summary for policy makers prioritized green technologies

GoI – GGGI Green Growth Program: Summary for Policy makers Green Industry Mapping Strategy

Modelling and Assessment of Prioritized Green Technologies

Modelling Deep Dive Report

January 2014

Component 1C: Green Industry Mapping Strategy (GIMS) Government of Indonesia - GGGI Green Growth Program” January 2014

TABLE OF CONTENTS 1.

Executive Summary...........................................................................................8 1.1

Background ...............................................................................................8

1.2

This Report ..............................................................................................10

1.3

Overview of Results ................................................................................11

Key Observations ............................................................................................11 Major Risks and Challenges ............................................................................12 2.

Energy and Efficiency in Indonesia .................................................................14 2.1

Energy .....................................................................................................14

Energy and energy subsidy .............................................................................16 2.2

Electricity.................................................................................................16

Demand forecast.............................................................................................17 Capacity forecast.............................................................................................19 Transmission, distribution & system...............................................................20 2.3

Transport fuels ........................................................................................22

Palm oil and biodiesel demand forecast.........................................................23 Distribution .....................................................................................................25 2.4

Efficiency .................................................................................................25

Buildings..........................................................................................................26 Industrial Processes ........................................................................................26 2.5

Priority technology selection ..................................................................26

Analytic and stakeholder prioritization Scoring..............................................27 Combined assessment ....................................................................................28 Final selection of deep dive technologies.......................................................29 3.

Scenario and Modelling ..................................................................................30 3.1

Business As Usual and MP3EI forecasts ..................................................30

3.2

Approach.................................................................................................30

The Model .......................................................................................................30 Data.................................................................................................................30 3.3 4.

Assumptions............................................................................................33

Solar PV ...........................................................................................................34 4.1

Opportunity for Solar PV in Indonesia ....................................................34

4.2

Solar Resource ........................................................................................34

4.3

The Solar PV Value Chain ........................................................................35

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4.4

Current Policy Environment....................................................................37

Barriers for solar PV uptake ............................................................................37 Levers and incentive mechanisms ..................................................................37 4.5

Deep Dive Modelling...............................................................................38

Model Output Energy and Emissions..............................................................39 4.6 5.

Summary .................................................................................................42

Geothermal Energy .........................................................................................43 5.1

Opportunity for Geothermal Energy in Indonesia ..................................43

5.2

Geothermal resource ..............................................................................43

5.3

The geothermal energy value chain........................................................44

5.4

Current Policy Environment....................................................................46

Barriers to geothermal energy uptake............................................................46 Levers and incentive mechanisms ..................................................................47 5.5

Deep Dive Modelling...............................................................................47

Model Output Energy and Emissions..............................................................48 5.6 6.

Summary .................................................................................................49

Landfill Gas Based Power Generation.............................................................50 6.1

Opportunity for landfill gas electricity generation in Indonesia .............50

6.2

Typical landfill gas value chain ................................................................51

6.3

Current policy environment....................................................................52

Levers and Barriers to Landfill Gas Uptake .....................................................53 Incentive Mechanism ......................................................................................53 6.4

Deep Dive Modelling...............................................................................53

Landfill gas scenario ........................................................................................53 Model Output Energy and Emissions..............................................................55 6.5 7.

Summary .................................................................................................55

Building Energy Management System ............................................................56 7.1

Opportunity for BEMS in Indonesia ........................................................56

7.2

Building Energy Management System-Potential ....................................56

7.3

The building energy management system value chain...........................56

7.4

Current Policy Environment....................................................................58

Incentive mechanisms.....................................................................................58 7.5

Deep Dive Model.....................................................................................59

Model Output Energy and Emissions..............................................................60

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7.6 8.

Summary .................................................................................................63

Slag Blending in Cement Production...............................................................64 8.1

Opportunity for slag re-use in Indonesia ................................................64

8.2

The slag re-use value chain .....................................................................65

8.3

Current Policy Environment....................................................................66

Levers and barriers to slag re-use uptake.......................................................67 Incentive mechanisms.....................................................................................67 8.4

Deep Dive Modelling...............................................................................67

Model Output Energy and Emissions..............................................................68 8.5 9.

Summary .................................................................................................68

Biodiesel..........................................................................................................69 9.1

Opportunity for Biodiesel in Indonesia...................................................69

9.2

Biodiesel Resource ..................................................................................69

9.3

The Typical Biodiesel Value Chain...........................................................71

9.4

Current Policy Environment....................................................................72

Levers and Barriers to Biodiesel Uptake .........................................................73 Incentive mechanisms.....................................................................................74 9.5

Deep Dive Modelling...............................................................................75

Model output Energy and Emissions ..............................................................75 9.6 10.

Summary .................................................................................................77 Conclusion and next steps ..........................................................................78

Next steps .......................................................................................................78 References ..............................................................................................................79

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LIST OF FIGURES Figure 1: Components of Green Growth Program....................................................9 Figure 2 : Milestones of the GIMS program............................................................10 Figure 3: Summary of deep dive modelling results, by technology........................11 Figure 4: Forecast energy demand and GDP of Indonesia......................................14 Figure 5: Indonesia energy intensity of GDP versus OECD & World average .........15 Figure 6: Sectoral energy demand - BAU scenario .................................................16 Figure 7: Electricity supply by fuel type, 1971-2010...............................................17 Figure 8: Electricity generation under the BAU forecast ........................................18 Figure 9: Electricity generation under the MP3EI forecast.....................................18 Figure 10: Emission factor of Indonesia, BAU and MP3EI ......................................19 Figure 11: Increase in generating capacity by energy sources, BAU forecast ........20 Figure 12: Increase in generating capacity by energy sources, MP3EI forecast .....20 Figure 13: Transport sector energy demand, BAU forecast ...................................23 Figure 14: Transport sector energy demand, MP3EI forecast ................................23 Figure 15: Palm oil production scenario .................................................................24 Figure 16: Refining capacity for biodiesel, forecast................................................25 Figure 17: Prioritization parameters.......................................................................27 Figure 18: Results of technology prioritization .......................................................27 Figure 19: Results of stakeholder prioritisation exercise........................................28 Figure 20: Combined assessment of the analytic and stakeholder prioritisation. .29 Figure 21: Solar PV value chain...............................................................................36 Figure 22: Cost structure of solar PV value chain ...................................................36 Figure 23: Solar PV deployment scenario ...............................................................39 Figure 24: Solar PV generation scenario .................................................................40 Figure 25: Impact of solar PV on oil usage..............................................................41 Figure 26: Emissions reduction from solar PV scenario..........................................42 Figure 27: Geothermal energy value chain.............................................................45 Figure 28: Cost breakdown across geothermal energy value chain .......................45 Figure 29: Geothermal energy deployment scenario .............................................48 Figure 30: Environmental impact of geothermal energy........................................48 Figure 31: Landfill gas based power generation-value chain .................................51 Figure 32: Cost structure of value chain components ............................................52 Figure 33: MSW generation and landfill disposal ...................................................54 Figure 34: Landfill gas based electricity generation ...............................................55 Figure 35 : BEMS value chain ..................................................................................57 Figure 36 : Cost structure of value chain components ...........................................58 Figure 37: Electricity consumption of residential and commercial buildings .........60 Figure 38: Impact of installation of BEMS in BAU scenario ....................................61 Figure 39: Impact of installation of BEMS in MP3EI scenario .................................61 Figure 40: Impact of BEMS on oil usage..................................................................62 Figure 41: Abatement potential of BEMS ...............................................................62 Figure 42: Cement and clinker production .............................................................64 Figure 43: Steel and slag production, Indonesia.....................................................65

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Figure 44: Slag re-use value chain...........................................................................66 Figure 45: Cost breakdown across the slag re-use value chain ..............................66 Figure 46: Energy and emission abatement potential of slag cement ...................68 Figure 47: Biodiesel production scenario ...............................................................70 Figure 48: Biodiesel value chain..............................................................................71 Figure 49 : Cost structure of value chain components ...........................................72 Figure 50: Land area requirement for biodiesel .....................................................73 Figure 51: Mineral diesel and biodiesel demand....................................................76 Figure 52: Emission reduction impact of biodiesel .................................................77

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LIST OF TABLES Table 1 : GIMS Indonesia ..........................................................................................9 Table 2: Plan for power generation and transmission............................................21 Table 3: Current refining capacities for biodiesel ...................................................24 Table 4: Summary of key data sources included in the deep dive modelling ........31 Table 5: Solar Energy programs of the GoI ............................................................34 Table 6: Geothermal energy regional distribution .................................................43 Table 7: Existing landfill gas capture rates..............................................................50 Table 8: Assumptions for landfill gas scenario........................................................54 Table 9: Biofuel targets and mandates ...................................................................70 Table 10 : Indonesia's biofuel policies ....................................................................72

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1. Executive Summary 1.1

Background

The Government of Indonesia (GoI) has an ambitious plan to accelerate the realisation of becoming one of the world’s developed countries by 2025, with a gross domestic product (GDP) of USD $4 - $4.5 trillion (MP3EI, 2011). In the meantime, the Government has a domestic target to reduce greenhouse gas (GHG) emissions by 26% below business as usual levels by 2020, and by 41% through international support (GGGI, 2013). The growth pattern of Indonesia is heavily dependent on extractive industries, which poses challenges for the Government to simultaneously support strong economic growth while delivering significant emissions reductions.

In October 2011, Indonesia launched the National Action Plan for the Reduction of GHG emissions (RAN-GRK) as a work plan in accordance with the national target to reduce emissions by 26% from BAU by 2020. In order to facilitate this effort, the Government has assessed and revised industrial abatement policies in renewable energy, waste management, and energy efficiency (i.e. the so called “green industry”).

As one of the many efforts to combat greenhouse emission in Indonesia, the Green Industry Mapping Strategy (‘GIMS’) was jointly developed between GGGI and Indonesia government in 2012, to assess the opportunity for accelerated investment in a range of green technologies in Indonesia, including the additional environmental and economic against a business as usual forecast for Indonesia.

Table 1 shows the objectives of the GIMS project.

GIMS forms Component 1C of a broader green growth program between GGGI and the Indonesia Government, which is called GoI – GGGI Green Growth Program (Figure 1). The Green Growth Program is a comprehensive 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). By working closely with the central government, together with provincial administrators of East and Central Kalimantan, the Green Growth Program has helped identify and prioritize green growth opportunities along with a number of criteria related to both sustained economic growth and GHG emission reduction potential (GGGI, 2013).

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Figure 1: Components of GoI – GGGI Green Growth Program (GGGI, 2013)

Table 1 : GIMS Indonesia Objective 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.

Primary Goal

Support the economic development of Indonesia through the evaluation and business case development for near-to-market energy and efficiency opportunities

Output

  

Assessment of green industry value chains Deep dive economic and environmental impact analysis Regionally-based project business cases

Counterpart(s) of the program

   

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

The overall objective under GIMS is to increase the use of green technology and increase capital investment in green industry. To deliver the GIMS objectives, the GGGI Hybrid Team designed a set of activities (Figure 2) 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.

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Figure 2 : Milestones of the GIMS program

1.2

This Report

This report sets out the approach taken to modelling the energy and environmental impacts of six priority technologies being considered under the GIMS project. These six technologies were selected using both analytical results and stakeholder feedback, resulting in the following six technologies being put forward for further review:      

Solar Photovoltaic (PV) Geothermal energy Biodiesel Landfill gas based power generation Building Energy Management System Slag Cement

This report presents the results of the deep dive model for the six selected technology options, including mapping the total potential of the technologies in Indonesia, and have assessed their impact energy and environmental. It has been assumed that renewable energy based power generation options would displace oil from the fuel mix for electricity generation, and that the GoI is seeking to replace oil in electricity generation by 2021 (BPPT, 2012). Penetration of renewable energy technologies would further accelerate this reduction in dependence on oil-based generation.

