Indonesia – Gas Policy Brief

With the third highest reserves of natural gas in Asia Pacific after China, the fifth highest coal production in the world and oil production that averaged 887,000 barrels per day (B/D) in 2020, Indonesia relies heavily on its domestic fossil fuel reserves for its energy. Its LNG export market share is the second largest in Asia Pacific.

Coal, oil and gas accounted for 88% of its primary energy in 2020 with renewable energy production remaining low despite enormous potential for solar, wind, hydropower and geo-thermal power.

The government’s long-term National Energy Plan (RUEN) prioritises the expansion of renewable energy, mainly for power generation, as part of Indonesia’s climate change commitments under the Paris Agreement. Coal will maintain a significant portion of the national energy mix for power generation, despite government plans to slowly reduce its relative usage through to 2050.

The country has committed to achieve net zero carbon emissions by 2060 but says it will need USD200 billion per annum in the next decade and over USD1 trillion annually after that to get there.

The share of natural gas in the primary energy mix is expected to increase from 17.8% in 2013 to 22.4% in 2025 and 24% in 2050. The government says by 2050 all production will be used domestically.

There are mounting concerns about Indonesia’s ability to meet its ambitious renewable energy targets and the environmental and economic downsides of a continued focus on coal development that is driven and sustained by strong vested interests.

According to most industry analysts, the RUEN significantly over-estimates the speed at which renewable energy sources can be realised in Indonesia, and as a result gives too little focus to transition to meet mid-term climate change commitments where backing out coal-fired power generation to cleaner gas-fired power plants has clear benefits.

The government plans to expand renewable energy significantly from 4.1% of the energy mix in 2013 to 23% in 2025 and 31.2% in 2050. This is motivated both by Indonesia’s commitments to the Paris Agreement to reduce greenhouse gas (GHG) emissions by 29% unconditionally BAU, and 41% with international support, by 2030, and by the government’s desire to better leverage Indonesia’s abundant renewable energy sources, including geothermal, hydropower and solar.

Most projections estimate just 15% of the energy mix will be sourced from renewables by 2025 due to continuing head winds that include pricing and contractual uncertainty despite efforts to improve incentives for investment in the sector. Parliament prioritised the passage of the New and Renewable Energy Bill in 2021, a new presidential regulation has re-introduced more favourable FITs for all renewable power plants and the government is also exploring ‘unbundling’ electricity infrastructure and services[1] to increase competition and attract more foreign investors.

[1] There are two types of unbundling in the electricity sector: vertical and horizontal unbundling. Vertical unbundling is the separation of generation, transmission, distribution and retail functions. This form of unbundling separates the competitive segments of electricity generation and retail, where private sector firms can enter, from the uncompetitive segments of transmission and distribution which are natural monopolies and require a single company to manage the grid system. Horizontal unbundling refers to the separation of these functions (and assets) into multiple entities that compete with one another or provide services in different areas.

Menu