jatropha) for biodiesel production; and the level of subsidies provided by the central or provincial governments (Table 21). In 2011, the Chinese government enforced regulations against the illegal use of recycled waste cooking oil for human consumption, and, as a result, more recycled waste cooking oil was available for biodiesel production. However, without government subsidies or mandatory-use programs for biodiesel production, producers and processing plants must operate under inconsistent profit margins and price fluctuations.
Table 21: Risks related to biofuel policy measures
Aspects ► ►
Risks
► ► ►
Fiscal Subsidy/ mandate economic distortion Input competition effects like water use Investment risks, both public and private Failure to realize the real opportunities Undue financial burden on government
► ► ►
Compliance Regulation distortion Policy distortion Public choice effects
► ► ► ► ► ►
Localisation Food vs. fuel Displacement and monopolisation Local inequities Local resource damage or over use Monoculture and crop biodiversity Invasive species
5.2 Global Energy Efficiency Trends Building Energy Management Systems In order to identify international leading practices for Building Energy Management Systems (BEMS), the first step is to define the scope of BEMS. Then by undertaking a country positioning analysis where each country’s BEMS status is diagnosed internationally and through the analysis, countries with higher potential benchmark are identified. The final step is to outline policies that have been adopted by these leading countries (Figure 51).
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Figure 51: The ILP approach for BEMS
Definition / General Impacts A. Definition of BEMS Figure 52 illustrates how BEMS achieves the goal of efficient use of resources through reducing energy consumption itself and improving efficiency. Countries regulate energy use and encourage efficiency in buildings by codes, labelling, energy use regulation, financial support and promoting green building establishments. BEMS is one of the components that can promote reduction in energy consumption and enhance efficiency in buildings, and it contributes to the goal of achieving efficient use of resources in Indonesia.
Figure 52: Definition of BEMS
It is important to understand that in order to ensure best use of a building’s energy management system, ICT (Information Communication Technology) should be reflected in the system. ICT acts as a catalyst or an enabling factor in BEMS as it allows continuous monitoring, assessment and analysis on energy consumption and efficiency. ICT will contribute to energy efficiency of buildings mainly via design tools, automation & control systems and decision support for various stakeholders. The Figure 53 suggests both how BEMS can enhance reduction in energy use and how ICT facilitates. The Venn diagram on the left demonstrates how the idea of green building is established. The right hand side diagram shows how the idea of smart green building is elaborated through integration of ICT. The ICT incorporated with buildings represent smart buildings, where processes inherent in the building are automated and monitored. When ‘green’ ideas intersect with ICT, it allows efficient monitoring of performance. BEMS forms a platform where these two concepts integrate: to control and monitor energy use, analyse and optimize energy performance whilst also enabling district level energy management.
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Figure 53: The relationships between buildings and ICT
As ICT acts a crucial role in BEMS, the role of green ICT will become apparent through further analysis. B. General impacts of BEMS- Greening and Growth effects According to SMARTer 2020 published in 2012 by Global e-Sustainability Initiative (GeSI), the building sector is one of the biggest GHG emission emitters in the world and can be a potential GHG emission reducer if ICT is enabled within the building systems. BEMS, where ICT is enabled into building operations & management systems, has a great potential of reducing GHG emissions by 1.6 GtCO2e. Heating, Ventilation and Air Conditioning (HVAC) is not the only component to be considered, but building design also encompasses as part of the BEMS. Sub-enablers, building design, building management system, integration of renewables in commercial/residential buildings, and voltage optimisation are considered as building energy management system in this study, which result in approximately 18% of total reduction as shown in Figure 54 globally using ICT-enabled services. (GeSI, 2012)
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Figure 54: GHG emission reduction proportion in the world by 2020
BEMS sector has been growing significantly as many organisations realize that BEMS could be one of the most effective solutions for improving energy efficiency in buildings. The main drivers for adopting BEMS are enhanced energy efficiency and thereby cost reduction. By enabling users to collate, analyse and transform the data into meaningful information and encouraging them to monitor energy consumption and their usage patterns with own behaviours, BEMS helps them reduce electricity consumption as a result. It is known that the best systems will generally reduce electricity consumption by 25% to deliver rapid payback on investment and reduce taxes on carbon emissions. (ENERG, 2014) More specifically, referring to Johnson Controls’ case outlined in Figure 55, the Empire State Building in New York has implemented a comprehensive retrofit program for increasing energy efficiency, which resulted in a 38% improvement in energy efficiency with operating and occupancy costs reductions as well as increases in the building’s marketability and profitability. (Johnson Controls, 2014)
Figure 55: Environmental and economic impact of BEMS from Johnson Controls’ case
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Country Selection In order to identify the potential leading countries, two main criteria are selected for BEMS specifically. The one is the score measures for green buildings obtained from ACEEE 2 and the other is ICT development rank by ITU3. According to ACEEE, criteria for evaluating energy efficiency in buildings sectors such as building codes, building labelling, appliance and equipment standards and appliance and equipment labelling are considered for countries ranking and this is reflected in x-axis in the Figure 56. ICT, which plays a major role in improving energy efficiency in building sectors, is reflected in y-axis based on the result of ICT Development Index (IDI), a composite index combining 11 indicators in ICT access, use and skills sectors. It is assumed that the countries with advanced ICT are more likely to utilize and implement BEMS in commercial and residential buildings. (ACEEE, 2012) (ITU, 2012)
Figure 56: Country selection result for BEMS
The United Kingdom and Germany are selected as key countries for identifying factors for BEMS (Figure 56). However, as the EU generally have overall policies for energy efficiency, as well as ICT development and application aiming for the policy adaptation throughout EU countries, higher level of policies in EU regarding policies and movement for improving energy efficiency and utilizing ICT in building electricity sectors are analysed, and country specific policies identified if necessary.
Policy Mix Policy background In order to comply with the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) and other long-term commitments, EU has taken various initiatives and measures. During the first commitment period to the Kyoto Protocol, EU15 is responsible for reducing its GHG emission levels, in the 2008-12 period, 8% below 1990 levels. For the second commitment period, starting from 2013 to 2020, the target is to reduce 20% below 1990 levels. EU also has an ambitious goal regarding climate and energy, known as the “20-20-20� targets. The three key targets are (1) a 20% reduction in EU GHG emissions from 1990 levels, (2) raising the share of EU energy consumption produced from renewable resources to 20%, and (3) a 20% improvement in the EU’s energy efficiency. (EC, 2014)
2 3
American Council for an Energy Efficient Economy International Telecommunication Union
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Around 40% of energy consumption and 36% of CO2 emissions in EU come from buildings. As the sector is expanding, this will lead to increase in energy consumption and carbon emissions. EU has identified potentials for achieving substantial amount of energy savings, more than 20%, in this sector with the introduction of cost-effective measures. (EU, 2007) Policies for reducing GHG emission can be looked into two distinct sectors, buildings and ICT sectors. As BEMS is generally considered as one of solutions for improving energy efficiency in buildings by utilizing ICT, it can be included in both sides of building energy sectors and ICT sectors. Therefore, policies for both building energy efficiency improvement and ICT utilisation in building are covered here. Policy outline (1) Energy efficiency improvement in buildings EU has strived to increase its renewable energy usage and lower its energy consumption. Its efforts are shown in: ►
the Construction Products Directive (89/106/EEC), which includes requirements for construction products with regards to energy efficient heating, cooling and ventilation installations,
►
the Boiler Directive (92/42/EEC), which includes efficiency requirements for hot-water boilers, and
►
the buildings provisions in the SAVE Directive (93/76/EEC), which aims to reduce carbon emissions through implementing programs with regards to improving energy efficiency in the building sector. (EU, 2007)
The Directive on the Energy Performance of Buildings (2002/91/EC, EPBD), first introduced in 2002, aimed to enhance energy performance in the building sector regarding indoor and outdoor conditions, and cost-effectiveness. It brings into the efforts listed above and integrates them into legislation that promotes energy efficiency of public, commercial and private buildings. The Directive required the Member States to enhance regulation on energy performance for both new and renovated buildings, introduce energy certification for buildings and carry out regular inspections on boilers and air conditioners. (EC Directive , 2002) In 2010, the European Parliament and the Council of European Union adopted a recast of the Directive (2010/31/EU). While the first EPBD suggested general approach for the buildings, the EPBD recast was revised based on the experience from the implementation of the first EPBD and a detailed impact assessment. The Directive expands the scope, strengthens requirements and clarifies some of the original provisions. The key revisions made in the EPBD recast are as follows: ►
set concrete energy performance requirements for buildings and technical building systems
►
enhance quality of certificates and inspections
►
require all new buildings to be nearly zero-energy buildings by 2020 (EC Directive, 2008)
(2) ICT utilisation in buildings EU also has been striving hard by setting their own building energy reduction targets, roadmaps and by conducting numerous research and studies so that any innovative solutions become practical including ICT utilisation. This is discussed in the Green Digital Charter, with the overall commitment aiming to fully apply ICT into green buildings (EU, 2013). As EU acknowledges that ICT supports building sector to improve the energy efficiency by ICT’s uniqueness, it understands that ICT solutions facilitate energy-efficient, “smart” processes by:
Improving the energy efficiency of buildings by applying common standards for new buildings and for retrofitting existing buildings;
Developing “smart” energy grids to support greater use of renewable energy, micro-generation and more energy efficient lighting systems
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EU and government’s supports toward greener society by increasing the proportion of smart buildings in the countries have been continued and they are listed as Table 22.