Separate to, but building strongly from the deep dive modelling on which this report is based, the University of Indonesia has been engaged to model the broader economic impact of the selected technology options and scenarios set out in this report. The University of Indonesia will use the output of the Deep Dive modelling

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work presented here to model selected economic impacts (e.g. employment and investment) arising from the different scenarios. The results of this work will be presented separately in a report by the University of Indonesia.

1.3

Overview of Results

The results obtained from the deep dive modelling stage of the GIMS project are summarised in Figure 3, with the cumulative emissions abatement under both the BAU and MP3EI forecasts equivalent to around 10% of Indonesia’s forecast emissions in 2025 (excluding emissions from land use, land use change and forestry).

Figure 3: Summary of deep dive modelling results, by technology

Relative GHG impact of technologies Emissions avoided (MtCO2e)

160 140

0.3% 26%

120 100

Clinker Subst BEMS

22%

80 60

8.6%

40

27%

20

Landfill gas Biodiesel Geothermal Solar PV

17%

0 BAU

MP3EI

Evaluation forecast Key Observations  Of the technologies selected for deep dive analysis Solar PV, geothermal and landfill gas are expected to deliver favourable impacts both in terms of energy and emissions impacts. In addition to these benefits, renewable energy technologies would accelerate the replacement of oil as a fuel for electricity generation. Building energy management systems offer a significant, non-generating technology based benefit.  The solar PV scenario is challenging, but could be achieved at a growth rate similar to that already delivered in other countries.  The total geothermal energy potential of Indonesia is 29GW; recognising the challenges of full development, the geothermal scenario adopts the

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





Indonesia Geothermal Energy Association target of 6.2GW of installed capacity in 2025.

Biodiesel can help reduce the emission intensity of the transport sector by replacing diesel. However, to meet the projected demand around 6.1m hectares of land area would be required to meet domestic feedstock needs.

The high level of energy subsidy in Indonesia is considered a major barrier toward the promotion or accelerated uptake of energy efficiency opportunities, and renewable energy more broadly.

For the re-use of slag, current policy relating to hazardous materials would need to be re-visited to allow commercial development of this resource.

Major Risks and Challenges Accelerating the penetration of the identified technologies in the country has its own challenges. Some of the typical barriers faced by these technologies are: 



 

Access to finance: Renewable energy technologies are comparatively more capital intensive compared to conventional power generation technologies.

Moreover, subsidies on fossil fuels make the penetration of these technologies even more difficult. Therefore access to finance and ensuring profitable returns from these technologies remains a major concern for potential investors.

Legislation for stimulating small-scale Renewable Energy systems is in place (Ministerial Decree No. 1122/K/30/MEM/2002 on Small Distributed Power Generation Using Renewable Energy and Ministerial Regulation No. 2/2006 on Medium-Scale Power Generation Using Renewable Energy), but it does not appear to be very effective to-date at attracting new investment.

Infrastructure: Grid access can be a constraint for some technologies, such as geothermal energy resources which may be located in remote areas.

Policy level barriers: Alternatives should be considered, such as a welldesigned feed-in tariff system, in concert with supporting policy reform.

Feed-in tariffs have been widely adopted in Europe and the USA, with China considering introducing this system. Feed-in tariffs may provide greater investor certainty than other, more market-based approaches, such as renewable quota obligations. Government support such as developing policies towards accelerated depreciation benefits for renewable energy components, waiving of electricity duties for renewable power generation, or preferential tariff for renewables, would also usefully focus on investment conditions within which SMEs can develop a commercial and sustainable market for Renewable Energy technologies in competition with conventional energy sources. Such support would address other issues adding to the high start-up costs of Renewable Energy technologies, such as import duty (most Renewable Energy technologies are imported), value added tax (VAT), and strengthening microfinance institutions to improve private sector access to loans/micro credit/grants.

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

Knowledge level barriers: Indonesia’s limited technology manufacturing and servicing capability presents challengers for expansion of existing manufacturing and to new entrants. Government support may very usefully focus on training programmes and other initiatives would support a broader recognition of the potential for green growth technologies in Indonesia.

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2. Energy and Efficiency in Indonesia 2.1

Energy

Alongside significant economic growth, Indonesia’s energy demand has increased considerably over recent years: at the same time, per-capita energy consumption is around 4.5 BOE, considerably lower than world average of around 11.57 BOE per person (BPPT, 2012). Total energy demand is forecast to continue to rise through to 2025 at a compound annual growth rate (CAGR) of around 5%: this rise broadly correlates to the anticipated rise in GDP of 7%/y over the same period (BPPT, 2012) (Figure 4).

Figure 4: Forecast energy demand and GDP of Indonesia

Over the 10 years to 2010, Indonesia energy intensity of GDP (the amount of energy needed to generate a unit of GDP) has fallen significantly yet remains 24% higher than the world average and over 50% higher than that achieved by the OECD (Figure 5). Indonesia’s energy intensity of GDP has been falling at a rate of around 2% per annum: should this rate be maintained (and improvement rates for other countries are maintained), then Indonesia will achieve the world average in around 2030, and the OECD average in around 2055.

These figures do not account for the structural differences between the Indonesian economy and the economies of other countries. The Indonesian economy has matured and broadened from its resources extraction and trade focus into a stronger manufacturing and services base, with the oil and gas sectors’ contribution to GDP has declined. In 2000, the oil and gas sector contributed 12.4% of GDP but this has rapidly declined in both absolute terms and as a focus of the Indonesian economy; by 2007, it contributed only 7.3%, though in absolute terms

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the value of the oil and gas sector had increased over this period. Indonesia’s mining (minerals and coal) sector’s contribution to GDP has grown considerably in absolute terms over the same period and contributes about 3% of total GDP (BPPT, 2012).

Figure 5: Indonesia energy intensity of GDP versus OECD & World average, 2000-2010

Energy intensity of GDP: 2000-2010 (World average normalised to 100% in 2000)

CAGR

150%

Energy intensity of GDP

130%

200%

36% 120% 150% 110%

24% 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

100%

90% 50% 80% 70%

Fuel price index (composite)

250%

140%

Fuel price index

10.6%

Indonesia

-2.1%

World

-1.2%

OECD

-1.3%

53% 0%

Source: World Bank

Industry, households and transport dominate energy use in the economy, accounting for 97% of total energy demand in 2010 (Figure 6) (BPPT, 2012). While overall energy demand is forecast to increase significantly up to 2025 (Figure 4), the proportion of energy being used by the major sectors in Indonesia is expected to remain broadly constant.

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Figure 6: Sectoral energy demand - BAU1 scenario

Energy and energy subsidy Indonesia’s energy price caps and subsidies keep prices for individual consumers below market levels for electricity and selected petroleum products, namely kerosene, automotive diesel oil for transport, and 88 RON gasoline. While these subsidies are no longer available for larger industrial consumers, they are equally accessible poor and wealthy consumers in Indonesia. In May 2008, the Coordinating Ministry of Economic Affairs of Indonesia advised that the top 40% of high income families benefit from 70% of the subsidies, while the bottom 40% of low income families benefit from only 15% of the subsidies.

Significant electricity and petroleum subsidies also make Indonesia vulnerable to international energy price movements. Grid availability is considered a major problem in the country especially in the rural areas. Subsidies on fossil fuels make the penetration of renewable energy based generation sources difficult. They have inhibited investment in upstream and downstream energy sectors by new investors as well as existing public and private players, have undermined energy efficiency and renewable energy programmes for many years, and have reduced the ability of enterprises to accommodate the cost of environmental compliance (IEA, 2013).

2.2

Electricity

Electricity supply has increased dramatically in the three decades to 2010, growing at over 7% annually (Figure 7). Until the early 1980, electricity generation was met almost exclusively by diesel-based generators, when coal, hydro and (since around

1

For an explanation of the BAU and MP3EI forecasts, see Section 3.1

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1992) gas-based generators began contributing significantly to electricity generation.

Figure 7: Electricity supply by fuel type, 1971-2010

160 140 120 100 80 60 40 20 0

1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0

CAGR (15yrs) GHG intensity (kgCO2/kWh)

180

1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Electricity generation (TWh/y)

Electricity generation by fuel type

Electricity

7.3%

Oil

8.8%

Coal

10.9%

Gas

3.1%

Hydro

5.9%

RE (-Hydro)

10.2%

CO2 Emissions Oil

Year

Coal

Oil

Coal

Natural gas

Hydro

Renewables (excl hydro)

GHG intensity (kgCO2/kWh)

Source: World Bank; EY Analysis

Since the late 1990’s, coal has seen the single largest increase in generating capacity, increasing from around 20TJ/y in 1997 to over 68TJ/y in 2010. Despite this significant expansion of coal-based generation, the emissions intensity of the Indonesian electricity network has remained broadly constant, with the introduction of gas-based electricity generation (together with hydro) acting to moderate the emissions impact of coal-based generation. In the decade to 2010, the emissions intensity of gird electricity in Indonesia averaged 0.65tCO2/MWh (Figure 7).

Demand forecast Indonesia’s total installed electricity generating capacity was approximately 33GW in 2010 (BPPT, 2012) with coal-based generation meeting around 40% of total electricity generated. Under BAU scenario electricity demand forecast (Figure 8), coal-based electricity generation is expected to grow significantly, accounting for 57% of total electricity generation in 2025. Under an MP3EI scenario, demand in 2025 is 24% greater than under a BAU scenario, with coal again dominating the electricity fuel mix by meeting 64% of demand (Figure 9).

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Gas

Figure 8: Electricity generation under the BAU forecast

Figure 9: Electricity generation under the MP3EI forecast

These generation forecasts suggest that Indonesia will completely phase out oilbased generation from the electricity sector. This will have an impact on the emissions intensity of electricity generation, together with oil import requirements for Indonesia: while the phase-out of diesel in electricity generation could lead to significant balance-of-payments benefits (as Indonesia is a net oil importer), it will lead to higher emissions from the electricity sector as it will effectively be replaced by coal-based generation (a more emissions intensive form of electricity

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generation). While Indonesia is seeking to expand solar PV and other renewable energy generation capacity However, with the large increase in coal-based electricity generation, the emissions factor of grid is forecast to increase under both scenarios (Figure 10).

Figure 10: Emission factor of Indonesia, BAU and MP3EI

Capacity forecast To meet the forecast growth in electricity demand, Indonesia will require a significant expansion in electricity generating capacity: between 2010 and 2025, electricity generating capacity is forecast to almost triple (BAU) or quadruple (MP3EI), with more coal capacity being added under both scenarios than all other forms of capacity combined (Figure 11 and Figure 12).

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Figure 11: Increase in generating capacity by energy sources, BAU forecast

Figure 12: Increase in generating capacity by energy sources, MP3EI forecast

While coal dominates in absolute terms, these projections also reveal significant anticipated increases in the contribution of other generators to meeting electricity demand. Between 2010 and 2025, geothermal capacity is expected in expand to 9.9GW and hydro 15.5GW under a BAU scenario (Figure 11) with even greater increases relative increases under an MP3EI scenario (Figure 12).

Transmission, distribution & system To meet the growing demand for electricity, and increase the percentage of Indonesians with access to the electricity grid, significant additional investment in electricity transmissions and distribution infrastructure will be required. Table 2

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below summarizes the initiatives of the government in power generation and transmission segment (Jarman, 2012).

Table 2: Plan for power generation and transmission Plans for Power Generation 1. To finalize the construction of Fast Track Program 10,000MW Phase I and Phase II 2. To finalize the construction of power generation project owned by Perusahaan Listrik Negara and Independent power plant in regular program 3. To finalize development of Geothermal power plant and Hydro-electric power plant in an effort to utilize new and renewable energy and local energy.

4. To encourage the development of Pump Storage Hydro-electric power plant to minimize utilization of gas and oil during the peak load in Java-Bali system.

5. To encourage the development of Mine Mouth coal fired power plant in an effort to utilize the potential of Low Rank Coal and coal fired power plant with Ultra Super Critical technology to reduce emissions.

