Bitcoin as an Accelerator for Renewable Energy Transition in Indonesia
Mainstream media often report that cryptocurrencies with a Proof of Work scheme like Bitcoin are useless to the world on a macro scale and, in fact, accelerate environmental damage because they consume a large amount of energy in their transactions.
But, what if the reality is actually the opposite?
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(By the way, if you already have skeptical view about crypto and nothing can change you, please just skip this article.)
Renewable Energy Transition in Indonesia
The world is now moving towards a shift to renewable energy, but Indonesia itself seems to have barely moved.
This country still relies on fossil energy, and according to data, in 2021 only 18% used renewable energy.
Fossil fuels generate 82% of Indonesia’s electricity. The largest contribution comes from coal at 61% (190 TWh) of the total power mix in 2021. Gas generation produced 18%(56 TWh) and other fossil fuels 2.1% (6.7 TWh).
Combined, renewables produced just 18% of electricity. Hydro produced 8% (25 TWh) of electricity, and bioenergy 4.9% (15 TWh). Other renewables, mostly geothermal, produced 5.2% (16 TWh). Wind (0.4 TWh) and solar (0.2 TWh) both only contributed 0.1%.
— quoted from: How does Indonesia’s JETB compare to net zero pathways?
From the data, there’s no visible reduction in Fossil energy production.
But why?
Water flow is free. Gravity is free. Ocean waves are free. Sunlight is also free.
So what is the main problem that we can’t immediately switch from fossil energy while its power plants polluting our cities?
The main problem is clearly not because Renewable Energy is expensive and difficult to obtain, but because there is a geographic mismatch between demand and supply.
Renewable energy power plants must always be built close to the energy supply. Hydroelectric power plants must be built near rivers with high and continuous water flow. Ocean wave power plants must be built at ocean. On the other hand, areas with many potential energy supplies do not have enough demand or electricity users — because human populations are concentrated in large cities.
This situation results in higher costs in electricity distribution infrastructure for Renewable Power Plants due to far geographical location differences.
Compare this with fossil power plants like PLTU (Pembangkit Listrik Tenaga Uap or Steam Power Plants — this is a euphemism from a coal-burning furnace btw), which can be built closer to the population concentration, and structurally the construction cost is cheaper and its fuel (coal) can be easily moved.
In simple economic terms; CAPEX (Capital Expenditure — initial capital of construction) for renewable energy is more expensive, especially the distribution infrastructure, although OPEX (Operational Expenditure — operational costs including fuel) is cheaper or almost free because it is provided by nature (river water + gravity, sunlight, sea waves, wind etc)
While Fossil Energy Power Plants have cheap CAPEX, but actually have more expensive OPEX because coal needs to be mined and moved to the power plant location.
In the end, it is indeed easier to get electricity from fossils than from renewable energy source.
What has the Indonesia government actually done to accelerate renewable energy transition?
Actually, through Presidential Regulation 1022 of 2022, Indonesia has prohibited the construction of new Fossil Power Plants, and the state via PLN (Perusahaan Listrik Negara — State Electricity Company) has set the electricity purchase price from renewable energy to be higher compared to electricity from fossil power plants.
For example, the purchase price for electricity from hydropower ranges from US$6.74 cents/kWh to US$10.92 cents/kWh — which is more expensive than PLN’s commercial selling price.
This means, there are incentives for investment in the construction of renewable energy power plants, because per watt of production, it will be bought at a higher price compared to energy from fossils.
From the investment side in the renewable energy, the new Indonesian Omnibus Law allows for 100% foreign investment into renewable energy projects above 1 MW.
But the problem is; this incentive only occurs when there is enough demand. If the price is high but no one is buying, there will be no positive effect at all.
The growth of renewable energy power plants is still very slow, as the speed of their construction depends on the growth of public electricity needs — which until now, on a macro level, can still be accommodated by fossil fuel power plants.