Table 22: Different ICT in Europe
Types
Policy (Regulation & Support) Horizon 2020 Green Digital Charter => Setting targets and road-mapping how energy consumption in building sectors can be reduced by utilizing ICT
General roadmap
Capacity building & awarene ss increase
Supports project
Green lifestyle (individu al)
European Campaign for Smart Energy Buildings => Sharing good practice examples of public policies, low energy buildings => Encouraging individual and companies to change behaviours
Institutio n building
Supports forum, consortium and workshops Build research centre and institutions mainly focused on energy efficiency improvement in building sectors especially by ICT ICT 4 E2B Forum Smart Build: implementing Smart Information and Communication Technology (ICT) concepts for energy efficiency in public buildings
for
pilot
EC is co-financing a number of projects and horizontal actions under the 7th Framework Programme for Research and the Competitiveness and Innovation Over 40 energy efficiency improvement projects in buildings by ICT are ongoing and supported by EC Budget allocation: €5.3 billion has been allocated to energy, of which 85% will go on energy efficiency and renewable energy, with energy efficiency receiving most of them Incentives to boost smart & green building: $160M, a drop in the utility incentive bucket valued at hundreds of billions of dollars => According to EC figures, the buildings sector needs investment of €60 billion a year for refurbishments and new buildings, if it is to meet its energy efficiency targets for 2020 and beyond. According to Carsten Müller, from DENEFF, an independent German business initiative for energy efficiency, significant additional financing efforts will be needed to meet Europe’s 2050 targets, and stronger public investment will not be enough to meet that.
Financial support
Funding schemes: (1) collaborative projects: EUR 19 million (2) CSA: EUR 1 million Funding directly from the commission for multi-country projects, the main instrument being the intelligent Energy Europe Programme Financing from the European Investment Bank EU Structural and Cohesion Funds Research & Innovation: Horizon 2020, running from 2014 to 2020 with a budget of just over €70 billion => Horizon 2020 is the financial instrument implementing the Innovation Union, aimed at securing Europe's global competitiveness.
Technology improvement Standardisation monitoring validation (implementation phase)
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& &
Support for the establishment of European-scale actions spanning from research to deployment Implement numerous intelligent programs to support BEMS => In addition to system integration, validation and interoperability are required. Also, it should focus on the operation of the building(s) and surrounding space in real user conditions
Associated Risks As seen in Europe’s case, it is important to consider not only building sectors but also utilising ICT actively in energy consumption reduction in buildings. The number of BEMS implementation, so called smart buildings or intelligent buildings, is increasing in EU with growing amount of electricity consumption reduction. However, some major barriers to energy efficiency in building sectors due to further development are expected: ►
Fragmented markets: professions in various sectors are required to influence building energy use through designing, constructing, and operating buildings, however not many professionals working on a given project have any expertise in energy efficiency.
►
Financing difficulties, upfront costs, and high hurdle rates: many buildings are already installed and retrofit is expected to existing buildings, however, in many cases building owners will not have sufficient capital to finance their efficiency improvements. This is because the electricity cost savings are apparent in the longer term whereas retrofit requires an immediate investment with a relatively shorter timeframe. In addition, interest rates offered by financiers may be too high due to a belief that returns from the investment are risky, and hence the real estate prices may not reflect the full value.
5.3 Global Waste Management Policy Trends Landfill Gas Country Selection Most of the significant parties in the LFG technology market are trading centres. Countries like Germany, USA and China are not only major exporters of LFG technology but also importers of it. However, the USA has the largest market for LFG to energy in the world with nearly 70% of its waste collected in landfills. The USA and Canada together comprise more than 28% of the world LFG to energy potential (Pirker, 2010). The USA also ranks fourth on the EDB and first in CAI. For these reasons, the USA has been chosen for ILP analysis in LFG. The following pointers give a succinct overview of the LFG to energy market in the USA: ► ► ► ►
► ► ►
300% increase in number of LFG energy projects (1995-2012) Electricity projects continue to dominate – 75% in 2012 Direct use of LFG has slowed, mainly due to low natural gas prices ($5.00/MMBtu in 2013 vs. peak of $13.06/MMBtu in 2008) Alternative vehicle fuel taking off o CNG $2.10/GGE vs. diesel $3.99/gal in Spring 2013 o RINs under Renewable Fuel Standard 2 Corporate sector interest challenged with low gas prices and financial constraints Low carbon and REC prices in most of country Maturing industry – consolidations within the waste companies and project developers
Policy Mix Landfill gas projects in the USA are heavily influenced by several Federal policies that include the Clean Air Act regulations, clean renewable energy bonds (CREBs), along with Section 45 of the Internal Revenue Code of 1986 (has been amended several times). However, a large degree of variation exists from state to state when it comes to LFGE projects. This is mainly due to disparities in the availability of resources. The other major factor is state-level policies. Five states, namely Texas, Illinois, Michigan, New York and California contain 60% of all solid waste in landfills that use gas collection, however, when it comes to the total area devoted to landfill gas recovery, 50% comprises of the states of New York, California, Illinois, Michigan and Pennsylvania. Pennsylvania replaces Texas mainly because of its strong policy framework. The Landfill Methane Outreach Program
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(LMOP) initiated by the Environmental Protection Agency, lists four programs in Pennsylvania in its inventory of state incentive programs for LFG: The Alternative Fuels Incentive Grant Program; Energy Harvest Grants; Pennsylvania Energy Development Authority Grants, Loans, and Loan Guarantees; and Sustainable Energy Funds (LMOP, 2008c). Texas has no recorded incentives of this kind. California also has considerable resources for LFG utilisation, and it has the most landfill gas sites in the USA partly because of the state and local requirements for the collection and control of gas. A national level Renewable Portfolio Standard (RPS) has not yet been created; yet, many states have used a similar policy with specific benefits for LFGE. As of October 2008, there are twenty-nine states along with the District of Columbia that have enacted an RPS or Renewable Portfolio Goal (RPG, which is a non-mandated goal). Every single one of these policies includes Landfill Gas as an eligible renewable energy source. The major highlights of various federal, state and local level policies are presented below (EPA, 2013) . ►
►
►
►
►
Applicable Federal Clean Air Act regulations include New Source Performance Standards (NSPS) / Emission Guidelines (EG) Maximum Achievable Control Technology (MACT) New Source Review (NSR) Prevention of Significant Deterioration (PSD) GHG Reporting Program (subpart HH) MSW landfills required to report emissions & other data if annual CH 4 generation ≥ 25,000MtCO2e 2012 data submitted by April 1, 2013 included inputs to emission equations that were originally deferred Can drill down to MSW landfills in your area using EPA’s FLIGHT 1,200 MSW landfills reported GHG emissions in 2011 LMOP will update its database and identify any new candidate landfills using 2012 GHGRP data LFG and State Renewable Portfolio Standards LFG is eligible as a renewable resource in 37 states, the District of Columbia, Guam, Northern Mariana Islands, Puerto Rico, and the USA Virgin Islands Renewable Portfolio Standard (RPS)- requires utilities to supply a percentage of power from renewable resources 29 states plus DC, Guam, N. Mariana Islands, Puerto Rico, and U.S. Virgin Islands have an RPS Renewable Portfolio Goal (RPG) – same as RPS except an objective not a requirement 8 states have an RPG Public and Private Entities Moving to Reduce GHG Emissions Voluntary Markets In 2012, U.S. purchased more offsets (all types) – $143 million – than buyers in any other single country LFG project offsets purchased in 2012 (2.8 MtCO2e) represented 13% of U.S. project type market share LFG projects supplied 5% of global VERs in 2012 Avg. credit price for LFG projects: $1.50-3.00/tCO2e - Compliance Markets RGGI (2009), California AB-32 (2012) Methane projects likely an eligible offset category Financial Incentives Section 45 Production Tax Credit (PTC) Electricity generation- 1.1 cents/kWh Began construction by 31st of December 2013; 10 year window for credits Excise Tax Credit to the Seller of CNG or LNG (PL 111-312, § 701) $0.50 per gallon of gasoline equivalent for fuel sold or used by 12/31/13 Investment tax credit for fuelling stations - 30% of cost up to $30,000 Renewable Energy Production Incentive (REPI)
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►
Online by 10/1/16; payment for 1st 10 years of operation Subject to allocation, no allocations since 2010 Many State grants, tax exemptions, and other funding mechanisms Renewable Fuel Standard 2 (RFS 2) Companies in the U.S. petroleum market must produce a given quantity of renewable fuel or purchase credits RFS2 requires 36 billion gallons of renewable fuel to be blended into transportation fuel by 2022 Volumes tracked as Renewable Identification Numbers (RINs) – 13 RINs per MMBtu Biogas (including LFG) sold as transportation fuel is eligible for Green Tag Attributes or RINs -
Proposed rule in June 2013 to modify RFS2 – Will allow RINs from renewable diesel, naphtha & electricity (for electric vehicles) made from LFG
Figure 57 shows the increase in LFG projects over the last two decades.