6. To accelerate gas allocation and supply for power generation in an effort to reduce oil consumption.

Plans for Power Transmission 1. To finalize development of transmission line related to Fast Track Program 10,000MW Phase I and Phase II 2. To solve de-bottlenecking of transmission line especially in Java-Bali and Sumatera system 3. To develop Java-Sumatera interconnection system in order to transfer power from a large Mine 3. 4. To develop interconnection system in Kalimantan and Sulawesi 5. To develop West Kalimantan-Sarawak interconnection system in order to fulfil the demand and to reduce the oil utilization.

6. To develop Sumatera-Malaysia Peninsula interconnection system in order to optimize the power system operation.

Apart from electricity generation, the GoI has also put forward initiatives to develop the energy infrastructure of the country. President Yudhoyono has made infrastructure development a top priority by including it as a key element in Indonesia’s Medium Term Plan (2010-14) developed by National Development and Planning Board. This plan focuses on:

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

 

Development of facilities needed for energy processing (e.g. oil refineries, power generation), energy transmission and distribution network and energy storage Utilization of alternative energy including renewables Completion of implementation of regulations to Law No. 30 of 2007 on energy

The electricity sector is regulated by Ministry of Energy and Mineral Resources (MoEMR) and its sub agencies. These include the Directorate General of Electricity and Energy Utilization, Directorate General of Renewable Energy and Energy Conservation.

The electrification development program 2010-19 (RUPTL) is based on Rencana Umum Ketenagalistrikan Nasional (RUKN) and constitutes an official ten year power development plan. The RUPTL is prepared by Perusahaan Listrik Negara (PLN), approved by MoEMR and mandated by current laws and regulations. It contains demand forecasts, future expansion plans, fuel requirement and it also includes projects which would be developed by PLN and IPP investors.

2.3

Transport fuels

The transport sector accounts for around 25% of the total energy used in Indonesia and is the third largest user of energy (behind industry and household). Indonesia is also one of the producers and exporters of biodiesel, along with Malaysia ( Panoroma, 2012). These countries have made biodiesel a significant component of their economic development by becoming the major players of biodiesel export market. Compared to population growth of 1.25% per year (BPPT, 2012) and transport infrastructure growth of 1% per year, it is questionable whether this rate of increase in fuel demand is sustainable (or desirable) over the longer-term.

Recent reforms to the retail fuel subsidy scheme, including increases in the retail cost of fuels to consumers, would be expected to moderate the growth rate of liquid transport fuels compared to historical trends.

Overall transport energy demand is forecast to almost triple under a BAU scenario (Figure 13), and almost quadruple under an MP3EI scenario (Figure 14): these represent compound annual growth rates between 2010 and 2025 of around 7.3% and 9.2% respectively.

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Figure 13: Transport sector energy demand, BAU forecast

Figure 14: Transport sector energy demand, MP3EI forecast

Biodiesel export can also be reduced to increase the penetration of biodiesel in the transport sector. Increased biodiesel use would also reduce the emissions intensity of the transport sector in Indonesia; however, the net impact of biodiesel production is contested (see section 7), and the necessary expansion of palm oil production would have other, non-emission related impacts.

Palm oil and biodiesel demand forecast Indonesia is a major producer of palm oil, a feedstock for biodiesel, and currently accounts for around 50% of global production of palm oil (Greenpeace, 2012). The

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palm oil production has increased considerably over the years as shown in Figure 15.

Figure 15: Palm oil production scenario

In 2009, there were around 608 Palm Oil factories which produced Crude Palm Oil and Kernel Palm Oil (PKO) with grinding capacity of 30 – 120 TPH (ton per hour) and dominated by small capacity of 30 TPH. The total refining capacity of the country is around 85% of the total palm oil production (ESDM). Table 3 shows the current refining capacity of Indonesia as of 2012 (METI, 2013).

Table 3: Current refining capacities for biodiesel Province

Number of locations

Refining Capacity (kl/year)

Banten

4

705,253

Sumatera Utara

1

35

Sumatera Selatan

1

47,586

Riau

5

2333,908

Kepulauan Riau

1

482,759

DKI Jakarta

3

114,805

Jawa Barat

5

324,795

Jawa Timur

4

1022,989

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Kalimantan Timur

1

75,862

Total

25

5,142,957

Riau province (Sumatra economic corridor) is the biggest biodiesel producer in Indonesia, producing 2,333,908 kl/y or around 40% of the total biodiesel produced in Indonesia. Figure 16 shows the year on year refining capacity that is expected to be developed in Indonesia: Figure 16: Refining capacity for biodiesel, forecast

Distribution Palm oil production is focussed on the economic corridors of Kalimantan and Sumatra, which account for over 90% of total palm oil production in Indonesia: West Papua is also emerging as a palm oil production region. Biodiesel refining capacity tends to be co-located with palm oil production areas.

2.4

Efficiency

A 2012 APEC peer review of energy efficiency found that “comprehensive energy efficiency and conservation programs� have been developed in Indonesia: nevertheless, this report also put forward 17 recommendations, covering policy, strategy and regulation, to further support energy efficiency in Indonesia (APEC, 2012). The goal of the National Energy Conservation Master Plan (2005), entitled

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RIKEN, is to achieve Indonesia’s energy saving potential through energy efficiency and conservation (EE&C) measures, and so avoid wasteful energy use in Indonesia.

As per the National Energy Policy (2006), Indonesia aims to achieve an energy elasticity of less than 1 by 2025. The Clean Technology Fund aims to accelerate the penetration of energy efficiency and renewable energy in the country and help in achieving the target of increasing access to electricity to 90% of the total population by 2020. Indonesia’s energy intensity of GDP is below the average intensity for world and it much lower than the OECD average figures (Figure 5).

Buildings The household sector was responsible for around 32% of total energy consumption of Indonesia and the commercial sector was responsible for around 3% (BPPT, 2012). The electricity consumption of the building sector is expected to increase at a CAGR of 9% in BAU and at 10% in MP3EI scenario (BPPT, 2012).

Industrial Processes Slag based cement generation can help reduce the energy intensity of the cement sector of the country. Slag, a waste product of blast furnace can replace the clinker required to produce cement. For producing clinker, limestone needs to be heated to 1,400oC, resulting in significant energy (often coal) consumption. Therefore using slag as a replacement of clinker can help reduce the energy as well as emission intensity of cement manufacturing process

2.5

Priority technology selection

The prioritisation was carried out against four parameters, each of which was composed of a number of indicators (Figure 17). In addition, a business-as-usual forecast of energy demand was developed, based on historic data and forecast GDP growth: this underpinned the assessment of many of the energy and efficiencyrelated opportunities, as it set both the scale of demand, and the intensity of emissions avoided.

Scoring for the Environment parameter was in absolute terms (MtCO2 avoided); for the remaining parameters, a rating system from 1 (worst) to 5 (best) was used, with the final score for each parameter being a simple average of the indicators scored.

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Figure 17: Prioritization parameters Indicators

Parameters

1

Environmental Impact

► Absolute annual emissions reduction against baseline in 2025 ► Absolute annual energy reduction against baseline in 2025

2

Economic Impact

► Capacity growth and price per unit capacity ► Industry estimate of jobs per unit of capacity produced per annum

3

Technology attractiveness in Indonesia

► Timescale of project to completion & ease of project planning and development ► Feasibility of construction/installation of the technology and quality of overall infrastructure ► Levelised cost of electricity

4

Market Growth Potential

► Forecast capacity (domestic) ► Estimate of total untapped capacity ► Forecast international demand

Analytic and stakeholder prioritization Scoring Figure 18 shows the results of the prioritisation of the 21 selected technologies across four indicators: economic, environment, market potential (circle size – larger reflects greater potential) and technology attractiveness (blue shading – darker is better).

Figure 18: Results of technology prioritization Prioritisation Chart 6

Technology attractiveness

PV

5

Geothermal

Economic

4 BioDiesel

Market Potential

BEMS

3

<=1

Landfill Gas

>1 & <=2

2

>2 & <=3 >3 & <=4

1

Slag

>4 & <=5 Not prioritised

0 0

5

10 15 Environmental

20

25

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In addition to the analytic approach taken to prioritize the initial set of technologies, Component 1C also sought the views of stakeholders over the priority they attached to the development of different technologies.

At workshops held on 5 July 2013 in Jakarta feedback was sought from policymakers and private sector stakeholders on the technologies which represent the greatest opportunity for green growth in Indonesia. This feedback was sought before the results of the analytic work were shown, so that stakeholder views would not be influenced by the outcomes of the analytic work. The results of the stakeholder feedback are shown in Figure 19.

Figure 19: Results of stakeholder prioritisation exercise

Workshop participant prioritisation 3.00

Flash Geothermal

Slag

Solar PV Building Energy Management Systems

2.50

Wastewater Treatment System Landfill gas

Onshore wind 2.00

Waste Heat Recovery System

Micro grid systems

Donor Ranking

Biodiesel

1.50

Micro hydro

Biomass

Solar thermal

Grey water recycling

1.00

0.50

Methane from animal

Fuel Cells RFP

CCS

LEDs

Li-ion Batteries

0.00 0.00

0.50

1.00

1.50

2.00

2.50

Government Ranking

Combined assessment The results of the analytic and stakeholder prioritization processes were combined to provide a final composite view of the opportunity arising from the 21 technologies (Figure 20). This presentation shows a high degree of commonality between the overall priorities allocated to the different technologies via the two (very different) prioritization approaches. This suggests that the perception of stakeholders is broadly supported by the data available.

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3.00

Figure 20: Combined assessment of the analytic and stakeholder prioritisation results. Technologies selected for the next stage of the project are highlighted.

Final selection of deep dive technologies GGGI met with each of the directorates on 26 August 2013 at ESDM in the Directorate General of New Energy, Renewable and Energy Conservation, where the combined assessment of technology priority (Figure 20) was presented and discussed.

Following this meeting, ESDM wrote to GGGI agreeing the technologies that would form the focus of the deep dive assessment. These technologies were:      

Solar PV Landfill gas Biodiesel Building management systems Geothermal Clinker substitution (re-use of steel slag)

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3. Scenario and Modelling To carry out the deep dive analysis, an uptake model for the six technology options was developed. The uptake model provides insight on the impacts these technologies would have on Indonesia in terms of emission reduction, reducing dependence on fossil fuel based power and high economic benefits. The model evaluates technology-specific scenarios against two forecasts of potential future energy and emissions: the BAU and MP3EI forecasts.

3.1

Business As Usual and MP3EI forecasts

The modelling approach allows for the impacts of different technologies to be evaluated against both a business as usual forecast of economic growth (BAU), and against a more aggressive growth plan set out in the Master plan for Acceleration and Expansion of Indonesia Economic Development (MP3EI).

The BAU scenario represents the continuation of present growth level for the country from 2010, and is used in the deep dive model to represent a forecast of key economic indicators evolving from a continuation of historic policies and development focusses for the Indonesian economy. The MP3EI forecast sets out an alternate, high growth pathway for Indonesia from 2010 to 2025. The MP3EI forecast would take Indonesia to the level of the top 10 economies by raising the per capita income from USD 3000 to USD 15000 by 2025 (MP3EI, 2012) as well as having an impact on the energy demand and supply expectations of the country.

The selection of BAU or MP3EI forecasts has a major impact on electricity demand (which in turn alters the analysis of electricity-related technologies such as solar PV, Landfill gas, and Geothermal), with the assessment of additional impacts on transport fuels and biodiesel production.

3.2

Approach

The Model The deep dive model is an Excel-based model that would evaluate the economic impact of the identified technologies, emission reduction and the net capacity to be built.

Data The model evaluates technology scenarios against forecast data that has been presented by Badan Pengkajian dan Penerapan Teknologi (BPPT) in the Indonesia Energy Outlook (2012). For non-energy data and assumptions, the model incorporates data from industry reports, EY resources and database, and where needed similar studies carried out for other countries. Table 4 summarises the sources of data used in the model against each of the six priority technologies investigated.

