How can Indonesia intensify its Renewable Energy use: Learnings from China

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Wind Turbines in South Sulawesi. Photo by StraitTimes.

The emergence of Renewable Energy has been discussed quite often this far because of the significant affect it has on the good of our environment, especially on Climate Change. As we can watch on Sexy Killer documentary movie, the use of Unrenewable Energy such as coal has managed to create an externality which impact the life of so many people on its surrounding. However, only a few countries have actually carried through this issue seriously, with China being one of them. The advent of Renewable Energy has created a new standard of how the ideal use of energy supposed to be. Indonesia is still one of the country that needs a learning on how to shift their energy use. On that account, this article would further explain about how can we learn from China to shift our energy use.

Introduction: What has actually been happening?

UNFCCC’s report about Climate Change in 2015 simply told us nothing but the fact that this issue is getting worse. It was also the wake-up call that reminded of when Elon Musk explicitly addressed the urgency to take a decisive action, which was a shift into renewable energy as fast as we can. It’s not suprising one bit as we have already made an important step regarding this issue in 2015 through the Paris Agreement. The aim of Paris Agreement was and is to strengthen the solidarity of all countries in facing the menace of climate change by keeping the temperature below 1.5 degree celcius. Therefore, there is a need of support by all countries — the developed and undeveloped ones — to gather and set the mechanism in order to meet our objective (UNFCCC, 2015). Baumert et al (2005) reported that, Indonesia was the 15th among other top 25 countries with the highest emits of GHG, 4th if CO2 from land use and non-CO2 included, and 21st if only CO2 from fossil fuel included in early 2000. With that being said, there is a need for Indonesia to shift their energy use to Renewable Energy. As what stated by Ministry of Energy and Mineral Sources, “Indonesia is resolved to increasing its energy mix to 23 percent by 2025 in line with its commitment to reducing its greenhouse gas emissions it had made during the COP 21 conference in Paris in 2015,” (TEMPO, 2017).

However, contrary to our very ambitious goal, a large share of our energy mix is still dominated by coal and gas, which was 54.69% and 25.89% respectively in 2016 (LAKIN DJK, 2016). In addition, Indonesia’s capacity of solar and wind generation is less than 0.1 GW (MENR, 2016). In the other hand, NEA (2018) reveals that China generated 53 GW of solar PV in 2017 alone. This data captures how far behind Indonesia and how far ahead China is in resolving Climate Change, eventhough in some extent, both countries came from the same background in the context of energy use. As revealed by World Energy Outlook (2017), that most of China’s power generation capacity was dominated by Coal with 58%, although in the same period of time, they are way more advanced in Hydro with 20%.

What has Indonesia done to accelerate the transition?

Renewable Energy’s development in Indonesia has been going in a slow pace, mainly due to some constraints that we face, namely the lack of policy stability and financial mechanism. The cost of Renewable Energy is essential for the financial viability of projects. Indonesia have established a mechanism, such as Feed in Tariffs which was regulated by ministerial including 04/2012, 17/2013, 12/2014, etc (Asian Development Bank, 2015). The challenge is how to provide a tariff that could meet PLN’s satisfication as they have been hesitant to risk a high cost by purchasing renewable power exceeding market’s price. There is no obvious allocation on the amount of Renewable Energy that PLN could buy because the Parliament has not yet provided a clear mechanism (International Institute for Sustainable Development, 2018). Ming, Ximei, Na, and Song (2013) stated that, Feed in Tariffs in Indonesia were unable to provide a clear mechanism for PLN to recuperate additional cost.

Reverse auction could be the alternative mechanism to provide market price discovery as it allows lower cost from Renewable Energy procurement. This mechanism has been proven to be able to reduce the cost as there would be competition among companies to deliver substantial amounts of capacity (Eberhard, 2013). On the other hand, policy instability could also increase the cost of project development, if numerous changes eventually be the norm, the additional risk related to regulatory changes will also be built into project margin (Baradalle, 2010). Therefore why, a more simplified processes are needed to keep the cost low. There was a frustration being expressed over the cancellation of the proposed feed in tariff. A frequent policy changes increase the cost because developers are puzzled to line up a viable projects as the rules are uncertain.

China’s way of shifting its energy use

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President Xi Jinping with Solar Panel in front of him. Photo by MotherJones.com

China has decided to firm up their commitment in mitigating climate change by joining other countries to ratify Paris Agreement in 2015. The Chinese Government views a transition to cleaner energy as one of the step to help China tackling its environmental issue. It is the same reason why President Xi Jinping called for an energy revolution in 2014 and thus published its 2016 Energy Production and Consumption Revolution Strategy (2016–2030), a very ambitious yet doable strategy which was created to increase the share of non-fossil fuel power generation to 50% by 2030 (Ma Jun, 2017).

China’s success regarding this issue obviously didn’t come out of nowhere. China has been doing so much since 1949, where the initial stage of Renewable Energy development started. By then, they have already developed small hydropower, biogas digester, small wind turbine, etc. China have passed numerous eras of Renewable Energy, but it was until early 2000 when the overall plan of Renewable Energy began to be issued. On the same year, China proposed the ‘2000–2015 Main Point of Development Planning of New Energy and Renewable Energy Industry’ in which an annual development of Energy Sources was initiated. In 2005, China established “Renewable Energy Law of the PRC” which contains about the arrangement of Renewable Energy’s development and market formulation as the priority area of energy development (Jingli Fan, 2018).

This Law was one of China’s most important milestone. Not only that this policy helped the arrangement of Renewable Energy’s development, it also helped China to construct a clear roadmap of the industry’s development and appoint the incentive mechanism on auction scheme as a price discovery to support feed-in-tariffs. The initial implementation of auction schemes worked out quite good in stipulating the cost standard, although in some extent, this schemes had failed to produce a competitive price as the bid was lower than the cost of production due to the fact that the winning bidders were inexperienced (Wang, 2014). But this problem was figured out as soon as China re-design the concession of auction. By improving the concessive auction to be more competitive, a rational price benchmark was finally able to be addressed (Qiu, 2012).

Move forward to 2016, China came up with the new concept of development in the “Report of 19th National Congress of the Communist Party of China” where they began to pay even more attention to the energy transition. In order to accelerate the development target, China has issued a few movements through its stakeholders. The first one is NDRC with the “13th Five-Year Plan for Renewable Energy Development” to raise the total amount of Renewable Energy to 7.3 million tce, followed by National Energy Agency with the “Guidance on the establishment of the Target Guidance System for the Development and Utilization of Renewable Energy Sources” to set up the Renewable Energy proportion of each province within the country (Jingli Fan, 2018).

What can we conclude?

Indonesia has done a decent job in addressing the need of Renewable Energy to mitigate Climate Change, but the effectiveness of our effort to reach 23% in 2025 still needs questioning. In the other hand, China is the the unstoppable force of Renewable Energy. They are the new world leader in such an issue and are the best reflection on how we should take further action, policy wise.

There are lessons to be learned from China’s effort to take its energy transition into the next level. First and foremost, the key is we need to establish a clear, stable, and sustainable roadmap and legal action in order to provide all stakeholders a system on how they are supposed to take an action. In addition, we also need to add new agency bodies who have a strong knowledge regarding Renewable Energy as this would really help the governments to figure out a more effective roadmap. Secondly, in order to accelerate the transition, a financial mechanism is urgently needed to push down the price to the point where it’s affordable for developers and investors, one of the mechanism being reverse auction.

Author:
Muhammad Daffa Ramandha. Economics Student of Universitas Airlangga, 2017.

Written by

20. An Economics Student. Currently living in Surabaya.

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