Figure 57: LFG to energy projects – Growth over time (EPA, 2013)
Policy Effectiveness Green Effects Releasing an estimated 27.5MtCO2e in 2009, MSW landfills are the third largest human generated source of methane emissions in the USA. LFG projects are designed to reduce this impact and can reduce methane emissions by 60 to 70 percent depending on the project design and its effectiveness. The average annual methane and carbon dioxide emissions reductions from a typical 3MW electricity generation project LFG is about 34,700tCO2e. This level reduction is equal to the environmental impact of burning 296,000 barrels of oil. The annual CH 4 and CO2 emission reductions of a typical direct-use LFG energy project using 1,000scf per minute of LFG is nearly 32,300tCO2e per year, the environmental equivalent of the CO2 emissions from more than 50 million litres of petrol consumed (IEA, 2013). Therefore, you can greatly improve the air quality of an area through an LFG project, as the LFG project will reduce the emissions of critical pollutants and hazardous air pollutants (HAPs). LFG projects also provide other benefits like speeding up solid waste decomposition, increasing the capacity of landfills and do away with the need to build new
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landfills or expand existing ones. Since 1990, American landfill methane emissions have decreased by 30% while GDP has increased by 66% (IEA, 2013) (Figure 58).
Figure 58: USA landfill methane emissions and GDP between 1990 and 2011 (EPA, 2013)
Growth Effects Employment and Revenue Generation A typical 3MW LFG electricity project is estimated to add more than $1.5 million in new project investments for the purchase of generators, and gas compression, treatment skid, and auxiliary equipment (EPA, 2012). Directly it creates at least five jobs for the construction and installation of the equipment (EPA, 2012). There are also other effects created like an increase in the state-wide economic output by $4.1 million and employment for 20 to 26 people throughout the state and local economies (EPA, 2012). A typical 1,040 scfm LFG direct-use project is estimated to have the following (see Table 23) economic and job creation benefits during the construction year (EPA, 2012).
Table 23: Growth effects of LFG to energy projects (EPA, 2012)
5 mile pipeline
10 mile pipeline
New project expenditures
$1.1 million +
$2.2 million +
Direct installation jobs
At least 7
At least 13
Ripple effect- economic output and employed people
$2.8 million and 17-22 people
$5.2 million and 32 to 41 people
Success Factors and Associated Risks The typical risks (see Table 24) involved in LFG policies suggest that LFGE remains a technology and capital-intensive initiative. The development of the local technology supply market is necessary for long-term sustainability of LFGE projects within a country.
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Table 24: Risks related to LFG policies (EPA, 2012)
Aspect
Risk
Fiscal ► Subsidies can create undue burden on developing economies ► Feed in tariffs must be revised systematically to promote quicker up gradation of technology ► LFG is very capital intensive and local financial capacity must be assessed carefully before committing
Regulatory/Compliance ► May lead to landfill mismanagement where landfills might accept more organic waste in order to meet gas generation targets
Local Industry Promotion ► LFG is technology driven therefore, it is possible that local innovations may be overlooked in favour of imports ► Many of the applications of LFG are not available locally to developing nations
Slag For the country selection process (Figure 59), slag is first defined and classified under each sub-category, and its common uses outlined. Subsequently, the top steel producers by country were identified: as more slag is expected to be produced, the countries’ awareness of industrial waste management is expected to be higher. Once countries with high steel production are recognised, the next step is to identify how each country categorizes slag (i.e. under hazardous waste for disposal (Waste Management) / as resource to be reused (Law for Promotion of Effective Utilisation of resources). In this step, rationale for re-categorisation is identified, and the current approach to industrial waste management is assessed by looking at the rising concept of circular economy. In the final step of ILP for waste management, environmental impacts of reutilisation are outlined. The process of ILP selection procedure is shown in Figure 59.
Figure 59: ILP analysis for slag
Definition of Slag It is crucial to define slag and its various sub-categories (which depend on the chemical foundation and composition), as they have different level of risk inherent with respect to the environment.
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Figure 60: Types / Uses of Slag (Euroslag&Eurofer, 2012)
Figure 60 looks at the types and uses of slag. Iron and steelmaking slag (ferrous slags) are co-products of the iron and steel making industry. They are non-metallic rock-like materials that are produced together with the metallic products of these processes. Depending on the iron and steel production process, different slag types can be manufactured: Blast furnace slag is made during the melting and reduction of iron ore in a blast furnace. Steel making slag (steel slag) is produced during the conversion of hot metal to crude steel in a basic oxygen furnace or during the melting of scrap in an electric arc furnace. If the crude steel undergoes further secondary steelmaking processes, different kinds of secondary metallurgical slag are formed.
Country Selection According to Figure 61, the top five countries, account for 74% of the world production of steel. It can be assumed that top steel producers have more by-product (slag) in quantity from steel production and are likely to have developed relevant policies regarding reutilisation and classification whether as waste or non-waste. For this section of the report, two international leading practices have been selected: ď‚&#x; ď‚&#x;
China : Top steel producer / shares in the component export market is the highest / Major importer of components / proactive adopters of the concept of Circular Economy EU : 2nd highest steel producer / continuing debate on categorisation of steel slag which enables us to highlight the inefficiencies arising from unclear categorisation
ď‚&#x;
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Figure 61: World Top Steel Producers (World Steel Association, 2012)
Policy Mix (Categorisation / Identifying Change) International leading countries have classified slag as either waste or non- waste. China
EU
Types of Slag Reuse Blast Furnace Slag
Steel making slag
Reuse
Granulated Blast Furnace Slag(GBS)
by-product
Air-cooled Blast furnace Slag(ABS)
by-product
Basic Oxygen Slag(BOS)
furnace
Electric Arc slag(EAFC, EAFS)
Furnace
Secondary slag(SECS)
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Dispose
Metallurgical
Dispose
Steel slag can be classified as waste if any hazardous substance is found or eluted before processed state.
China China categorises slag as non-waste. However, concerning the environmental impacts, certain types of slag with specific chemical composition are restricted for use, even if domestic use is legal (MEP, 2009): ► ► ►
Granulated slag (slag sand) from the manufacture of iron or steel with more than 26% of Manganese is restricted to import but can be used as a raw material in China(HS code: 2618001000) Granulated Slag with Vanadium content is restricted to import but can be used as a raw material in China(HS Code: 2619000020) Steel Slag generated from the manufacture of iron or steel containing > 80% iron(HS Code: 2619000030)
EU Also in the EU, where blast furnace slag in the EU is categorised as non-waste by-product, classification of steel making slag needs to be clarified: “Blast furnace slag can be used directly at the end of the production process, without further processing that is not an integral part of this production process (such as crushing to get the appropriate particle size). This material can therefore be considered a by-product and fall outside the definition of waste.” (EC Directive, 2007) However, in contrast, steel slag, “de-sulphurisation slag is produced due to the need to remove sulphur prior to the processing of iron into steel. The resulting slag is rich in sulphur, cannot be used or recycled in the metallurgical circuit and is therefore usually disposed of in a landfill. Another type of example is dust extracted from the steel production process when cleaning the air inside the plant. This is captured in filters via an extraction process. These filters can be cleaned and the metallic content returned to the economic cycle via a recycling operation. Both of these production residues are therefore wastes at the point of production with the iron content extracted from the filters ceasing to be waste once it has been recycled.” (EC Directive, 2007) Different member states of the EU classify slag differently (Table 25). However, steel slag is often considered as waste, especially in the liquid state and before treatment due to its environmental impacts before processed state.