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Table 4: Summary of key data sources included in the deep dive modelling Sector

Variable

Description

Source

Power Sector Assumptions

Business As Usual scenario electricity demand

The business as usual forecast of total electricity demand in Indonesia to 2025

Indonesia Energy Outlook 2012

BAU electricity generation by type

The proportion (%,TWh) of electricity delivered by different generator types (coal, gas, etc.) to 2025

Indonesia Energy Outlook 2012

MP3EI electricity demand

Electricity demand forecast consistent with the MP3EI development plan for Indonesia to 2025

Indonesia Energy Outlook 2012

MP3EI electricity generation by type

The proportion (%,TWh) of electricity delivered by different generator types (coal, gas, etc.) consistent with the MP3EI development plan for Indonesia to 2025

Indonesia Energy Outlook 2012

Installed Capacity

Total planned installed capacity by 2025

Target consistent with growth and installed capacity targets in leading PV countries

Domestic production

Project Team Estimate

Investment costs

Cost of setting up Solar PV facility

Industry reports on solar PV, analysis undertaken by University of Indonesia

BAU expansion in biofuel production

Biodiesel demand supply in BAU scenario

Indonesia Energy Outlook 2012

MP3EI expansion in biofuel production

Biodiesel demand supply in MP3EI scenario

Indonesia Energy Outlook 2012

Solar PV

Biofuel

Biodiesel refining capacity

Total refining capacity required to meet domestic and export demand

Energi Dan Sumber Daya Mineral Plan for renewable energy, Project Team analysis

Land area required for biodiesel

Used for estimation of negative impacts of biodiesel production

US Department of agriculture, BP Statistical Review of World Energy 2013

Installed Capacity

Present installed capacity of geothermal energy in Indonesia

World Wild Life Fund Assessment on geothermal energy potential of Indonesia

Generation Potential

Maximum potential of geothermal energy in Indonesia

World Wild Life Fund Assessment on geothermal energy potential of Indonesia

Feasible target

Generation potential that can be achieved

Indonesia Geothermal Energy Association

Cement production

Projection of cement that would be produced

Indonesia Cement Association

Steel Production

Projection of steel that would be produced

World Steel Association

Energy Consumption and saving potential

Energy Consumption and saving potential

‘Getting the Number’s Right’ Database

Landfill gas based power generation

Waste Generation projection

Projected quantum of waste generation

Indonesia Climate Change Sectoral Roadmap

Emission Estimation parameters

Emission Estimation parameters

Intergovernmental Panel on Climate Change

BEMS

Electricity consumption of household and electricity sector

Electricity consumption

Indonesia Energy Outlook 2012

Electricity saving potential of BEMS

Assessment of the potential electricity savings and emission reduction.

Report of Building Energy Management Systems manufacturers such as Siemens

Geothermal Energy

Slag Cement

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3.3

Assumptions

The uptake model adopts the following approaches and assumptions:  







The projected energy demand figures across different sectors of the economy such as industry, transport, household have been considered from Indonesia Energy Outlook 2012 The potential of Renewable Energy deployment, energy efficiency promotion have been considered based on the results of technology prioritization, discussion of Project Team with Indonesian industry association, and industry reports.

The impact of increased penetration of Renewable energy and energy efficiency on the energy demand supply scenario has been analysed in the model both under BAU scenario and MP3EI scenario As Indonesia is a net oil importer, the model has been designed so that it can start with the replacement of oil to highlight the importance of the identified technology options on the energy security of the country as well.

The option of selecting the priority of fossil fuel replacement has also been built in the model.

4. Solar PV 4.1

Opportunity for Solar PV in Indonesia

Indonesia has a significant solar resource, which could be developed via the large-scale deployment of solar PV technology. The penetration of solar PV technology in Indonesia would diversify the fuel mix for electricity generation, reduce dependence on fossil fuel based energy resources, and lower the average emissions intensity of electricity generation. Furthermore, solar PV could provide an alternative to grid extension in remote or difficult to access regions of Indonesia, as well as a replacement for small-scale diesel-based generation.

To-date, solar PV has been deployed at an extremely limited scale: Indonesia ranks second last, out of 198 countries, in installed solar PV capacity per capita (SolarSuperstate, 2013), despite being ranked 15th globally for PV opportunity (EPIA, 2012) Recent initiatives, such as the introduction of feed-in tariffs to support solar PV developments, will move some way to accelerating the deployment of solar PV in Indonesia. However, with a lack of capital support mechanisms for small scale (household) users, and large scale development being contingent on a complex contracting procedure with the Stateowned electricity monopoly PLN, further policy and regulatory reform will be needed to support a rapid expansion of solar PV.

4.2

Solar Resource

Indonesia has an average daily solar irradiation of around 4kWh/m2/day (Hasan, et al., 2011). The western part of the country receives solar irradiation of around 4.5kWh/m2/day with daily variation of around 10% and the eastern regions receive solar irradiation of around 5.1kWh/m2/day with daily variation of around 9%. (Hasan, et al., 2011).

Indonesia faces a challenge of delivering electricity across a large number of small and isolated islands where electricity demand is quite low: under these circumstances, solar PV electricity systems may be a viable alternative to stand-alone diesel generators, or further grid expansion. Recognising this potential, the GoI has launched a number of solar energy programs in Indonesia (Table 5).

Table 5: Solar Energy programs of the GoI (Jarman, 2012) Program

Description

Rural PV program

Objectives ď&#x201A;ˇ ď&#x201A;ˇ

To increase community accessibility to electricity, and is directed to accelerate the rural electrification ratio in order to achieve the ratio of 95% in 2025 Enhance economic development of rural community

Schemes ď&#x201A;ˇ

Communal PV system for a scattered household location

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 Urban PV program

Central PV system targeted to more dense location

Objectives  

To help the user/consumer to provide electricity on their own and to decrease the dependency of electricity supply from PLN (The Electricity State Owned Company), especially during the peak load To introduce the utilization of renewable alternative energy, which is clean and environmental-friendly

Options  

4.3

Promotion of off grid solar PV generation systems Promotion of on grid solar PV generation system for regions well connected to grid of PLN

The Solar PV Value Chain

The typical crystalline solar PV value chain can be presented as a combination of two distinct stages, Components & Systems (including the core components and core system) and Project & Construction (including engineering, procurement & construction (EPC) and project development & financing).

Further detail on the stages and sub-categories within the solar PV value chain are provided in Figure 21.

The typical value structure of the solar PV value chain identifies module production (and associated input activities, such as cell manufacture) accounting for over 50% of the value chain, with inverters and other supporting systems accounting for a further 25%; the balance is accounted for by civil works and project development (Figure 22). Civil works will necessarily occur in the country where deployment occurs; however, module production and balance-of-system activities may well be outsourced to other countries.

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Figure 21: Solar PV value chain

Figure 22: Cost structure of solar PV value chain

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4.4

Current Policy Environment

The GoI has set capacity targets for solar PV through a number of Directives (Yani Witjaksono, 2012); however, the solar PV installed capacity in Indonesia remains at very low levels in comparison to international best practice examples such as Germany. The current approach to solar PV development in Indonesia focusses on PLN contracting for solar PV development, with limited opportunity for private sector developments outside of this process. Current recommendations from the GoI to support solar PV include (Jarman, 2012):     

Increasing the share of renewable energy in the national fuel mix (at least 5GW by 2015) Application of feed-in-tariff for the purchase price of electricity for Solar PV by PLN (implemented) Providing incentives for Solar PV local production Mandatory use of local production for solar PV deployment by funding national and regional budgets Encourage the development of local industry solar PV installation, and module manufacturing

Barriers for solar PV uptake The major barriers towards deployment of Solar PV in Indonesia include: 

   

Initial investment of solar PV compared to fossil fuel based power generation sources is on the higher side. This reduces the financial attractiveness of solar energy to investors.

Moreover, the absence of incentives is also considered a major barrier in setting up solar PV projects in IPP mode.

Lower system efficiency of solar PV negatively impacts the business decision of investors PV technology has not yet been implemented in industrial scale in Indonesia therefore there is a lack of knowledge to deploy solar PV in the country.

Lack of education/socialization of solar PV application to local community increases their inclination towards Diesel Generating sets based power generation options Price control on retail electricity is perceived as major barrier towards development of renewable energy based power generation units. However Law No. 30/2009 has been passed aimed at improving the Law No 15/1985 (Damuri, Raymond, 2012). This would allow for the electricity supply to be distributed by either the central or regional governments through the PLN or regionally owned utilities. This would also promote active participation from the private sector in the form of IPPs.

Levers and incentive mechanisms To scale-up the deployment rate for solar PV in Indonesia, a range of options are available to the GoI, including: Therefore private sector participation in the solar energy sector would be of extreme importance for the GoI. Therefore introduction of incentive mechanism would help to increase the financial attractiveness of solar PV projects to investors.

The section below provides a brief outline on the potential incentive mechanisms that the GoI can consider:

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





4.5

Generation Based Incentives: For attracting investment in Solar PV projects, GoI can introduce the concept of Generation Based Incentives (GBI) for projects developed under IPP (Independent Power Producer) mode. Under such scheme the GoI can provide incentive to power producers based on the generation of solar energy from their respective power generation units. Similar schemes have already been launched in India for Solar and wind energy producers.

Accelerated Depreciation: Accelerated depreciation benefits can help reduce the tax burden on Independent Power Producers. A similar mechanism was introduced by the Government of India for solar and wind energy sectors. Under the domestic income-tax law, renewable companies (Solar as well as wind power) were provided with accelerated depreciation at 80 percentage resulting in tax rebate for investors.

Feed-in-Tariff: Feed-in-Tariff is an incentive to encourage development of renewable energy including Solar PV. In 2012 t GoI announced plans to implement such a scheme with the tariff level fixed and the Power Purchase Agreement signed for a fixed period of 20 years (Jarman, 2012); this reform was delivered in 2013, with feed-in tariff structure including a premium for projects with significant local content.

Deep Dive Modelling

The GIMS solar PV model evaluates a scenario of around 12GW of solar PV capacity being installed in Indonesia between 2015 and 2025. This scenario is significantly greater than existing targets for solar PV in Indonesia, and represents a step-change in solar utilisation in Indonesia. While this scenario is challenging, the combination of a high solar resource, limited grid access, remote regions (including islands), and a need to rapidly expand the electricity generating infrastructure in Indonesia present a compelling case for a significant target. In terms of international comparisons, 12GW of installed capacity in 2025 would be broadly equivalent to the penetration of solar PV in Germany in 2011 (on an energy basis).

The model evaluates an “S-shaped” accelerated uptake curve of solar PV capacity against both the BAU and MP3EI electricity demand scenarios. The year-on-year and cumulative capacity additions modelled are shown in Figure 23, which is further separated into domestically produced and imported solar PV panels. The scenario take a conservative approach to domestic PV production: the existing solar PV manufacturing industry in Indonesia is small-scale, and its production costs are higher than international competitors (confidential industry source): in addition, the current challenges to PV from a policy and regulatory perspective are likely to result in caution from an investor perspective. In the initial years most of the Solar PV modules are assumed to be imported to Indonesia; however, gradually the solar PV manufacturing facilities would be built in the country to partially cater to the demand of the country. The construction of solar PV facilities in the country would be dependent on the success of Solar PV installation in the initial years.

The deep dive model evaluates a scenario that delivers 12GW of additional solar PV capacity in Indonesia by 2025. The scenario assumes that the installation rate rises from 2015 to a maximum of 2,000MW/y by 2024 & 2025. This demand is met by an increase in domestic production capacity of solar PV modules, which accounts for around 40% of total deployment in 2025.

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In evaluating the impact of solar PV on the energy and emissions sector in Indonesia, it is assumed that solar PV will displace thermal generation in order of cost (first oil, then coal, then gas). Further, it is assumed that all solar PV deployment displaces grid-based electricity demand. This second assumption is unlikely to be fully realised, as significant potential exists for solar PV to displace standalone diesel-based electricity generation in remote areas, and to meet un-met demand in off-grid locations.

