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with Warnika Kardaya, Director General, Directorate General of New & Renewable Energy & Energy Conservation

05.04.2012 / Energyboardroom

The Directorate General of Renewable Energy & Energy Conservation was created less than two years ago and it has been less than one year since you have been at the helm. What were the factors that led to the creation of the Directorate General and what are its main objectives?

The Directorate General was created firstly because the role of new and renewable energy has recently grown greatly in importance for Indonesia. Therefore, the Indonesian government recognized the necessity for establishing a department with the sole purpose of directing and managing these issues.

Why is renewable energy and energy conservation so important for Indonesia right now?

Renewable energy and energy conservation has become important because we can no longer rely on fossil fuels, especially oil and gas, as the primary source of energy for two main reasons. The first reason is their rising prices, and second, due to the depletion of these resources. Not only has Indonesia’s appetite for energy consumption grown to a large extent but it has also become greatly inefficient. In fact, Indonesia’s energy consumption has grown at a rate of about 7% per year. However, more specifically, electricity consumption has grown at a rate of 9% per year and this indicates that we can expect the growth in power consumption to continue in the future. Currently energy consumption amounts to the equivalent of 3.9 million barrels of oil per day (BoE/D) of which 95% is derived from carbon based fossil fuels leaving only 5% of energy generation from renewable sources. If the current trend continues, Indonesia will face a difficult future given the rising fuel costs and the depletion of fossil fuel sources in Indonesia.

For instance, today’s proven oil reserves in the country are approximately 4 billion bbl, while proven gas reserves are somewhere at 150 trillion cubic feet. If no further discoveries are made, at today’s consumption rates Indonesia can expect to have 11-12 years of oil and 35-35 years of gas supply. For this industry, and more importantly, for the future of Indonesia, this is a very short timeframe.

Therefore, we have decided to tackle this issue from many directions. Looking at the supply side, one solution is to push our exploration efforts and to increase the level of our proven oil and gas reserves in order to be able to increase our production levels. However, this is only a short term solution. Therefore, we have also decided to also develop our renewable energy resources. Indonesia is generously blessed with a whole range and abundance of renewable energy resources. For instance, Indonesia has 40% of the worlds proven geothermal reserves. However, I believe this figure underestimates the full potential of Indonesia’s geothermal power since it does not consider the offshore reserves, which accounts for about 70% of Indonesia’s territory. In addition to this, Indonesia is also rich in biomass, hydro, solar, tidal and wind energy. Therefore, we need to allocate and optimize our resources towards developing and harnessing these renewable sources.

What has been achieved so far in terms of developing Indonesia’s plentiful renewable sources and what is their overall potential?

The most significant renewable resources that are being developed in Indonesia include Geothermal, Hydro (mini and macro), Biomass (mostly from palm oil) solar and wind energy. With regards to geothermal energy, the estimated onshore potential is 29,000MW of which only 1,226MW, or 4%, has been so far developed. Macro and mini Hydro power plants have a potential of approximately 35,000MW and 770MW with only 6,600MW (9%) and 200MW (29%) already developed, respectively. Biomass, or palm oil energy, represents a potential of about 49,000MW of which an estimated 1,600MW (3%) has so far been developed. However, due to the nature of this energy resource, we expect its potential to grow in the future. Finally, solar and wind energy account for approximately 22MW and 7MW of energy generation, respectively. Clearly, Indonesia has great potential for the development of the renewable energy resources and ultimately for the generation of significant amounts of clean and sustainable power.

Aside from increasing generating capacity, Indonesia can also improve its energy supply through the implementation of energy conservation initiatives that will reduce the wasteful use of energy. What efforts is the Directorate General making on this front?
We have forecasted that in the near future, energy consumption will triple compared to today’s level, or 3.3 billion BoE per year; which is a significant amount. Therefore we believe that it is necessary to implement energy conservation especially since the potential is there as we are currently not efficient. We have estimated that if we continue to push our conservation efforts, then we could decrease our consumption levels by 16% by the year 2025. Despite this reduction, however, we expect that our demand will continue to be high. Therefore, we need to accelerate our new and renewable energy programs.

We have set an ambitious target for ourselves to maintain an energy mix of 25% renewable energy by 2025. This is what we like to call our 25-25 vision. In order to achieve this, we will explore and give priority to all of the feasible opportunities. This will of course depend on many factors. For example, in the Kalimantan region, there is no geothermal activity; however, there are vast amounts of palm oil trees. Therefore we will place priority on the development of the biomass industry in that region. On the other hand, In Java, there is an abundance of geothermal activity and that is why most geothermal activities are focused in that area.

As I pointed out earlier, we have the potential and the opportunity to reduce our dependence on fossil fuels and that is why it is our priority to develop the entire spectrum of resources that are available to us in Indonesia.

So far we have seen that geothermal and hydro sectors are rapidly developing, mostly through the presence of independent power producers (IPPs) and the assistance of multilateral organization like The World Bank. What is needed to attract more investment to further develop these and other resources?

Indeed, the geothermal and hydroelectric sectors have been gaining momentum and I strongly believe that this pace will continue to grow as the sectors continue to develop and the market becomes more attractive.