Table 25: Slag classification in EU member states (Euroslag&Eurofer, 2012)
Country
Year
Slag Type
Classification
1991
GBS
Non-waste
1999
GBS
Product
1997
EAF
Non-waste
1999
BOS
Product
2006 / 2007
ABS/GBS/BOS
Non-waste
Belgium
2007
GBS
By-product
EU
2007
ABS/GBS
By-product
UK
2007
ABS/GBS
By-product
2002
Slag
Waste
2008
ABS/GBS/ Steel Slag
Product
Austria
Germany
Finland
Rationale for change
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EU has identified significant inconveniencies regarding the uncertain classification of slag as waste, non-waste, product or by-product (of steel slag). The following negative consequences have been identified in general:
Unfair competition due to different interpretations of the waste definition among countries and member states Obligation for the production facilities to obtain a permit as waste treatment facilities incurs additional costs, delay, loss of production and investment. More bureaucracy and document obligations regarding permission procedures and waste recovery / disposal records Increase in handling expenses (transport regulations, taxation) Trade restrictions (European Waste Shipment Regulation) In the EU, to mitigate the harmful environmental consequences of blast furnace slag that is categorised as non-waste, uses need to be certified or approved. Certification includes inspection of the factory and factory production control, audit sampling/type testing, issue of EC certificate of conformity, continuous surveillance assessment, and approval of factory production control, quality recording and proficiency testing. In addition, chemical composition of slag needs to meet the standards of REACH, which stands for regulation on Registration, Evaluation, Authorisation and Restriction of Chemicals. It entered into force on 1 June 2007, and aims to ensure a high level of protection of human health and the environment from the risks that can be posed by chemicals. REACH makes industry responsible for assessing and managing the risks posed by chemicals and providing appropriate safety information to their users. This mandatory registration led all slag types as being categorised by UVCB substances (Substances of Unknown and Variable composition, Complex reaction products or Biological materials) and filed by end of 2010. Even though both countries reutilise both types of slag, in order to so, countries must follow specifications set by their country in terms of chemical composition to evaluate its impacts on the environment. The concept of Circular Economy is highlighting the importance of waste recycling in both countries and policies have now shaped up to promote the idea. Current Approach The Circular Economy (CE) refers to an industrial economy that is restorative by intention. It promotes change from the linear ‘take-make-dispose’ economic model to a circular flow model, from output-oriented to input-oriented, while achieving economic growth. The concept is strongly aligned from waste management (linear) to effective utilisation of resources (circular). In addition, the idea strives to achieve green growth through ultimately reducing use, improving efficiency and reutilizing resources. As the concept of CE came to prominence, the perception of waste and policies have been changing accordingly towards circular measures, from waste being something to be disposed to something to be put back into the economy as an input. Current EU and Chinese policy on slag is shaped by CE thinking. The EU has been managing waste through legislative regulation, and has been prescribing policies and legislative requirements for its member states in EU directives where member states of the EU playing a much central role in developing CE concept measures. China is acting on the idea of CE: the 12th 5-year plan draws on the utilisation of recycling resources, recycling of industrial solid waste and energy re- generalisation of waste and sludge. Figure 62 demonstrates typical policies for promoting a Circular Economy and the following policies are currently implemented under the concept of Circular Economy.
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Figure 62: Policies under CE
Promotion of Circular Economy China’s Approach to Circular Economy (with specific reference to Waste Management) ►
►
► ► ►
Came to prominence in April 2008, and the law has been in force from January 2009 to promoting waste use directly into production as a raw material, or further processed raw material, and encouraging the utilisation of non-hazardous waste in construction. The National Development and Reform Commission (NDRC) states that the government has announced it will seek to increase resource productivity (measured as economic output per unit of resource use) by 15% (of 2010 levels) by the end of 2015. National recycling targets have been set to reuse smelting slag by 86%, and industrial solid waste by 60%, in 2010. China’s 12th 5-year plan includes comprehensive utilisation of recycling resources, recycling of industrial solid waste and energy re-generalisation of waste and sludge. Financial incentives, such as tax exemptions and special funds, are offered to companies reutilising slag(formulated by the financial and tax departments under the State Council) “The State shall give tax preferences for industrial activities conductive to promoting circular economy …Specific measures shall be formulated by the financial and tax departments under the State Council.” “Company who use the steel slag for production of steel and construction, their tax will be decreased or exempted.“ “Steel slag powdering technology is in the name of tax reduction process and will be supported by the dedicated fund for development.” (Article 44 CE Promotion Law of China, 2008)
EU Approach to the Circular Economy (with specific reference to Waste Management) ►
► ► ►
► ►
Europe 2020 is a 10-year strategy proposed by the European Commission on 3 March 2010. One of its initiatives is to help decouple economic growth from the use of resources, by decarbonising the economy, increasing the use of renewable sources, modernising the transport sector and promoting energy efficiency. Abolishing environmentally harmful subsidies and tax-breaks that waste public money on obsolete practices. Shifting the tax burden away from jobs to encourage resource-efficiency, and using taxes and charges to stimulate innovation and development. End-of-life Regulation (LCA): Creating better market conditions for products and services that have lower impacts across their life cycles, and that are durable, repairable and recyclable, progressively taking the worst performing products off the market; inspiring sustainable life-styles by informing and incentivising consumers. Optimizing material cycles and promoting industrial symbiosis. Proper setting and monitoring of waste policy through robust and coherent waste statistics throughout the EU.
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Both China and EU are adopting various approaches to promote efficient use of resource by regulatory, supportive and enforcement measures. This leaves with a question of policy impacts, with specific reference to Green and Growth effects.
Policy Effectiveness Environmental impacts of recycling slag in General Amongst other various uses, significant proportion of both types of slag is utilised for cement production (66% in the case of BFS, 40% for Steel slag) and road building (48% in the case of steel slag).
Figure 63: BFS Slag Usage (Euroslag&Eurofer, 2012)
Figure 64: Steel Slag Usage (Euroslag&Eurofer, 2012)
From Figure 63 and Figure 64, it is clear that the main use of slag is for cement production. The impact of slag cement production on the environment in general can be divided in to 4 categories (Slag Cement Association, 2013). -
-
-
CO2 Reduction: depending on the mixture (slag cement substitution for Portland), CO 2 reduction ranges from 29.2% to 46.1%. Substituting 50% of slag cement, between 165 and 374 pounds of CO 2 are saved per cubic yard of concrete by suing a 50% slag substitution, a 42-46% reduction in GHG emissions. Energy Savings: Slag cement requires nearly 90% less energy to produce than an equivalent amount of Portland cement. Slag cement reduces embodied energy-50% slag cement substitution reduces embodied energy by 370,000btu to 840,000btu, equivalent to 30 to 48% reduction in embodied energy per cubic yard of concrete. Reduced materials: substituting 50% slag cement can save between 6 to 15%. Minimize Heat-Island Effect: slag cement is lighter in colour, which reflects sunlight, reducing energy needed for cooling and lowers ozone levels.