Figure 23: Solar PV deployment scenario

Model Output Energy and Emissions Electricity generation from solar PV under the GIMS scenario would increase slowly over the first four years, and then at a more rapid rate from around 2021 onwards. By 2025, solar PV electricity generation would exceed 25TWh/y, and account for around 4% of electricity generation under a BAU scenario (3% under an MP3EI scenario). The generation scenario of Solar PV has been illustrated in Figure 22.

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Figure 24: Solar PV generation scenario

Solar PV deployment in Indonesia can have a significant impact on the usage of oil for power generation. As per Indonesia Energy Outlook, 2012 the GoI plans to displace oil from electricity generation mix in the near future. The deployment of significant solar PV would accelerate the rate of reduction of oil-based generation (Figure 25): by 2020, solar PV deployment could reduce the generation of oil based electricity by more than 5TWh/y, reducing CO 2 emissions and also reduce the oil import bill for GoI. In addition, solar PV electricity would moderate the growth of coal-based generation from 2021 onwards, as oil-based generation is fully displaced from the network.

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Figure 25: Impact of solar PV on oil usage

The emission reductions delivered by solar PV increase in step with increasing deployment of solar PV capacity. Interestingly, solar PV has a greater emissions abatement potential under the MP3EI scenario than under the BAU scenario (Figure 26), despite deployment and generation being the same under both scenarios. This occurs because a greater proportion of electricity generation under the MP3EI scenario is provided by coal based generators, which are more emissions intensive than the remaining generators (gas, hydro, etc.) on the electricity network. By 2025, solar PV would avoid around 2025MtCO2/y of electricity generation emissions.

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Figure 26: Emissions reduction from solar PV scenario

MP3EI Scenario

BAU Scenario BAU Scenario: Emission Reduction

MP3EI Scenario: Emission Reduction

20

15

10

5

0

Not e: Inst alled solar PV capacit y ident ical under bot h forecast s.

Emissions abat ement is higher under t he MP3EI forecast due t o great er coal-based generat ion.

4.6

25

Avoided emissions (MtCO2/y)

Avoided emissions (MtCO2/y)

25

20

15

10

5

0

Source: Indonesia Energy Out look, EY Analysis

Summary

The solar PV scenario presented here is optimistic given the history of aspiration versus deployment in Indonesia, whilst also being significantly below the deployment levels that are already being achieved in some countries. In common with other renewable generators considered by this model, significant benefits in terms of avoided emissions and lower oil import requirements would flow from solar PV development of this magnitude. Solar PV offers a modular deployment opportunity, allowing deployment scales to be adapted to local conditions: further, its applicability to on- and off-grid circumstances increases the potential for use, particularly in remote areas where further grid expansion could be prohibitively expensive.

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5. Geothermal Energy 5.1

Opportunity for Geothermal Energy in Indonesia

The GoI has set ambitious goals to increase geothermal energy usage from its current 1.32% of the energy mix, to above 5% in 2025 (International Energy Agency, 2008). The Indonesian president has also spoken of his aim for Indonesia to be the worldâ&#x20AC;&#x2122;s largest producer of geothermal energy by 2050 (Indonesia Today, 2010). Geothermal energy has the potential to play a vital role in shaping the low carbon future of Indonesia; with reserves large enough to replace the coal fired base load power stations of the country. The total potential geothermal energy reserve of Indonesia is estimated to be around 29GW (Ashat & Ardiansyah, 2012) and is largely unexploited with a current installed capacity of 1.2GW (Ashat & Ardiansyah, 2012). This suggests a significant opportunity to expand geothermal energy based power generation in Indonesia.

5.2

Geothermal resource

Indonesia is located at the margins of the Indo-Australian, Pacific, Philippine and Eurasian tectonic plates, making it an active tectonic region and a region of significant geothermal activity (Ashat & Ardiansyah, 2012). A total of 276 geothermal areas have been identified in Indonesia, with around 37 being considered â&#x20AC;&#x153;mining working areasâ&#x20AC;? (Ashat & Ardiansyah, 2012). The Indonesian geothermal resource is highly site-specific, with the resource, and current installed capacity, varying enormously between different corridors (Table 6).

Table 6: Geothermal energy regional distribution (Ashat & Ardiansyah, 2012) Potential Resource(MW)

Reserves(MW)

Speculative

Hypothetical

Possible

Probable

Proven

Sumatra

4,785

2281

5,925

15

380

12

Java

1,935

1836

3,848

658

1,815

1,124

410

359

983

-

15

-

Kalimantan

115

-

-

-

-

-

Sulawesi

929

342

1,115

150

78

60

Maluku

535

43

371

-

-

-

Papua

75

-

-

-

-

-

Total areas=276

9,210

4,861

12,242

823

2,288

1,196

Islands

Bali & Nusa Tenggara

13,641

Installed Capacity (MW)

15,353

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28,994

One of the issues with expanding the use of geothermal energy is the limited grid capacity.

Approximately 65% of Indonesiaâ&#x20AC;&#x2122;s territory is connected to grid (most of it in developed islands), and the GoI is presently trying to expand its infrastructure with support from World Bank with a loan of USD225m. However, the opportunity for further geothermal energy development is likely to remain limited unless grid expansion takes into account the need for grid access in geothermal resource areas (Ashat & Ardiansyah, 2012).

Full development of Indonesiaâ&#x20AC;&#x2122;s geothermal energy resources could reduce the dependency of the country on fossil fuel based energy generation sources. However, achieving this level of geothermal development would face many challenges: many geothermal energy regions are located in remote areas or dense forests with no grid connectivity, while developments face a complex regulatory environment in which to operate. Recognising these challenges, and the history of geothermal development in Indonesia, the Indonesia Geothermal Energy Association considers deployment of 6.2GW by 2025 an achievable goal (Indonesia Geothermal Energy Association, 2013). This lower target from the Indonesia Geothermal Energy Association has been used in the Deep Dive scenario for geothermal electricity generation in Indonesia,

5.3

The geothermal energy value chain

Geothermal electricity generation requires a wide range of components and technologies (Figure 27), with components in the core system accounting for around 56% of the total value chain. Of this, the generator and turbine assembly accounts for approximately half of the core system, with a range of other components meeting the balance (Figure 28). Construction accounts for almost 40% of the value chain for a typical installation: for remote areas in Indonesia, construction costs could represent an even larger proportion due to the costs and complexities of access and construction.

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Figure 27: Geothermal energy value chain

Figure 28: Cost breakdown across geothermal energy value chain

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5.4

Current Policy Environment

The GoI currently regulates the development of geothermal energy with the Presidential Decree Number 5/2006 on the National Energy Policy. This policy has signalled an intention to increase the contribution of renewable energy to the overall fuel mix of the country to 17%.

An area of policy that has previously hindered the progression of geothermal development and exploration in Indonesia has been Law No. 27 of 2003 on Geothermal Energy. This law classifies geothermal energy development as a mining activity, which is banned in protected forests and/or conservation areas in accordance with Law No 41 of 1999 on forestry that disallowed mining activities.

This presents an issue given the site-specific nature of where the resource lies. However, in 2011 the GoI published Regulation No. 28 of 2011, which permits underground mining (i.e. geothermal) in protected forests and conservation areas, which was followed by a Memorandum of Understanding (MoU) between the Ministry of Energy and Mineral Resources and the Ministry of Forestry (MoF) No.7662 of 2011. This has since accelerated the issuance of permits for geothermal energy development.

Barriers to geothermal energy uptake The major barriers to development of geothermal energy in Indonesia are: 









Pricing Issues: One of the major barriers towards development of geothermal energy in the country is the disagreement on pricing between PLN and the GoI. In 2011, the Indonesian tariff was lower than that in the U.S. where developers are paid USD 0.10 to USD 0.12 per kWh. Also, the Indonesian tariff is lower than in other developing countries including Turkey and the Philippines where developers are paid USD 0.105 and USD 0.148 per kWh respectively (ThinkGeoEnergy, 2011) High Development Cost: Significant requirement of upfront equity and high exploration costs is a major barrier towards development of geothermal energy in Indonesia. As per reports of WWF (Ashat & Ardiansyah, 2012) a typical drilling project for geothermal energy development costs something around 15-20 million Euros. Risk of non-discovery further makes investment decision difficult for investors. Project financing is only available for the later stages of the project. Moreover development of a geothermal energy power plant costs around USD2.4m/MW (Ashat & Ardiansyah, 2012), which is significantly higher than conventional power generation options.

Grid Capacity: Most of the geothermal energy resources are located in rural areas with no access to grid based electricity (Ashat & Ardiansyah, 2012). This not only increases the development cost of geothermal energy projects but transmission of the generated electricity through the grid also becomes difficult.

Policy level risks: Poor coordination and no clear delineation of authority between central and local governments in Indonesia is a key deterrent to investors in geothermal developments in Indonesia.

Impact on forests: One of the major barriers towards scaling up geothermal energy based generation in Indonesia is that most of the country’s resources are located in projected forest areas and are therefore subject to recently enacted law on pristine forests (Ashat & Ardiansyah, 2012)

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

Energy Subsidies: Energy subsidies distort the energy market price of Indonesia. Fossil fuels appear relatively cheaper and therefore are more preferably to geothermal energy.

Levers and incentive mechanisms The GoI has developed incentive schemes to increase the adoption rate of geothermal energy in the country. The major incentives that are being offered for geothermal energy are set out below: 



Feed-in-tariff: Bappenas has developed a “FiT Fund” in 2010-11 for supporting development of geothermal energy projects that have been awarded tenders but are not able to continue development as they require a tariff above 9.7 US cents/kWh. The FiT fund has been designed to pay the difference between price required by geothermal developers and the current electricity price. (Ashat & Ardiansyah, 2012) Support during exploration: In 2011, the government established a USD 128 million fund which local governments can access to finance exploration drilling for geothermal projects.

However this increases the risk for local governments as they are required to repay 100 % of the loan. (Ashat & Ardiansyah, 2012)

Other incentive mechanisms the GoI could consider to increase the uptake of geothermal energy include investing in capacity building at regional levels for key proponents of geothermal energy development. Moreover, geothermal energy projects need to be bankable and the GoI needs to take measures to alleviate risks such as grid connectivity (for power evacuation), and ease of access to the project site during and post construction.

5.5

Deep Dive Modelling

The scenario evaluated for geothermal energy in Indonesia is based on the forecast put forward by the Indonesia Geothermal Energy Association, under which 6.2GW of geothermal electricity capacity is installed by 2025 (from a base of around 1.2GW in 2012) (Figure 29). Under this scenario, the incremental annual build of new geothermal capacity increases from just over 200MW/y in 2015 to 650MW/y in 2025.

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Figure 29: Geothermal energy deployment scenario

Model Output Energy and Emissions According to the model, by 2025, geothermal electricity generation would meet 6% of Indonesiaâ&#x20AC;&#x2122;s electricity demand (BAU scenario), and would also have an impact on grid emissions by first displacing oil from the fuel mix, and then moderating the use and expansion of coal-based generation. By 2025, geothermal electricity generation could avoid 44-47MtCO2/year being released by the Indonesian electricity network (Figure 30).

Figure 30: Environmental impact of geothermal energy

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Compared to a BAU scenario, the deployment of geothermal capacity would also avoid the need for 6GW of new coal-based electricity generation (out of 36GW of new coal capacity anticipated to be built between 2015 and 2025).

5.6

Summary

In order to achieve the geothermal deployment scenario, there are obvious barriers that need to be addressed by the GoI, such as improving the grid capacity, licencing arrangements and providing greater certainty for project proponents. The Geothermal Fund is a step in the right direction by reducing risk and eliminating the financial barriers to geothermal exploration. This scale of geothermal development presents a great opportunity to offset the Indonesiaâ&#x20AC;&#x2122;s reliance on fossil fuels and reduce greenhouse gas emissions.