There are several elements that we are looking to improve upon in order to make the new and renewable sectors more appealing investment and potential developer. First and foremost, we recognize that one of the main drivers of investment relates to the tariff levels, and ultimately the profit margins, offered to developers. Therefore, in order to address this issue, we have recently made some progress in this area by increasing the tariff levels in the geothermal and biomass sectors by 50%. As a result, we have already noticed a sharp increase in in the number of planned and established projects. As I mentioned earlier, we have a great deal of potential with respect to biomass resources in remote regions including Kalimantan, Sumatra Islands, Sulawesi and Papua and an added advantage to these increased activity will be the improved power infrastructure, electrification ratio and overall peoples welfare for these regions as they have not yet fully been developed. In addition to this, we are also in the final stages of increasing the tariff levels offered to mini-hydroelectric developers which will also have the added benefit of providing power access to rural areas of Indonesia.

Second, we are looking to simplify the current and often bureaucratic processes involved in establishing new and renewable energy projects with respect to, among others, licensing, tariff agreements and land acquisition. This will help speed up the process and make it easier for potential investors to enter the market. Third, we are also seeking to provide financial incentives from the government to increase the attractiveness of the market. For example, by removing import duties imposed on imported machinery and equipment related to the renewable energy industry. Fourth, we are currently in discussion with the Ministry of Finance to provide tax and financial incentives to further enhance the renewable investment climate. Last but not least, we are also in dialogue with various banks to provide better financial options to developers in the form of, for example, lower interest rates. Ideally, we would like to see these rates at 0% for maximum appeal; however, we are still in the early stages of negotiations. After all, the scale of investment on the renewable industry is, relative to the oil and gas, is not large and the development of this sector will be beneficial for the Indonesian economy by improving its infrastructure and increasing employment.

I believe that once all these elements take full effect, the attractiveness of the renewable energy market will be greatly enhanced and we could expect to see an increased level of activity and power generation from these clean and sustainable sources.

Another issue that seems to prevail in the industry relates to the access to governmental financial guarantees. Where does this matter stand at now and what forms of guarantees is the Directorate General looking to provide?

The reason that developers and investors are demanding governmental guarantees is because in the past there were cases in which disagreements arose between developers and the state-owned company and sole purchaser of power, PLN, over the issues including their obligations and tariffs and government intervention was required. However, this has changed since then as the government is now willing to offer these guarantees in order reduce the perceived risk to potential developers and increase the sectors attractiveness. An example of this is the recent guarantee which was offered to the geothermal energy provider, Supreme Energy. We intend this to denote a new benchmark for offering government guarantees and reducing perceived risk for future developers.

Along with this, another form of guarantees that we are seeking to offer is in the form of downstream equipment ownership. This is for example being applied in the Salula geothermal power plant which is in its final stages of development.

Overall, the government is extremely willing and open to dialogue with all interested parties so that I can provide the necessary yet calculated guarantees that will make the market more appealing to willing participants.

Turning our attention to PLN, how closely are you collaborating with the sole electricity distributor to align the governments’ prioritization of new and renewable energy development with theirs?

We are working in close cooperation with PLN, and especially myself with Mr. Nur Pamudji, the President Director of PLN, so that we align our focus towards new and renewable energies. PLN has been very keen to help and achieve this goal too. For instance, when we approach PLN about increasing the tariffs offered to wind energy producers, they were willing and asked us, the Directorate General, to recommend a suitable new tariff to be applied. This quick and efficient process lies in stark contrast to the past in which there would be long processes of negotiations, between PLN and various developers, in order to determine different tariff levels for individual companies. In fact, PLN has already agreed to provide higher average prices for power stemming from new and renewable resources. This will most certainly contribute towards the fast development of the renewable industry in Indonesia. Our efforts to set attractive and fixed levels of tariffs form the various sources of renewable energies are intended to allow potential companies to speed up the evaluation and planning process and to quickly assess the market potential.

It seems that with these policies and plans in place, it is inevitable that you will achieve your 25-25 vision. If we were to revisit the Indonesian renewable power industry, how can we expect to see this sector has develop in the coming years?

I am confident that within the next five years you will be happy to see that the Indonesian renewable industry will have made significant progress. To be more specific, based on the current projects in the pipeline, we expect that by 2015, the Biomass fuel industry will have grown from a current level of 400,000 BoE to 12,000,000 BoE, whereas the Biomass power industry will have grown from a mere 20MW to 690MW. In the geothermal sector we expect to achieve 4,400MW by 2015 compared to today’s 1,226MW. Finally, with respect to solar and wind energy, we aim to achieve 5000MW and 700MW by 2015 compared to the current generation level of 20MW and 7MW, respectively.

As you can see, we have set ourselves and ambitious goal and you can expect to see a great deal of growth in the renewable industry in the near future.

That is quite an impressive level of growth. In order to wrap up our interview, do you have any final messages for our readers?

Indonesia is blessed with a range of vast clean and renewable energy resources and it is also a large consumer of energy. For this reason, we would like to push forward for the development of renewable resources, while maintaining our commitment towards the continued development of carbon based fossil fuels as well. Our focus has merely shifted towards the renewable sources as we believe it to be Indonesia’s future energy resource. Clearly, the demand is present as it the supply potential. Therefore, we invite all local and foreign investors and developers to partake in this extraordinary growth and development opportunity.

We are well aware that we are in the initial stages of development of the new and renewable energy sector, thus we are eager to collaborate with willing partners and investors towards forming a mutually beneficial situation harnessing the full potential of this market. We are open to dialogue in order to understand and consider the interests of these potential partners as we understand our own. As is said in our customs, “the guest is king, but also the king guest is also a guest.”

Finally, our efforts to develop the new and renewable energy sector lies not only in our interest as I strongly believe this energy resource is beneficial for the world as a whole and its future generations.



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