Table 26 summarizes the effect of different substitution rates on the four impact areas:
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Table 26: Estimated impacts with different substitution rates (Slag Cement Association, 2013)
Types of Impacts CO2 Emission Savings Energy Savings Reduction in Extracted Materials
Slag Cement( 35% substitution) 30% 21% 5%
Slag Cement(50% substitution) 43% 30% 7%
Case of EU Since the reclassification on blast furnace slag in 2007, EU has achieved the following: Emissions from the cement industry (the industry as a whole) in Europe in 2008 fell by about 22MtCO2, due to the usage of 24 million tonnes of granulated blast furnace slag (calculations made by the German FEhS – Institute for Building Materials Research). The reduction is equivalent to the Kyoto objectives for countries like Belgium and The Netherlands combined. Thus, blast furnace slag contributes positively to the whole European industry, forcing a sustainable practice forms a pivotal part of the fight against climate change (Euroslag, 2011). Growth Effects It is difficult to estimate and quantify the growth impacts of recycling slag. However, general effects of waste reutilisation are estimated by the EU. A recent study for the European Commission (EC, 2012) suggests that every percentage point reduction in resource use could be worth around €23 billion to EU business and could lead to up to 100,000 to 200,000 new jobs in the EU. According to the study, total material requirements of the EU economy can be reduced by 17%, and this could boost GDP by up to 3.3% and create between 1.4 and 2.8 million jobs. Generally, harmonising classification between trading partners will solve the problems associated with inefficiencies as described in step 3. Reduction in raw material and disposal cost for cement manufacturers are expected for steel producers resulting in an overall cost saving envisioned. Concluding Remarks Indonesia currently categorises slag as hazardous waste. Classifying slag as a non-waste by-product can bring numerous environmental benefits as well as economic benefits as seen in China and the EU. Both countries’ initiatives on waste management are now being integrated upon the concept of Circular Economy and will thrive on accumulating benefits from reutilising slag. Various different approaches have achieved success for different technologies in different countries. This comparison of policies suggests that there are opportunities for Indonesia in: ► ► ► ► ► ►
Solar PV: FiT with Public Financing Geothermal: Biodiesel: LFG: Building Energy Management System: Slag: categorizing slag as non-waste and promote reutilisation through adopting policies built around the idea of Circular Economy
However, for a successful implementation, Indonesia should improve and address the issues associated with administration/governance, financing, market structure, infrastructure and public acceptance.
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In this section, leading countries with a largest volume of each technology’s components are identified in order to see the current leading countries of the technology selected. Considering that the countries who export goods related to the industry sectors are advanced at the industry and technology so that they are able to export related goods to other countries, these countries can be identified as key countries. ROW (Rest of World) includes all the countries excluding top five countries. For details of the technology value chains, refer to the separate value chain analysis. As a conclusion, Germany, China and the USA are identified as the largest exporters of goods relevant to six green technologies throughout the world. However, other than these three countries, others such as Japan also are found in different components that are included in the technologies. Details are explained as follows. For solar PV, China exports the most volume of the PV components, and contributes approximately 29% of the total export volume in the world throughout the value chain (Figure 65). China is found as a top export country at the module assembly and inverter while the USA and Japan are identified as leaders at polycrystalline and cell processing. Germany also excels at polycrystalline, module assembly and inverter.
Figure 65: Five top countries of Solar PV components exporters (International Trade Map, 2013)
For geothermal, the volume of export goods from Germany accounts for around 14% of the total value in the world. It exports most of the electricity generation & distribution system components such as flash tank and heat pump as well as cooling system, followed by the USA. The USA has the most geothermal installation in the world, and also produces and exports most of the geothermal components. Other than Germany and the USA, countries such Italy, South Africa and Japan contributes similar portion in the world export (Figure 66).
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Figure 66 Five top countries of geothermal components exporters (International Trade Map, 2013)
For biodiesel, Germany is identified as a leading country where it exports relevant components such as reactor and separator used in process stage of biodiesel production. The USA is the second largest export country which also manufactures and exports similar products as Germany does. Meanwhile, Italy and S. Korea are found as top export countries especially for storage tank and reactor in process stage (Figure 67).
Figure 67 Five top countries of biodiesel components exporters (International Trade Map, 2013)
For Building Energy Management System (BEMS) specialized in energy efficiency sector, the components of value chain differ from energy-generated technology. The most critical part of BEMS is software which enables the system to monitor the data and communicate with other components, which is intangible. In order to apply the same standard, the volume of hardware components is identified here. Both Germany and China are identified as leading export countries for Direct Digital Controller and Actuators or Sensors throughout the world.
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Figure 68 Five top countries of BEMS components exporters (International Trade Map, 2013)
For Landfill Gas, both Germany and the USA are identified as leading countries that export the greatest amount of components used in LFG in the world. Germany is dominant at most of the components in the entire value chain, at LFG collection & transportation system (compressor, blower, gas analyser etc.), flaring system (air louvers and ignition chamber), and electricity and distribution system (Figure 69).
Figure 69 Five top countries of LFG components exporters (International Trade Map, 2013)
For slag utilization, Germany and China are identified as leading export countries. Two countries are the leader s in different components throughout the value chain. For instance, Germany outperforms at exporting hopper and feeder whereas China surpasses at grinding & mill system.
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Figure 70 Five top countries of slag components exporters (International Trade Map, 2013)
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ESMAP, 2012. Geothermal Handbook: Planning and Financing Power Generation, s.l.: s.n. EU, 2007. EUROPA-Summaries of EU legislation. [Online]. EU, 2013. Green Digital Charter. [Online]. Euroslag&Eurofer, 2012. Position Paper on the Status of Ferrous Slag - Complying with the Waste Framework Directive and the REACH Regulation, s.l.: s.n. Euroslag, 2011. [Online] Available at: www.euroslag.com Federal Energy Regulatory Commission, 2011. [Online] Available at: http://www.ferc.gov/industries/electric/indus-act/section-1241.pdf Federal Network Agency, G., 2012. Photovoltaikanlagen: Datenmeldungen sowie EEG, s.l.: s.n. Flach, B., Bendz, K. & Lieberz, S., 2012. EU Biofuels Annual 2012, s.l.: Global Agriculture information Network. Frankl, P. et al., 2010. Technology Roadmap - Solar photovoltaic energy, s.l.: International Energy Agency. Fulton, M., 2012. The German feed-in Tariff: Recent Policy Changes , New York: Deutsche Bank Group. GEA, 2006. A Handbook on the Externalities, Employment, and Economics of Geothermal Energy, Washington D.C.: s.n. GEA, 2009. Geothermal 101: Basics of Geothermal Energy Production and Use, s.l.: s.n. GEA, 2012. Geothermal Basics: Q&A, s.l.: s.n. GeSI, 2012. The Role of ICT in Driving a Sustainable Future - December 2012, s.l.: s.n. GGGI, 2013. Green Growth Program. [Online] Available at: http://gggi.org/wp-content/uploads/2013/10/A4-low-Indonesia-oct.pdf [Accessed January 2014]. Hutapea, M., 2013. Energy Efficiency and Conservation Policy in Indonesia, Jakarta: Energy and Mineral Resources for People Prosperity. IE Insights, 2013. Indonesia’s Consumer Sector:Tapping the Consumer Dollar in Food and Retail, s.l.: s.n. IEA, 2009. Rewable Energy Essentials: Geothermal, s.l.: International Energy Agency. IEA, 2011. RENEWABLE ENERGY, POLICY CONSIDERATIONS, s.l.: s.n. IEA, 2013. Annual Report 2012: IEA Bioenergy, s.l.: International Energy Agency. IEA, 2013. CO2 Emissions from Fuel Combustion: Population 1971-2008 pp. (83-85), s.l.: IEA. IEA, 2013. International Energy Agency. [Online] Available at: http://www.iea.org/policiesandmeasures 105 | P a g e