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6. Landfill Gas Based Power Generation 6.1

Opportunity for landfill gas electricity generation in Indonesia

The generation of electricity through the management of landfill gas represents a significant emissions abatement opportunity for Indonesia. In common with other renewable electricity sources being considered (solar PV, geothermal), electricity generation from landfill gas can avoid emissions from fossil fuel-based electricity generators. In addition, the use of landfill gas for electricity generation prevents the release of methane into the atmosphere: this represents a significant additional benefit arising through the development of energy generation from landfill gas.

The use of landfill gas relies on the capture of methane from waste, and in 2000 the total Municipal Solid Waste (MSW) generation in 384 Indonesian cities was estimated to be 80,235 tons or 320,940m3 per day (Purwanta, Kardono and Wahyu, 2007): this is expected to increase fivefold by 2020. At present most of MSW is disposed to landfills with only little quantum of the total waste generation being reduced, reused and recycled (Purwanta, Kardono and Wahyu, 2007) . The major problem faced by many of the Indonesian cities is that most of the landfills of the country are open landfills due to lower operating costs (Purwanta, Kardono and Wahyu, 2007). In open dumping landfill systems, the gas collection and transportation systems are not provided and as result the generated landfill gas or biogas cannot be recovered.

With increasing MSW generation in Indonesia, there remains a significant opportunity to use the landfill gas generated for power generation. This would have multiple benefits: improved waste management and sanitation; avoided methane emissions; additional electricity generation; and reduced dependency on fossil fuel based energy generation options such as coal, oil, gas. However the feasibility of generating power from landfill gas would be dependent on several factors such as rate of waste collection, development of landfill sites suitable for methane recover, the chemical composition of waste dumped to landfills and other factors.

The opportunity for landfill gas electricity generation in Indonesia is promising in comparison to other subtropical countries (Purwanta, Kardono and Wahyu, 2007). However due to open dumping in landfills and a lack of gas recovery infrastructure, the rate of gas is limited. As an example, Table 7 shows the measured rate of landfill gas generation at several locations in Indonesia, for which the electricity generation potential has been calculated: methane generation and capture would need to increase substantially from these levels before landfill gas had the potential to make a significant contribution to national electricity supply.

Table 7: Existing landfill gas capture rates (Purwanta, Kardono and Wahyu, 2007) No

Location

LFG volumetric rate (m3/day)

Methane concentration (%)

1

Sukamiskin, West Java

2.5 to 4.7

77-88%

2

Grenjeng, West Java

2.0 to 12.6

67-71%

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3

Benowo, East Java

2.2 to 15.7

51-58%

4

Jelekong, West Java

3.7 to 7.0

56-57%

5

Leuwigajah

5.1 to 10.7

55-56%

6.623

63.71

Average

6.2

Typical landfill gas value chain

Landfill gas-based power generation requires a range of components within the core system, both from a power generation perspective and from a gas transport and management perspective (Figure 31). The gas engine represents approximately 40% of the entire value chain of landfill gas-based electricity generation, with project development (13%) being the next most significant item (Figure 32).

Figure 31: Landfill gas based power generation-value chain

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Figure 32: Cost structure of value chain components

6.3

Current policy environment

The waste management policies for Indonesia are outlined in Act No. 18/2008 of Waste Management.

Prior to the issue of Act No.18/2008, the Government Regulation (PP) No.16/2005 has determined the protection of water resources due to pollution from landfill as one of the subjects to focus on. PP No. 16/2005 is a regulation under the Law of Water Resources (Act No.7/2004).

The GoI’s support for a Reduce, Reuse, Recycle approach to waste management was significantly advanced in Regulation 21/PRT/M/2006 of the Minister of Public Works. The regulation focuses on 3R as the national strategy and outlines that until 2014, solid waste disposal should be reduced up to 20%.

Targets of the national strategy on waste management sector are as follows (BAPPEANS, 2009):   



Support the achievement of service level of solid waste up to 60% in 2010.

Support the reduction of solid waste through 3R method up to 20% in 2014.

Improve the quality of landfill through: o Controlled landfill for small and medium sized cities o Sanitary landfill for large and metropolitan cities o Termination of open dumping Support the implementation at institutional and national level

However implementation of the above mentioned polices remains a critical challenge due to technology unavailability, lack of skilled manpower and requirement of higher capital investments.

Moreover landfill gas based electricity generation can’t be considered a reliable source of power

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generation as the power generation is dependent on the chemical composition of waste, biogas generation and recovery rate etc.

Levers and Barriers to Landfill Gas Uptake The major challenges towards development of landfill gas based electricity generation are:  

  

Lack of resource (waste), in particular the current low level of disposal of collected waste in suitable landfills.

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

Incentive Mechanism For promotion of landfill gas based power generation in Indonesia, some of the incentives that can be considered are: 







6.4

Generation Subsidies: Considering the higher investment required for setting up a landfill gas based power generation station and the unreliability in investment, the GoI can help reduce the financial burden on project developers through introduction of generation based subsidies.

Such type of incentives would help attract private sector investors.

Access to finance: The Government can help the interested raise capital from banks for investing into landfill gas based power generation projects. This would ease the barrier towards raising finance for such projects.

Feed-in- Tariff: Introduction of feed-in-tariffs for landfill gas based power sale can increase the financial viability of the projects. Under such a scheme the PPA can be signed for a fixed period of time to guarantee cash flow to the investors.

Concept of tipping fees: To improve the waste collection efficiency the GoI can introduce the concept of tipping fees for collection of waste from the municipal households. This would attract private sector players to the waste management sector.

Deep Dive Modelling

Landfill gas scenario Of the MSW generated in Indonesia, currently around 10% goes to landfill (UNEP, 2001): this is accompanied by relatively low rates of waste collection in both urban and rural locations. In developing the landfill gas scenario, target figures for waste collection and disposal rates have been put forward for 2025 (Table 8): these target figures are not a forecast, but serve to demonstrate the importance of improved waste collection activities in driving electricity generation from landfill gas.

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Table 8: Assumptions for landfill gas scenario Metric

2010 Value

2025 Scenario

Increase in waste generation rate

2.9%

2.9%

Urban waste collection rate

50%

70%

Rural waste collection rate

20%

40%

Rate of disposal in engineered landfill

10%

60%

Gas capture rate

75%

75%

Electricity generation efficiency

35%

35%

Modelling based on this scenario demonstrates that a rapid increase in the amount of waste available for landfill gas-based electricity generation could be achieved by 2025 (Figure 33). Note that the increase in the percentage of collected waste that is deposited in a landfill is the single-biggest driver of increasing waste availability for landfill gas generation (Figure 33, right hand bar chart). While the availability of waste for methane generation does not guarantee that landfill gas electricity generation will be developed, the converse is also true: without a significant proportion of waste available for landfill gas operations, the impact of electricity generation from landfill gas will remain small.

Figure 33: MSW generation and landfill disposal

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Model Output Energy and Emissions Based on the waste scenario set out in Figure 33, the energy generation potential and emissions abatement potential of an expanded landfill gas sector has been modelled (Figure 34). Landfill gas is unique amongst the technologies considered in this report, as the generation of electricity through this technology not only avoids emissions from grid-based fossil fuel generators, but it has the added benefit of abating methane emissions that would otherwise be released through the decomposition of waste in landfills. The avoided methane emissions dominate the emissions benefit achieved by landfill gas, accounting for well over 90% of the cumulative net abatement achieved in this scenario (Figure 34, right hand bar chart).

10

400

9

350

8 7

300

6

250

5

200

4

150

3

2025

2024

2023

2022

2021

2020

2019

2018

2017

0

2016

0

2015

1 2014

50 2013

2

2012

100

35

Emissions reduction (MtCO2e/y)

450

2011

Energy Generation Potential (GWh)

Figure 34: Landfill gas based electricity generation

30 25 20 15 10 5 0

Source: EY Analysis, based on data and models from USEPA, ICCSP

6.5

Summary

Electricity generation from landfill gas represents a major opportunity for Indonesia to simultaneously develop its waste management systems, moderate the growth of electricity demand, and significantly reduce emissions. Development of the landfill gas sector will require policy support, particularly in supporting the effective collection and disposal of waste in appropriate landfills: without this, the waste resource will not be able to be exploited by landfill gas operators. With waste typically generated in high population areas, the development of landfill gas electricity generation should not suffer from the grid access issues that geothermal energy faces.

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7. Building Energy Management System 7.1

Opportunity for BEMS in Indonesia

Energy efficiency in the building sector offers significant potential for the cost effective reduction of GHG emissions. Investment in building sector energy efficiency can also result in creation of jobs and help to delay investments in costly power generation technologies and transmission network reinforcement. Building energy performance is directly related to the design of the building envelope (e.g. insulation, roofing, windows) and the diverse systems and components within it, such as lighting, appliances, and heating, ventilating, and air conditioning (HVAC) systems.

Building energy management systems offer an opportunity to reduce electricity consumption by way of effective monitoring of usage across the commercial and residential building stock. The GoIâ&#x20AC;&#x2122;s goals for building energy efficiency are a 25% reduction in energy use in commercial buildings, and a 1030% reduction in residential buildings, by 2025 (APEC, 2012). Building Energy Management Systems can be used to support these goals for the building sector through integrated monitoring and reporting of energy consumption of buildings, identification of potential improvement opportunities, and allowing the greater control of the HVAC system through the use of wireless thermostats and receiver hubs. Moreover, the online monitoring of the energy consumption also increases the awareness level of tenants towards energy conservation in the building sector.

Electricity consumption reduction achievable from the implementation of BEMS would reduce the grid electricity demand, and would significantly impact fossil fuel based electricity generation prevalent in Indonesia.

7.2

Building Energy Management System-Potential

Commercial building owners spend 30 percent of their operating budget on energy (Donnelly, 2012).

Costs can be reduced with improved building energy management practices. Optimizing building performance also reduces demand for energy from the grid, lowers carbon emissions from electricity generation and fuels burned on site, and can improve occupant comfort.

A building management system (BMS), building automation system (BAS), or building energy management system (BEMS) controls the mechanical, electrical and plumbing systems in a building.

They can be programmed to track, trend and record data over certain periods of time. As per the technical catalogues / reports available with BEMS suppliers, BEMS can reduce the electricity consumption of households by around 30% and that of commercial sector buildings by around 30% (source: Siemens Report on BEMS energy saving potential).

7.3

The building energy management system value chain

The value chain for Building Energy Management System is reliant on inputs from sectors that differ markedly from the renewable energy technologies considered in this report. BEMS is reliant on sensors and control systems, backed by appropriate hardware and software, to deliver building management services (Figure 35). The value chain is highly skewed towards the software and sensors

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involved in the BEMS, which account for almost 80% of value: procurement and project management are a minor contributor (Figure 36).

Figure 35 : BEMS value chain

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Figure 36 : Cost structure of value chain components

7.4

Current Policy Environment

Rencana Induk Konservasi Energi Nasional (RIKEN) has set a target to reduce the energy consumption of building sector as mentioned below:  

Commercial building sector: Electricity savings of 25% by 2025 (APEC, 2012) Residential sector: Electricity savings of 10-30% by 2025 (APEC, 2012)

The GoI has also undertaken the following programs for reducing the electricity consumption of the building sector (APEC, 2012) 



Mandatory energy conservation of government office buildings: Government departments and agencies and regional governments are mandated to implement best practice energy saving measures as explained in the government‘s guidelines and directives on energy saving in government buildings, and are required to report their monthly energy use in buildings to the National Team on Energy and Water Efficiency, every six months (APEC, 2012) Public—Private Partnership Program on Energy Conservation: The Partnership Program on Energy Conservation is a government-funded energy audit program that is available to industries and commercial buildings. Participating industries and commercial buildings are required to implement the recommended energy saving measures identified in the energy audit.

Incentive mechanisms The existing incentive mechanisms may help increase the installation of BEMS in Indonesia:

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









7.5

Financial incentives for building developers: The GoI can offer financial incentives to building developers in terms of tax exemption and providing loans at a reduced rate of interest provided the developers take measures to reduce the electricity consumption of the buildings.

This would increase the attractiveness of building sector energy efficiency measures to developers.

