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 781,000 barrels per day (B/D) in 2019, 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 account for 91% of its primary energy 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 in the target years 2025 and 2050, 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 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.
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.
Power generation from coal costs around USD2 cents per kWh due to a government-sanctioned price cap on coal sold to power plants. This essentially incentivizes the national electricity utility Perusahaan Listrik Negara (PLN) to prioritize coal-fired electricity generation, making it difficult for downstream gas companies to justify developing capital-intensive gas infrastructure to expand the market.
Indonesia’s gas prices are among the highest in the region, with PLN reporting that the national average cost of electricity generation from gas was USD13 cents* per kWh in 2019.
The government plans to expand renewable energy from 4.1% of the energy mix in 2013 to 23% in 2025 and 31.2% in 2050. Pricing and contractual uncertainty have slowed the adoption of renewable energy for electricity generation. Unfavourable and constantly changing feed-in-tariffs (FITs) have undermined the financial viability of many renewable projects and deterred potential investors.
Government energy-sector planning continues to focus on coal and renewables. The government’s main objective for the gas industry is to reallocate domestic production for domestic use, instead of exports.
* According to PLN, this only accounts for costs from fuel