IFC, n.d. IFC Green Buildings. [Online] Available at: http://www.ifc.org/wps/wcm/connect/Topics_Ext_Content/IFC_External_Corporate_Site/CB_Ho me/Sectors/Green+Buildings/ [Accessed 9 January 2014]. IISD, 2008. Biofuels- At what cost? government support for ethanol and biodiesel in China, s.l.: GSI. IISD, 2010. Lessons Learned from Indonesia's Attempts to Reform Fossil-Fuel Subsidies, s.l.: s.n. IISD, 2012. Investment Incentives for Renewable Energy: Case Study of Indonesia, s.l.: s.n. IISD, 2012. Investment Incentives forRenewable Energy:Case study of Indonesia, s.l.: s.n. INAGA, 2013. Roadmap and target implementation of geothermal power plants. s.l.:s.n. International Trade Administration, US Dep. of Commerce, 2010. Renewable Energy Market Assessment Report:Indonesia, s.l.: s.n. International Trade Map, 2013. International Trade Map. [Online] Available at: http://www.trademap.org/ [Accessed 2013]. Ipsos, 2010. Meeting the Energy Challenge in South East Asia - A Paper on Renewable Energy, s.l.: s.n. IRENA, 2013. Renewable Energy Innovation Policy:Success Criteria and Strategies, s.l.: s.n. IRENA, 2013. Renewable Energy Innovation Policy:Success Criteria and Strategies, s.l.: s.n. ITU, 2012. Measuring the Information Society, s.l.: s.n. J채ger-Waldau, A., 2012. PV Status Report 2012, Ispra: European Commission Joint Research Centre. Jennejohn, D., Hines, B., Gawell, K. & Blodgett, L., 2012. Geothermal: International Market Overview Report, Washington: Geothermal Energy Association. John W. Lund, R. G. B., 2012. Development of geothermal policy in the United States - what works and what doesnt work. GHC Bulletin. Johnson Controls, 2014. Make Your Buildings Work. [Online]. KPMG, 2013. Investing in Indonesia, s.l.: KPMG Siddharta Advisory. Masson, G. et al., 2012. Global Market Outlook for Photovoltaics 2013-2017, s.l.: European Photovoltaic Industry Association. MEP, N., 2009. Announcement on Amending Catalogues of Imported Wastes Management(Extract), s.l.: s.n. Mez, 2010. Renewable energy policy in Germany - Institutions and measures promoting sustainable energy system, s.l.: Environmental Policy Research Centre, Freie Universitat Berlin. 106 | P a g e
Ministry of Finance, n.d. Fuel Subsidy Policy in Indonesia, s.l.: s.n. Morrissey, A. & Kerr, T., 2009. Turning a Liability into an Asset: the Importance of Policy in Fostering Landfill Gas Use Worldwide, s.l.: IEA. Ng, E., 2013. Biofuel maker pushes product use in market. [Online] Available at: http://www.scmp.com/business/companies/article/1341490/biofuel-maker-pushesproduct-use-market [Accessed 3 January 2014]. Nicholas, J. H. a. T., 2013. Status and Trends in the U.S. Voluntary Green Power Market (2012 Data), s.l.: National renewable Energy Laboratory, USA. NREL, 2009. Policy Overview and Options for Maximizing the Role of Policy in Geothermal Electricity Development, s.l.: s.n. NREL, 2011. Guidebook to Geothermal Power Finance, s.l.: s.n. O’Kray, C. & Wu, K., 2010. Biofuels in China: Development Dynamics, Policy Imperatives, and Future Growth, s.l.: International Association for Energy Economics. OECD/FAO, 2011. OECD-FAO Agricultural Outlook 2011-2020, s.l.: OECD Publishing and FAO. Ogena, M. S. & Fronda, A., 2013. Prolonged Geothermal Generation and Opportunity in the Philippines, s.l.: Geothermal Resources Council. Paryudi, I., Fenz, S. & Tjoa, A. M., 2013. Study on Indonesian Overall Thermal Transfer Value (OTTV) Standard. International Journal of Thermal & Environmental Engineering, 6(2), pp. 49-54. Pirker, G., 2010. Commercializing Landfill Gas to Energy Opportunities in (South) Eastern Europe, s.l.: GE. PT. PLN, 2013. Present Experience and Future Plan for PLN's Solar Projects in Indonesia. s.l.:s.n. REA, 2011. Energy from Waste: A Guide for Decision-Makers, s.l.: Renewable Energy Association. REN 21, 2013. Renewables 2013 Global Status Report, s.l.: s.n. REN21, 2012. GSR Policy Table. [Online] Available at: www.ren21.net/renewablepolicy/gsrpolicytable.aspx Rumbayan, 2010. Estimation of Daily Global Solar Irradiation in Indonesia with Artificial Neural Network(AAN) Method, s.l.: s.n. Scott, R. & Junyang, J., 2012. China Biofuels Annual, s.l.: Global Agricultural Information Network. Simoes, A., 2011. The Observatory of Economic Complexity. [Online] Available at: http://atlas.media.mit.edu/country/idn/ [Accessed 10 January 2014]. Simsek, S. & Mertoglu, O., 2005. Geothermal Energy Utilisation, Development and Projections Country Update Report (2000-2004) of Turkey, Antalya: Proceedings World Geothermal Congress. Slag Cement Association, 2013. Slag Cement and the Environment, s.l.: s.n. 107 | P a g e
Slette, J. & Wiyono, I. E., 2013. Indonesia Biofuels Annual 2013, s.l.: Global Agriculture Information Network. Sofilic, T., Sofilic, U. & Brnardic, I., 2012. The Significance of Iron and Steel Slag as by-product for Utilization in Road Construction, s.l.: International Foundrymen Conference. Sukarna, D., 2012. Energy Efficiency and Renewable Energy in Indonesia, Fukuoka: Japan Indonesia 3rd Energy Policy Dialogue. Sukarna, D. I. D., 2012. Energy Efficiency and Renewable Energy in Indonesia. s.l.:s.n. The World Bank, 2014. The World Bank. [Online] Available at: http://data.worldbank.org/country/indonesia Tumiwa, F., 2008. Indonesia Energy (In)security. s.l.:s.n. UN, 2009. UN World Urbanization Prospects: The Revision 2009, s.l.: s.n. UN, 2013. UN Comtrade. [Online] Available at: http://comtrade.un.org/ [Accessed 20 December 2013]. UN, 2013. UN Comtrade. [Online] Available at: http://comtrade.un.org/ [Accessed 20 December 2013]. UNEP, 2010. Patents and clean energy: bridging the gap between evidence and policy, s.l.: United Nations Environment Programme (UNEP), European Patent Office (EPO), International Centre for Trade and Sustainable Development (ICTSD). UNESCAP, 2012. Low Carbon Green Growth Roadmap for Asia and the Pacific, Weaning a country from oil dependence, s.l.: s.n. Waide, P. & Amann, J. T., 2009. Energy Efficiency in the North American Existing Building Stock, s.l.: International Energy Agency. Wirasaputra, V., 2012. The Development of Photovoltaic System in Indonesia, s.l.: s.n. World Bank , 2014. World Bank Indonesia Outlook:2014 and Beyond, s.l.: s.n. World Bank, 2011. Urbanization Dynamics and Policy Frameworks in Developing East Asia, s.l.: s.n. World Bank, 2013. World Development Indicators, s.l.: s.n. World Steel Association, 2012. World Steel in Figures , s.l.: s.n. Zuhal, n.d. Energy Policy for Indonesia - Sustianable Development. s.l.:s.n.
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Annex 1: National Policy in Indonesia Considering the following three main policy design drivers, the government has set up a national energy policy to resolve issues stemming from the increase in energy demand. Policies adopted are mainly to achieve conservation of energy, to improve the efficiency of the use (demand-side) and to diversify energy mix, by increasing the share of renewable energy (supply-side). Through the new target and new policies, the government of Indonesia aims to reduce energy consumption and increase the new and renewable energy utilisation from the collaboration of different ministries and governmental institutions as shown in Figure 71.
Figure 71 Indonesia National Energy Policy – Vision, Mission, Policy strategy and relevant institutions (Zuhal) (ESDM); (IEA, 2013)
National Energy and Emission Target Figure 71 demonstrates the national policy goal and The Presidential decree (No.5/2006 on National Energy Policy) in 2006 set the national renewable energy and energy efficiency target as well as energy elasticity by 2025 that defined a new policy direction for the energy sector. New and renewable energy, which comprises geothermal, hydro, solar and wind power, biofuels as well as nuclear energy and liquefied coal, was expected to make up 17 percent of the energy mix. In 2010, Ministry of Energy and Mineral Resources (ESDM) expanded the scope of the target which no requires new and renewable energy to make up 25 percent of the total energy mix in 2025, encompassing the vision 25/25. Along with the energy mix target, the Indonesian government also committed greenhouse gas emissions mitigation target of 26 percent reduction from business as usual (BAU) by 2020. From energy sector, it aims to reduce 30MtCO2 through new and renewable energy development and the implementation of energy conservation procedures in all sectors (ESDM, 2012). National Energy Strategy Framework One of the most important movements anticipated by the government is a transformation paradigm in the national energy management, with a shift from energy supply-side management to energy demand-side management. In order to implement the proposed paradigm transformation, the policies are mainly categorised into two components- energy diversification and energy conservation as shown in Table 27.
