Saturday, October 8, 2016

Indonesia and the acute energy crisis

The appointment of Arcandra Tahar as the energy and mineral resources minister signaled strongly that the focus of President Joko “Jokowi” Widodo had shifted back to oil and gas, as well as coal.

This can be observed by several steps taken by minister Arcandra in his first 20 days working, including extending Freeport’s license to export concentrates, resuming negotiations regarding the Masela block and Indonesia Deepwater Development (IDD) projects, as well as cancelling the launch of feed-in tariff (FIT) solar power.

Arcandra was removed from his position in early August following the revelation that he held US citizenship.

In the energy sector, many professionals and energy experts in both oil and gas, and renewable energy associations agree that the decline in oil prices in recent years has put pressure on economic growth, particularly in poor and developing countries that produce and export oil.

On the other hand, there is an argument that Indonesia, as a developing country and importer of oil, with high energy needs, has benefited from this situation.

However, this argument cannot be proven. The buying and selling price of oil may be lower, but the price for digging oil remains the same, if not higher.

The geological complexity of where new oil can be found is also very high. Exploration costs of oil per barrel is too high even for a multinational oil company, causing massive layoffs by oil companies and the cessation of their operations in Indonesia.

The President is aware that the sector is in jeopardy, especially given that a quarter of Indonesia’s economy comes from oil and gas. Investment in this sector has stagnated, starting from the development of the Masela block, an IDD project, to a number of refineries that are getting old and inefficient.

Even foreign investors are demanding more concessions and guarantees from the government. What needs to be avoided is for the President to try reviving the ailing sector with the same approach taken by his predecessors with failing results. It is valuable to see what had been done by other countries that experienced the same or worse situation to prevent Indonesia from repeating the same mistakes.

Venezuela relies heavily on hydroelectric power and uses petroleum as the main source of exports. Nearly 60 percent of its revenues are derived from the export of crude oil.

When a prolonged drought takes place, the electricity from the hydropower in the country is not able to catch up with the increasing electricity demands. The fall in oil prices, worsened by inadequate policies for many years, made the economy of Venezuela collapse.

In a similar situation, Nigeria, which relies 90 percent of its economy on crude oil exports, is facing various crises in the energy sector because of corruption and terrorism.

Similar to Indonesia, both countries are oil-producing developing countries with the ability to produce renewable energy. Venezuela has huge hydro energy potential, but cannot survive long dry seasons as a result of improper energy resource management. Nigeria is Africa’s biggest economy with high potential for solar energy, but the source of its energy mix is not diversified enough.

Indonesia is fortunate that its economy is less dependent on the export of petroleum products. However, Indonesia should take immediate action to prevent the country from an energy crisis.

Indonesia needs to diversify the energy fuel mix for its power plants. The President must continue his commitment to incorporate more renewable energy sources in the 35,000 MW electrification program. Based on field observations in border areas and the outer islands where electricity is scarce, the lack of information and technology has led to low economic outcomes.

To address this issue, an efficient electricity supply for the communities in those remote areas would be to use local-based energy, supported by local technology and networks of small-scale electrification, rather than building high voltage subsea transmission cables.

If the government is serious about combating corruption, the country must speed up the process of decarbonization of energy systems and move towards renewable energy. Development of clean, new and renewable energies, followed by the restructuring of the electricity sector such as system generation, transmission and distribution to be more open and competitive, has been shown to reduce corruption in the energy sector in many developed countries.

The combination of global trends such as increased climate change mitigation, collaborative bottom-up community-based efforts to improve the resilience of the environment and energy, as well as the affordability of renewable energy have created a golden opportunity to develop clean-energy technologies and reduce exposure to the increased social costs of fossil fuels.

For example, the Dubai Electricity and Water Authority (DEWA) has proved that economic solar power (3 US cents per kwh) can beat fossil fuel power plants (4.5 cents per kwh), indicating that solar power has become more affordable. The availability of international funds after the Paris Agreement can be utilized by Indonesia to invest and make strides in the development of a clean technology sector and to seize the opportunity to accelerate the development of sustainable energy.

In the Bali Clean Energy Forum earlier this year, Indonesia committed to supporting the development of clean, new and renewable energy. Such development has huge potential not only for sustainability but also to provide long-term solutions to address the problem of energy security. This is the answer for Indonesia. The President should continue his support in the interest of Indonesia’s future.

 Tjokorda Nirarta Samadhi is director and Almo Pradana is energy manager of WRI Indonesia.


No comments:

Post a Comment