Tax exemption on import energy savings appliances: Indonesia would be required to import sophisticated SMART solutions such as BEMS. Therefore providing tax exemption on import of energy savings appliances would help to reduce the financial burden on project developers.

Building Energy Codes: By Government Regulation No. 36/2005, under Law No. 28/2002 regarding Buildings, all buildings must comply with existing standards. Indonesia has four energy standards (SNI) for buildings, the standards cover: (1) the building envelope, (2) air conditioning, (3) lighting, and (4) building energy auditing. Energy building standards have yet to be mandated. However, voluntarily energy conservation and efficiency measures in commercial buildings are widely implemented (LitesAsia, 2013).

Subsidy and budgetary measures: Government subsidies and budgetary measures can be provided for energy conservation programs such as the (1) partnership program on energy conservation in energy auditing, (2) the lighting program—for eligible households in relation to demand-side management (DSM) programs and saving energy, (3) BRESL, and (4) other programs such as for information dissemination.

Capacity Building programs: The GoI can also help the developers by organizing training sessions for the building managers in order to make them equipped for carrying out better operation and maintenance practices and interpret the results of BEMS.

Deep Dive Model

The BEMS scenario builds on the GoI’s expectation that household energy consumption by up to 25%, and commercial electricity consumption by around 30%. The BEMS scenario uses these values as targets for 2025, with the introduction of BEMS increasing from 2010 to 2025, and achieving a penetration rate of 50% by 2025 (that is, half of all buildings would have BEMS delivering the Government’s target efficiencies in 2025). The electricity savings achieved would help reduce the energy and emission intensity of the building sector of the economy. This would in turn reduce electricity demand, reduce emissions, and improve the profitability of businesses that are able to costeffectively implement BEMS systems.

Both the residential and commercial sectors are forecast to experience significant growth in electricity consumption through to 2025 (Figure 37), with electricity demand in the commercial sector growing significantly faster under the MP3EI forecast than under the BAU forecast. Interestingly, residential electricity demand is forecast to be insensitive to the underlying economy growth forecast (BPPT, 2012).

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Figure 37: Electricity consumption of residential and commercial buildings

Model Output Energy and Emissions Avoided electricity demand arising from the installation of BEMS would have an impact on the emission arising from the building sector, and have a significant impact on emissions from the Indonesian electricity network. By 2025 BEMS is expected to reduce the household electricity consumption by around 30TWh/y (12.5% of sector demand) and commercial sector electricity consumption by 17TWh/y (15% of sector demand) by 2025 in the BAU scenario (Figure 38). Under the MP3EI scenario, demand reductions in the residential sector are broadly unaffected; however, commercial sector electricity consumption would fall by 25TWh/y (15%) due to the more rapid increase in sector electricity demand forecast under the MP3EI (Figure 39). Overall, electricity demand under a BAU scenario would be around 7% lower in 2025 should this BEMS scenario to be realised.

These reductions in electricity demand are significant in terms of the changes that that would be imposed on the electricity system. By 2017, the efficiency savings from BEMS would account for most of the forecast electricity generation from diesel (Figure 40): not only would this have an emissions impact, but it would have a significant balance-of-payments impact. Indonesia is a significant oil importer, and the avoided electricity demand from diesel generators due to the BEMS scenario is equivalent to a $900m reduction in foreign oil import costs in 2017 (oil at $100/barrel).

The emissions abatement potential of the BEMS scenario in 2025 is around 50MtCO 2 under the BAU forecast, and 61MtCO2 in the MP3EI forecast (Figure 41). The additional avoided emissions under the MP3EI scenario arise due to both higher demand in the commercial sector, and higher emissions intensity of grid electricity (due to a greater reliance on coal-based generation).

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Figure 38: Impact of installation of BEMS in BAU scenario

Figure 39: Impact of installation of BEMS in MP3EI scenario

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Figure 40: Impact of BEMS on oil usage

Figure 41: Abatement potential of BEMS

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7.6

Summary

Building energy management systems offer a long-term opportunity to embed efficiency within the built environment of Indonesia. The model results suggest that significant energy and emissions benefits could accrue from the large-scale adoption of this technology. However, there should be some caution over the scale of the impact, as to be achieved it would require extensive policy intervention and co-ordination across multiple jurisdictions. Finally, the current policy of subsidised electricity pricing acts as a major deterrent to investment in BEMS: whilst electricity prices remain low, the economic case for private sector investment in BEMS is undermined.

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8. Slag Blending in Cement Production 8.1

Opportunity for slag re-use in Indonesia

Using slag cement to replace a portion of Portland cement in concrete is an effective method of improving the consistency of concrete. Some of the measurable advantages of using slag cement are better workability, improved â&#x20AC;&#x153;finishabilityâ&#x20AC;?, higher compressive and flexural strengths, and lower permeability.

The reduction in GHG emission from this technology results from a decrease in the amount of clinker required for producing a given volume of cement. Process CO2 emissions are lessened as a result of a reduced requirement for clinker produced by sintering limestone (a process that emits CO 2). Thermal and electrical energy used in the production of the clinker is also reduced, resulting in lower emissions.

The production of cement using slag generated in a steel blast furnace enables effective management of the waste generated in iron and steel production.

Cement production in Indonesia is expected to increase significantly in the future (Figure 42), and therefore the clinker requirement would also increase proportionately. While there is a clear cost and emissions benefit from the use of slag in cement, which can be implemented quickly, the opportunity to use granulated slag in cement production in the context of Indonesia is limited as few companies produce the required quality of slag that can be used for cement production.

Figure 42: Cement and clinker production

At the same time, the iron and steel sector is anticipated to expand in Indonesia over the coming decade, leading to an increase in the availability of slag (Figure 43) shows the projected steel and slag production

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Figure 43: Steel and slag production, Indonesia (World Steel Association)

As shown in the above figure the steel and slag production expected to increase at a CAGR of 2.5% from 2010 to 2025.

8.2

The slag re-use value chain

The typical value chain for slag based cement generation is focussed on the processing requirements for re-use of the slag: crushing, grinding, materials handling (e.g. conveyors) and similar process equipment (Figure 44). The cost breakdown for this technology is heavily skewed towards milling, with other components accounting for less than 10% of the value chain.

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Figure 44: Slag re-use value chain

Figure 45: Cost breakdown across the slag re-use value chain Bucket elevator and hopper Vibrating feeder MTW Mill (main unit, blower, classifer, cyclone collector, bag filter, air compressor, reducer)

6% 1%

8.3

92%

Current Policy Environment

The major hurdle towards utilization of slag for cement production is availability of quality slag in the country. Through discussions with industry representatives, it appears that the potential of using the slag that is generated in Indonesia for cement production is lower when compared to other countries of similar 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 able to be re-used

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(Hazardous Waste (Control of Export, Import and Transit) Act, 122A). Addressing this issue will be fundamental to unlocking the potential of slag re-use in Indonesia’s cement production industry.

Levers and barriers to slag re-use uptake The major barriers towards uptake of slag re-use are: 





Technical barrier: Through discussions with cement manufacturers in Indonesia, the prevailing view is that not all slag produced from blast furnace operation in Indonesia is particularly 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 is further getting 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 render the same uncompetitive with virgin materials at a specific site. Availability of foreign sources may enhance the economic disadvantage introduced by overland transportation costs.

Incentive mechanisms As slag re-use in cement manufacture is an established, cost effective technology in a number of other countries, additional incentive mechanisms do not seem appropriate. With reform aligned to the barriers identified above, and in particular the classification of slag as a hazardous waste, market forces would be sufficient incentive for rapid uptake of this technology.

8.4

Deep Dive Modelling

The slag re-use scenario has been developed taking into account a range of factors, including:      

Cement production projections from the Indonesia Cement Association Steel production projections in Indonesia from the World Steel Association Slag production at 0.275tonne/tonne of hot metal produced in a blast furnace (World Steel Association, 2010).

An emission intensity of clinker production of 0.834tCO2/t clinker (WBCSD, 2011) The specific energy of clinker of 3,239MJ/t clinker A clinker substitution ratio of 35%

Clinker typically accounts for 95% of the volume of cement (WBCSD, 2009), and the scenario evaluated here provides for the incremental uptake of slag in cement manufacturing from 2015 (note that, even with 100% uptake, the ability of the Indonesian cement production sector to use slag is significantly larger than forecast slag production levels.

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Model Output Energy and Emissions With increases economic growth, steel production is forecast to increase significantly in the future thereby the impacting the slag generation. Figure 46 shows the slag that would be generated in Indonesia vis-Ă -vis the clinker formation that can be avoided, based on 10% of the total slag generated being suitable for clinker substitution, and a 55% blend ratio for slag-based cement. Figure 46 shows the potential energy and emission savings achievable due to clinker substitution: an emissions reduction of around 0.8MtCO2 would be expected in 2025, accompanied by a reduction in energy use of over 3,000TJ. Figure 46: Energy and emission abatement potential of slag cement

8.5

Summary

The re-use of slag in clinker substitution offers a unique opportunity to create value from waste, without the need for significant government policy support. While the emissions and energy benefits are modest, the commercial attractiveness of this technology means that the removal of barriers to its use in Indonesia would likely precipitate rapid uptake. However, without policy reform, this technology will not be developed further: the current classification of slag as a hazardous waste would need to be addressed for the opportunity of this sector to be realised.

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9. Biodiesel 9.1

Opportunity for Biodiesel in Indonesia

In recent years, biodiesel has been at the forefront of the GoIâ&#x20AC;&#x2122;s development plans, as it is seen as an option for reducing the reliance of Indonesia on fossil fuels and can also provide an additional market for palm oil products. Based on Indonesiaâ&#x20AC;&#x2122;s roadmap for biofuel development, prepared by Timnas BBN (2006), biofuels are expected to constitute 5% of the national energy mix by 2025.

Many countries have introduced incentives such as consumption targets, tax breaks and production subsidies, which have stimulated the growth of biodiesel production and trade. Indonesia has extensive oil palm plantations and is now the worldâ&#x20AC;&#x2122;s leading producer of crude palm oil (CPO); thus, it is well positioned to develop biodiesel production. Significant political and environmental debate surrounds the plans for future expansion of the biofuels (and consequently, palm oil) industry, with competing views of the impact of palm-based diesel. Some see it as having a significant role in delivering emissions abatement, contributing to energy independence, and supporting economic development (particularly in rural areas): others are concerned about potential unintended social, economic and environmental consequences of the large-scale development of the palm plantations necessary to support an expanding biodiesel industry (Caroko, et al., 2011).

The GoI currently sees a substantial role for biofuels, and biodiesel in particular, in the medium-term energy future of Indonesia: biodiesel use is forecast to expand enormously through to 2025, based on domestic production (BPPT, 2012).

9.2

Biodiesel Resource

The figure below represents the demand of biodiesel both in BAU scenario and MP3EI scenario:

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Figure 47: Biodiesel production scenario

As demonstrated in the above exhibit the biodiesel production is expected to increase at the rate of 13% per year in BAU Scenario and by 15% in the MP3EI scenario. With this increasing supply scenario the export potential of biodiesel would also increase: the GoI would have the option of using the excess biodiesel either to increase the share of biodiesel in transport sector or to use the same for power generation.

Since 2005, biofuels have increasingly attracted the attention of the GoI due to their potential to reduce the countryâ&#x20AC;&#x2122;s reliance on fossil fuels, while providing an additional market outlet for palm oil products. Increased use of biodiesel would also help Indonesia to preserve its depleting fossil fuel reserves and reduce the oil import bill. Since Indonesia is presently an oil importing country, it is susceptible to global fluctuation in oil prices. Increased penetration of biodiesel can help improve the energy scenario of the country. The table below summarizes the outlook of GoI towards biofuel development (Caroko, et al., 2011) Table 9: Biofuel targets and mandates (Caroko, et al., 2011) Fuel

Biodiesel

Usage 2005-10

2011-15

2016-25

10% of diesel consumption

15% of diesel consumption

20% of diesel consumption

2.41m kilolitres

4.521m kilolitres

10.22m kilolitres

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Bioethanol

9.3

5% of gasoline consumption

10% of gasoline consumption

15% of gasoline consumption

1.48m kilolitres

2.78m kilolitres

6.28m kilolitres

The Typical Biodiesel Value Chain

The value chain of biodiesel production focusses on process equipment for hydrocarbon manipulation (Figure 48), including heating, pumping, condensing and steam generation. Significant storage capacity, for both raw materials and finished product, is also required. However, the largest component of the value chain is in the installation and construction of biodiesel production facilities (Figure 49), suggesting that there is limited complexity in the processing equipment.