Table 27: Strategy Framework (ESDM, 2011) (Sukarna, 2012)
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Main policies Energy diversification (supply side)
Strategy Applying the mandatory provision of NRE Increasing the use of NRE Using cleaner fuels (fuel switch) in providing energy Energy conservation Applying the energy utilisation efficiency (demand side) commitment Using cleaner fuels (fuel switch) in energy utilisation Applying the principles of energy saving Using clean and efficient energy technologies Developing the attitude of life-saving energy
Geothermal power plants Biodiesel Municipal solid waste power plants Mandatory energy management for energy user > 6,000 TOE/years Labelling energy efficiency products Socialisation of energy efficiency
Table 28: Regulatory framework of energy in Indonesia Table 28 briefly explains the energy framework in Indonesia which targets to increase the portion of renewable energy in national energy mix and the issues on subsidy on fossil fuel which are considered as a major obstacle to renewable energy development.
Table 28: Regulatory framework of energy in Indonesia (IISD, 2012) (IISD, 2010) (Ministry of Finance)
Encompassing energy framework in Indonesia The umbrella regulatory framework for the energy sector is National Energy Law and Policy which aims to develop an energy sector that provides sufficient and affordable energy whilst promoting energy consumption methodologies that are more efficient. The law includes reform of the laws such as removing Pertamina (the state-owned company for oil gas production) from the authority to assign working contracts. Also, the attempt to move the electricity market from a monopolistic structure to a limited competitive market was made; however, it was annulled by Indonesia’s constitutional court. Although lots of attempts have been made in order to improve the current electricity market and regulatory framework that has to be revised, clear advances in this area is yet to be evidenced. Subsidy on fossil fuel Power and fuel sectors are currently given significant subsidies. PLN’s electricity tariffs are usually too low to cover its core business activities of generation, transmission and distribution and sales. The gap between revenue and expenditure is compensated by government subsidies. Similarly, transport fuels are heavily subsidised. Although government have been attempting to reduce the fossil-fuel subsidies through the implementation of the Bantuan Langsung Tunai (BLT) in 2005, and Kerosene to Liquefied Petroleum Gas (LPG) Conversion Program in 2007, subsidies on fossil fuel are still able to make significant impacts on changes in national energy mix. As of 2010, fuel subsidy contributes the greatest portion among all subsidies from government including fertilizer & seeds, food, and electricity. Compared to the other countries in close proximity, such as Singapore, The Philippines, Thailand, and Vietnam, the prices of diesel and gasoline per litre were noticeably decreased, with prices reaching as low as IDR 4,500 per litre. Renewable Energy Policy National Energy Law (No. 30/2007) is a very basic law for defining energy sources and how they should be supplied, consumed and controlled in order to support national sustainable development and improve national energy resilience. The basic concept of the energy acts is to build a foundation for overall energy, to secure energy supply and to shift
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energy paradigm from SSM to DSM which is divided into energy diversification and energy conservation. (Bratasida) Table 29 outlines the detailed policy schemes.
Table 29: Renewable Energy Policy (IISD, 2012) (BMZ, 2012) (REN 21, 2013)
Policy scheme Financial incentives
Regulatory Policies
Tax incentives
Capital subsidy Renewable energy targets Electric utility quota obligation/ RPS Market price support Feed-in-Tariff
Public financing
Biofuels obligation/ mandate Public funds, investment, loans or public competitive bidding
Income tax facilities: income tax reductions, accelerated depreciation and amortisation, an income tax reduction for foreign investors, compensation for losses for foreign investors Import duty and VAT facilities: exemptions from import duty for capital goods and machinery Price subsidies for biodiesel and bioethanol Vision 25/25: 25% from NRE in national energy mix in 2025 Renewable Portfolio Standard (RPS) PLN’s Fast Track II program to guarantee PLN’s business viability for power projects operated by IPPs To guarantee purchasing price for renewable electricity generated by IPPs Geothermal: USD 10-18.5 cents/kWh Mini and Micro Hydro: Rp. 656-1,506/kWh Biomass: Rp. 975-1,722.5/kWh City Waste: Rp. 850-1,398/kWh Solar PV: same as geothermal (as of Feb 2013, to be revised) Consumption mandates for biodiesel and bioethanol The Indonesia infrastructure guarantee fund The geothermal fund facility Loans at an interest rate lower than that provided by national banks National budget (APBN, APBD, Private budget)
No specific law sets out policy on renewable energy, excluding Law No. 27/2003 on geothermal and Presidential Decree 26/2006 which sets a target for percentage of renewable energy in national energy mix. It is considered that the geothermal resource has a greater potential in Indonesia, representing about 40 percent of the world’s known potential. The lack of specific regulatory framework for other renewable energy technologies apart from supports for geothermal may have been impacting negatively on various renewable energy development in national energy mix. (IISD, 2012) (BMZ, 2012)
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Annex 2: Approach to International Leading Practice The overall objective of International Leading Practice selection is to identify a model benchmark of each of selected six technologies and to carry out a comparative analysis between best practices and current policy and technology in Indonesia. At the end, a set of interventions that would support the identified gap is proposed. In order to determine the Internationally Leading Practice for Indonesia, specific examples of policies and initiatives other countries have implemented in order to support the growth of their green industries will need to be identified. This comparative analysis will involve identification of selected countries and their energy-growth policies which have the most relevance to the Indonesian Government in its effort to design a national green industry roadmap and related policies. It is therefore essential that this analysis focuses on “leading” countries. Table 30 sorts the relevant green technologies that the government of Indonesia could focus on, into three different sectors: Energy Supply, Energy Demand, and Waste Management. Among the 21 technologies that were initially identified, six technologies are prioritised as being the most relevant and as having the highest potential for impact in Indonesia.
Table 30: Technology classification
Green Industry Sector
Green Technology
Energy Supply (Renewable Energy)
Solar PV Geothermal Biodiesel for power generation and transportation Power generation from LFG
Energy Demand (Energy Efficiency)
Building Energy Management Systems
Waste Management
Industrial waste reuse (Slag)
Three different approaches are employed to identify international leading practices for each green industry sector since each sector require a different set of policies, capital requirement and are different in overall market nature. Before identifying the international leading practice, it is essential to have a thorough understanding of Indonesia in order to identify best practices that are applicable: in the next section, the general business environment (EDB) and renewable energy investment and deployment opportunities (RECAI) in Indonesia are outlined.
Country Selection Criteria The first step consists of selecting a key country for a possible analysis on the international leading practice. As a particular criterion will not be sufficient to analyse all the available technologies, the leading country for each respective technology has been selected with respect to the relevant criterion (Table 31). The rationale for the use of each criterion is explained in detail during the analysis. In addition to selected criteria, rankings from EDB and CAI, the findings from the Global Market Review section are taken into account. EDB and CAI analysis will enable us to identify the policy gap between Indonesia and benchmarked countries, resulting in realistic goal setting by looking at general business and renewable energy environment. Furthermore, analysis from the global market review section will allow us to consider the market size, growth, share of manufacture components in the world market and the trade dynamics during the country selection process.
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Table 31: Country selection criteria
Green Industry Sector
Technology
Criteria
Solar PV
Global Installed Capacity
Geothermal
Global Installed Capacity
Biodiesel
Trade Relations / Local context
Landfill Gas
Global Installed Capacity
Energy Demand
BEMS
ICT Country Index Rankings VS Building Regulation Scoring
Waste Management
Slag
Top Steel Producers
Energy Supply
Additional Criteria
EDB CAI Global Market Review
Framework for Identifying Policies for Green Growth It is important to identify the types of policies implemented in leading countries in order to promote the usage of renewable energy and investment. In this section, general policies that countries adopted to initiate renewable energy projects in their countries are outlined. The second step of ILP involves identifying implemented policies once internationally leading practice is selected from the first step.
Energy Policy Framework Once the leading country is selected, each country will undergo a further detailed analysis with respect to its policies. Policies are analysed with respect to: 1. 2. 3.
Policy mix Effectiveness with respect to green / growth effects Associated risks and success factors
Policy assessment for Renewable Energy Supply will follow the steps outlined in Figure 72 .
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Figure 72: Framework for policy assessment
First, policies implemented by leading countries are identified. To identify the policy mix and assess its’ respective strategy, it is important to firstly understand the various types of renewable energy that support these policies. The renewable energy policy for Energy Supply is mainly divided into: ► ► ►
Compliance Measures - Regulatory Policies / Targets Incentive Measures – Fiscal Incentives, Public Financing Local Industry Promotion versus Import (applies only in Green Growth context)
Different schemes are designed to provide different types of support; either intended to encourage production or investment as seen in Table 32. Also, policy intervention can channel through price or capacity. Each policy thrives to achieve different outcomes, such as increased installed power, economic efficiency, and enhanced competition. Requirement on administrative support is also dependent on the measure.