Per capita electricity demand in Indonesia is the lowest compared to the world average, Singapore, the US, and Malaysia. This situation becomes like a chicken and egg problem; energy transition can’t occur quickly because renewable power plants are not being built fast enough, while renewable power plants will only be built quickly when there is high demand for electricity.
Indonesia needs more electricity demand to accelerate renewable energy transition.
Bitcoin mining as a solution
This is where the design of Bitcoin’s Proof of Work (and a few other cryptocurrencies with the same scheme) can be a solution to this energy transition acceleration problem.
Bitcoin miners can become “demand on demand” for energy produced by renewable power plants, wherever they are.
Instead of damaging the environment, bitcoin mining can actually increase the utilization of power plants in remote locations to nearly 100%. Meaning, power plant business becomes economically viable, because there are consumers who can absorb its production to the maximum.
Bitcoin can be an accelerator to renewable energy transition.
But if all the electricity already absorbed by bitcoin miners, then where will the public get their electricity from?
This is the most common misconception. Some people and media think that bitcoin mining will consume all available electricity, so the general public doesn’t get a share of electricity — or, has to pay a high price.
In terms of free market, bitcoin miners always look for the cheapest electricity — and as long as the price is reasonable, any available electricity will always be absorbed. The latest data from miners in North America; the average electricity cost they pay is 4 cents per kWh — or much cheaper than the basic tariff bought by the state electricity company from each renewable power plant according to the regulation above.
This means, when there is demand from the public via the state electricity company, market will dictate that renewable power plants can easily take a portion of the supply to bitcoin miners, and distribute electricity to the state electricity company which is willing to pay a higher price.
Bitcoin miners will position themselves as a 2nd buyer or demand balancer, because they will only absorb any excess electricity that is not used, at a cheaper price.
It’s a win-win situation.
Absorbing excess energy, starting from Aceh, Sumatra Island.
Last week (June 2023), I was involved in a brief expedition to Mount Leuser National Park — for a direct survey of 2 micro hydro power plants called Aih Nengar 1 & 2 located close to each other, in Perlak, Gayo Lues area with capacities of 1 and 5 MW respectively.
These power plants were built a few years ago, when PLN (Perusahaan Listrik Negara — State Electricity Company) network hadn’t yet reached this area.
Both of these micro-hydro power plants were built and owned by the Gayo Lues Regency Government, and have been operating independently since then to supply electricity in the area. When the state electricity company’s network finally reached the area, they even bought the electricity produced.
Unfortunately, due to technical issues and no urgent needs from the state electricity company since they already have enough supply from other power plants (guess what — it’s fossil-based :D), both power plants are no longer in operation.
The idea is actually simple: to reactivate these non-operational power plants for bitcoin mining, and then absorb more excess electricity from the existing renewable energy in Indonesia.
By utilizing up to 100% of the micro-hydro power plants in Gayo Lues this will also contribute significantly to the increase in the regional income of the district.
And to scale up and absorb potential electricity up to hundreds of megawatts in this region, we are currently pioneering a platform for everyone from around the world can participate in bitcoin mining using clean and cheap electricity from renewable energy in Indonesia. It will be launched soon.
The electricity cost to mine will be cheaper than average cost for most bitcoin miners in the rest of the world, and without having to invest in expensive machines, and complex maintenance.
“Come to indonesia, lets have this big reserve of renewable energy dedicated to the bitcoin mining business,”
—West Java Governor, Ridwan Kamil said in Miami Bitcoin Conference, 2023.
We’re building a decentralize bitcoin mining platform that enable anyone to start mining bitcoin with only $100, using cheap, clean, renewable energy in Indonesia — utilising multichain L2s to distribute the BTC yield.
Do check us out at lokamining.com — part of Bitcoin Startup Lab this cohort.
If you interested in this venture, wants to discuss about the platform that we are building or bitcoin mining industry in Indonesia, please do contact me on Twitter: @TalkinAndy