Figure 48: Biodiesel value chain

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Figure 49 : Cost structure of value chain components

As demonstrated in the above exhibit installation and construction of a biodiesel generation facility requires around 67% of the total investment figure.

9.4

Current Policy Environment

The table below summarizes the present policy scenario of Indonesia with regards to usage of biodiesel: (Saryono Hadiwidjoyo, 2009) Table 10 : Indonesia's biofuel policies (Saryono Hadiwidjoyo, 2009) Policy Brief Summary Reference/Name Presidential Regulation No.5/2006

The policy provides a biofuel incorporation target of 2% of national energy consumption by 2010, increasing to 5% by 2025. It tasked the Ministry of Energy and Mineral Resources with developing a national energy management blueprint, covering various energy sources, including biofuels.

The blueprint outlines the governmentâ&#x20AC;&#x2122;s strategies for the management and use of energy resources. Based on this blueprint, the Ministry of Energy and Mineral Resources estimates that the annual production capacity for biodiesel should increase from 1.16 billion litres in 2010 to 4.16 billion litres in 2025

Presidential Instruction No.1/2006,

This policy provides the framework for coordination among ministries of the development, supply and use of biofuels. It designates ministries responsible for formulating and implementing policies covering: incentives; tariffs and trading systems; standards and procedures for cultivation, processing, quality testing, supply and distribution of biofuels; the provision of land; and the development of research and technology. It also states that provincial governors, district heads and mayors should support and promote the establishment of a domestic biofuel industry.

Presidential Decree No.10/2006

This policy established a national biofuel taskforce or Timnas BBN, comprising representatives from government institutions and corporations and individuals with an interest in biofuels. The taskforce consists of a steering committee, organising committee and working groups on various

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themes, such as policy and regulations, land procurement, cultivation and production, markets, and infrastructure. It was tasked with developing a roadmap for biofuel development, defining the necessary steps to be taken by respective institutions, and evaluating the implementation of biofuel policies.

Levers and Barriers to Biodiesel Uptake The major barriers towards uptake of biodiesel in Indonesia are: ď&#x201A;ˇ

Land Requirement & wide environmental concerns: The increasing production of Crude Palm Oil as the raw material of biodiesel may bring undesired effect of more forest conversion to plantation. Most of the palm oil plantations in Indonesia are traditionally located in Kalimantan and Sumatra (as well as further afield internationally in Singapore, Malaysia and Southern Thailand), as the island possesses the best climate and soil in the country to cultivate oil palms. As a mechanism to accelerate the development in the eastern part of Indonesia, the GoI has permitted several companies to develop additional palm oil plantations in the Kalimantan and Papua islands (Caroko, et al., 2011). These concession lands given to the company are mostly forestland. Therefore increased production of Crude Palm Oil may have a negative impact on the environment through forest land destruction. Figure 50 presents the land requirement for biodiesel production to 2025.

Figure 50: Land area requirement for biodiesel

ď&#x201A;ˇ

Rising feedstock price: The biodiesel industry across the globe has suffered from rising cost of feedstock, increasing the cost of the final product. Moreover energy subsidy provided by the GoI makes the uptake of biodiesel even more difficult.

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Fluctuating international energy prices: Fluctuating prices reduces the stability of biodiesel market as well. Moreover capex required for setting up a biodiesel plant reduces the investment attractiveness of this technology option.

Balancing the social and environmental impact with economic impact: Balancing the economic benefits with environmental and social impacts is a difficult proposition. Even when biofuels meet environmental and social sustainability criteria, they need to first pass the economic sustainability (or viability) test. This means ensuring efficiency of production (through high yields and intensive management), long run profitability, access to productive resources (e.g. land, labour, technology), and reliable output markets. The challenge is achieving all this while ensuring economic viability and minimizing potential negative social or environmental impacts.

Incentive mechanisms To boost the biodiesel sector of the country, the GoI has developed several policies and incentive mechanisms as detailed below: 

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In February 2006, the National Standardisation Agency approved biodiesel and bioethanol standards, which were based on similar standards in the United States and European Union.

The Ministry of Energy and Mineral Resources issued new fuel specifications, which permit diesel and gasoline fuels to contain up to 10% fatty acid methyl ester (biodiesel) and 10% bioethanol. This decree allowed Pertamina to start selling B51 and E52 fuel in mid-2006.

In order to encourage a more conducive business climate for biofuels in Indonesia, in October 2006 the Ministry of Energy and Mineral Resources issued an additional regulation (No. 051/2006) that provided potential investors with guidance on obtaining permission to produce, purchase, sell, export and import biofuels. The regulation requires biodiesel companies to guarantee a continuous supply of biofuel for domestic needs. It also stipulates that the permit granted is valid for up to 20 years and may be extended.

The biofuels industry is one of the sectors eligible for incentives detailed in Government Regulation No. 1/2007. These incentives take the form of income tax reduction, accelerated depreciation and amortisation, and a government guarantee against operational losses.

Presidential regulation number of 45/2009 mandates the Ministry of Energy and Mineral Resources to determine the market price of petroleum and biofuels. In the same year, the government decided that the House of Representatives would consider a subsidy of USD 0.1 per litre if the cost of production of biodiesel is higher than that of petroleum.

The Ministry of Finance issued decrees to provide subsidized loans to help them develop biofuel plantations, providing credit to farmers at an interest rate lower than that offered by commercial banks, particularly for planting oil palm.

The GoI (Regulation No 8/2007) also focuses on financing on long-term investment projects deemed important for economic development of the country. In collaboration with the private sector or state-owned companies, the government can provide investment funds to help develop production facilities and supporting infrastructure.

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9.5

Deep Dive Modelling

The GoI has forecast an aggressive expansion of biodiesel in the Indonesian energy mix through to 2025, under both the BAU and MP3EI forecasts (Figure 47). The deep dive model adopts these forecasts, but evaluates them against a hypothetical scenario of biodiesel use remaining at current (2010) levels. To do this, three scenarios have been modelled: Scenario 1: No growth in Biodiesel production post 2010 and therefore mineral diesel would be used for meeting the transport sector diesel demand. This scenario has been considered the baseline for evaluating the same against scenarios with different penetration rates of Biodiesel.

Scenario 2: Models the impact of biodiesel usage forecast by the GoI. Scenario 3: The forecast for future biodiesel production is higher than the forecast of biodiesel demand in the transport sector. The difference between these two forecasts represents a “surplus”, which could be used either as export or as additional domestic supply (beyond that already forecast).

Under scenario 3 the impact of using a certain fraction of the Biodiesel along with government demand forecast has been assessed.

For estimation of the abatement potential a net carbon benefit factor of 0.19 has been used: this is consistent with the EU Renewable Energy Directive’s approach to accounting for the upstream production emissions associated with biodiesel.

Model output Energy and Emissions Biodiesel penetration is expected to have a significant impact on the diesel usage in the transport sector (Figure 51), with biodiesel accounting for more than half of all transport diesel demand under both the BAU and MP3EI scenarios in 2025. Based on the projections of Indonesia Government biodiesel would be in a position to completely displace diesel from the transport sector fuel mix (BPPT, 2012). The figure below shows the mineral diesel and biodiesel demand in BAU and MP3EI scenario:

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Figure 51: Mineral diesel and biodiesel demand

Enhanced use of biodiesel would also result in limited emission reduction, as shown in Figure 52. This result is highly influenced by the use of the EU Renewable Energy Directive’s estimate that around 19% of the “total” emissions benefit of biofuels is actually realised, with significant emissions arising from the production of feedstock as well as in the refining stages of the value chain. This result could change if alternate production methods were used: for example, if feedstock (palm oil) was produced on existing farmland rather than newly cleared rainforest: the soil type underlying the palm oil plantations, especially the presence or absence of peat soils, would also exert a significant impact on this result.

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Figure 52: Emission reduction impact of biodiesel

9.6

Summary

The GoI forecast for palm oil production and biodiesel production appears very optimistic, and would involve extensive conversion of land (whether existing farmland, fallow land or primary forest land) to palm oil plantations. If successful, this would moderate Indonesiaâ&#x20AC;&#x2122;s future oil import requirements2; however, the emissions benefits and environmental impacts would need to be carefully considered.

The calculation of emissions benefits from biofuel production is controversial, with some governments adopting a very conservative approach to assessing this benefit. At the same time, should the expansion of palm oil plantations result in significant further removal of primary forest in Indonesia, it is likely to generate concern over the wider environmental impacts of the technology.

2

Indonesia is forecast to become the worldâ&#x20AC;&#x2122;s largest importer of oil by 2018 (Wood McKenzie, 2013)

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10. Conclusion and next steps This report has set out the approach adopted to modelling the energy and emissions impacts of six priority technologies in Indonesia, delivered as part of the GoIâ&#x20AC;&#x2122;s and GGGIâ&#x20AC;&#x2122;s collaboration through the Green Growth Program in Indonesia. This report includes the scenarios developed as the basis for the modelling, and provides insights into the policy environment, levers, barriers and incentive mechanisms that exert an influence over current and future development of these priority technologies.

The different technologies evaluated operate across a wide range of scales, and are subject to a broad range of controls and constraints. Solar PV, geothermal and landfill gas appear to offer significant benefits for Indonesia from and energy and emissions perspective, with building energy management systems demonstrating the potential (under the scenario evaluated here) for delivering meaningful electricity demand reductions. Slag reuse in cement production offers the most near-term green growth intervention; however, this is strongly contingent on relevant policy reform. Finally, the palm oil and biodiesel development forecast of the GoI (as modelled here) suggests a very large scale development opportunity; however, it seems likely that significant broader environmental issues that would accompany expansion of the biofuel industry to the scale modelled here.

Next steps With the findings of this modelling work as an input, the GGGI Hybrid Team will identify two technologies to be further investigated and developed as business cases for implementation in Indonesia.

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Strategic Asia, 2012, Implementing Indonesiaâ&#x20AC;&#x2122;s Economic Master Plan (MP3EI): Challenges, Limitations and Corridor Specific Differences http://www.strategic-asia.com/pdf/Implementing%20the%20MP3EI%20Paper.pdf Purwanta, Kardono and Wahyu, 2007. Landfill Gas for Energy: Its Status and Prospect in Indonesia. http://www.esi.nagoya-u.ac.jp/h/isets07/Contents/Session05/1139Kardono.pdf Saryono Hadiwidjoyo, 2009. Indonesiaâ&#x20AC;&#x2122;s biofuels policies and program. Tokyo, Department of Energy & Mineral Resources. http://www.biomass-asia-workshop.jp/biomassws/06workshop/presentation/09_saryono.pdf SolarSuperstate, 2013. Solar Superstate. http://www.solarsuperstate.com/1/index.php/competition/competition2013/solar ThinkGeoEnergy, 2011. Thnik GeoEnergy. http://thinkgeoenergy.com/geothermal PWC, 2013. World in 2050 The BRICs and beyond. PWC. https://www.pwc.com/en_GX/gx/world-2050/assets/pwc-world-in-2050-report-january-2013.pdf UNEP, 2001. United Nations Environment Programme. [Online] http://www.unep.or.jp/Ietc/Publications/spc/State_of_waste_Management/6.asp Yani Witjaksono, 2012, Appropriate Incentives Scheme for Solar PV Market Development in Indonesia http://indonesien.ahk.de/fileadmin/ahk_indonesien/Bilder/Business_Development/GISED2012/METI.pdf

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