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Table 32: Types of RE policies and its strengths / weaknesses (BMZ, 2012)
Renewable Energy Policy Category
Types Supporting Measures Feed-in-Tariff (FiT) / Premium Payment (Price regulation)
Strengths
► ► ► ► ►
Regulatory Policies and Targets
Compliance Measures / (Supporting Energy Production)
Electricity Utility Quota Obligation / RPS
Net Metering
Fiscal Incentives Public Financing
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► ►
►
►
► ►
High effectiveness High investment security Strong market dynamic Strong marketorientation Less government intervention Easier policy-design than FiT Less complex than FiT Lower cost than FiT Allows power producers achieve higher share of RE in their electricity mix through trading Helps green power producers receive additional benefits Facilitates investment in renewable energy projects
►
►
► ► ►
Energy Production Payment Public Investment, Loans or Grants Public Competitive Bidding/Tenderi ng (capacity driver)
► ►
►
► ► ► ►
Local Contents Regulation ►
Lower effectiveness than FiT particularly in case of a weak penalty system Not necessarily cheaper than FiT Lower financial benefit than FiT Not suitable for utility-scale installation
May keep power producers from investing in RE themselves
►
Fiscal burden
►
May keep power producers from operating plant if tax credits are only available for investment (not for operation) Less attractive to small-scale investors
Reduces investment cost Suitable for utility-scale investments
Fair to high effectiveness Can complement investment tax credits Facilitates investment in renewable energy projects Strong marketorientation Competitive prices Check on capacity addition Enhance domestic competency in manufacturing components Can act as a growth driver
Higher electricity prices Difficult policy-design (e.g. difficult control of penetration speed; false design may lead to over- or underestimated expansion rates
►
►
Local Industry Promotion versus Import
Competency Measure
►
Tradable REC
Investment or Production Tax Credits Incentive Measures / (Supporting Investment)
►
►
Capital Subsidy, Grants, Rebates
Weaknesses
►
Lower investment security than FiT as weaker legal basis
►
Fiscal burden
►
Applicants may bid too low to win the tender; may lead to noncompletion of project or bankruptcy
►
Opportunity cost - need to allow time for technology to build up and develop
►
Table 33: Outcomes and requirements of each measure
Measures
Increase power
Investment subsidies
installed
Economic efficiency
Enhanced competition
Administrative effort
High
Medium
No
Medium
Feed-in Tariff
High
Medium
No
Low
Green Certificates
Low/Med
High
Yes
Medium/High
Tenders for contracts
Low
High*
Yes*
High
Fiscal Instruments (e.g. tax)
Low
High
Yes
Low
Note: *Dependent on the process
After identifying the policy mix and following the policy assessment framework, the third step is to assess policy effectiveness in terms of green and growth effects. Greening effects are identified mainly in terms of avoided GHG emissions and Growth effects will channel through the components of GDP, namely investment and improving trade balance. The final step is to figure out the associated risks and factors behind success identified from the policies implemented in international leading countries.
Industrial By-Products and Waste Management Policy Framework The reuse and recycling of slag from iron & steel industry falls squarely under the industrial waste management policy framework. Figure 73 provides the overall framework for promotion of industrial by-products and waste management policy. Industrial Waste Management Policy Framework Definition of Waste and its Characteristics
Categorization of Waste
Typical considerations
Waste Management Guidelines Typical considerations
► How is industrial waste defined? ► How is industrial waste differentiated from by-product? ► What are the stated specifications of waste:
Hazardous
Nonhazardous
► Import / export restriction based on waste category
► Mandatory or voluntary timebound targets on waste reduction, reuse and recycling per unit of production
► In-house processing of waste prior to discharge or disposal
► Promotion of material resource efficiency in industrial operations
Typical considerations
► Physical properties ► Chemical properties ► Mechanical properties
► Stated treatment, collection and disposal mechanisms as per waste category
Establish the scope and boundary of industrial waste management framework
Develop institutional capacity to strengthen enforcement
Supported by….. ► Fiscal or financial incentives for resource efficiency ► Promote innovation of industrial operations to meet waste management guidelines ► Adoption of “polluter pays” principle ► Development of industrial waste exchange market
Figure 73: Industrial waste management policy framework
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Annex 3: German PV Policy Details Phase 1 (1991-1999) - Feed-in-Law and the start of 1,000 (capital grant) and 100,000 (loan) Roofs Subsidy Program (Deutschbank, 2011) Feed-in-Law (Launched in 1991)
Put an obligation on grid system operators to purchase electricity generated from renewable energy PV generators were eligible for FiT payment set at 65 - 90% of retail electricity rate, refund payment of approximately 0.085 Euros per kWh. 1,000 Roofs Program (Launched in 1991 and terminated in 1995)
Capital grant promotional program Grant of 70% of the Investment + mounting costs, 50% funding of investment costs from the federal government and 20% from the land government Start of 100,000 Roofs Program (1999 to 2003)
Managed by KfW, EUR1.7b over 5 years funded by Ministry of Economy and Environment, Targeted for private, corporations, associations Soft-loan scheme for grid-connected PV installation, interest rates up to 4.5% below market rates (1.91% APR)
Phase 2 (2000-2008) – Development of FiT / Introduction of Renewable Energy Law (EEG) (Deutschbank, 2011) 2000-2003- Renewable Energy Law ► ► ► ► ► ►
Further development of the previous feed-in-tariff system, enforced to scale up domestic solar electricity generation and enhance TLC PV receives a fixed 0.51 Euros / kWh, 0.425 higher than 1991 Feed-in-Law(0.085 Euros / kWh) 5% annual reduction, 350MV program cap Financing method-centralised compensation scheme, surplus cost for feed-in-tariffs are charged to electricity suppliers and to final consumers. Establishment of energy target = doubling the share of RES in consumption until 2010 Guaranteed grid access, compulsory for grid operators to connect power plants to their grid, purchase all electricity produced, give priority
2004-2008-Amendments to EEG ► ► ►
New rates ranging from 0.46-0.62 Euros/kWh in effect from 1st of August with 5-6.5% reduction(6.5% for freestanding systems), modest reduction adjustments at regular intervals Emphasised enhanced transparency, imposing a duty to publish data on energy volumes and payments broken down into different technologies for generating power from renewables (Section 15 of the EEG) Program caps and system size caps were removed from 2004
Phase 3(2009-2011) – Controlling volumes (Deutschbank, 2011) 2009-Introduction of the Corridor system ► ►
EEG was revised in July 2008, regarding the 4-year review cycle, the second amendment was made and new rates went into effect in 2009 following 2008 amendment. Introduction of corridor reduction system, ranging of decreases from 5.5% to 7.5%, depending on the low, base and high case scenario
2010-Adjustments to the Corridor system
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► ► ►
Corridor reduction revised ranging from 6% to 13%. There were 2 non-scheduled decreases in the PV subsidy rates. Amount of capacity installed exceeded 1500MW projection and this has led to reduction rate 7.5% from 2009 to 2010. Corridor reduction system has been revised with 3,500MW annual installation projection. Each GW installed higher than 3500MW (in thousands) baseline would result in reduction of addition 1% until 13% and vice versa.
2011-Corridor system revision ►
In February 2011, Germany issued a revised corridor reduction schedule, with 2 different scenarios; interim reduction and total reduction.
Phase 4 (2012-onwards) – Move towards an incentive-free policy paradigm (Deutschbank, 2012) EEG Amendment 2012 ► ► ► ► ►
2012 Targets, electricity 35% by 2020, replacing 30% and longer term targets, 50% by 2030, 65% by 2040, 80% by 2050. Eligibility update, 52GW capacity threshold, decreasing longevity and certainty, 90% eligibility cap, further increasing revenue uncertainty. Monthly reduction rates set every 3 months based on historical data. Digression rate ranging from -0.5% to 2.8% from installed capacity during prior 12-month period from less than 1,000MW to 7,500MW, FIT could decrease by a maximum of up to 29% or to 6% over 12-month period. Introduction of Market premium payments – promoting direct sale of renewable electricity, increase new and existing renewable energy generators to begin transition away from fixed price incentives, encouraging participation in the market and to market based approaches.
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