Indonesian Fossil Fuel Folly: How Miscalculation Take the Country Away from the Energy Revolution

The Indonesian government claims that an additional 75 Gigawatt of power stations are needed over the next ten years to meet the power needs of the country. In order to fulfill the need, the government estimates that they will need to build a power plant that can produce 35 gigawatt, over the next five years as the first step. The state owned enterprise on electricity, PLN, will build 15 gigawatt, or 43% of the plan, and the private sector will lead the development of the remaining.

The new power plant will largely rely on coal, an energy source of which Indonesia has vast reserves. It would stimulate coal demand, increase consumption, and help the country’s growing economy. The President Director of PLN also states that coal is considered the cheapest power plant investment in the country.

Last year, PwC responded to this assumption critically. Based on data on the Indonesian coal reserves and predictions of the coal consumption for the additional 20 gigawatt coal power plant, Indonesian coal reserved will not last beyond 15 years as the coal reserves will be depleted by 2033. 20 gigawatts is the portion of coal power plant out of 35 gigawatt power stations.

The same study also points out that profits in coal mining have declined 60% in the last 3 years and are predicted to see an additional 10%-20% decline. With spending dropping by 80%, cuts in cost by miners have included reducing exploration and stripping ratios - the amount of dirt removed to expose mineable coal. President Joko Widodo’s ambitious program to build 20 gigawatt worth of coal power plant may have to overlook the more expensive imported coal in the future.

This energy program assumes that Indonesia will see a 7% annual increase demand for electricity between 2015 to 2019. The increase in demand is based on the assumption that Indonesia will see a 6% annual economic growth. However, World Bank predicted that the economic growth of the country will be around 5%-5.3%. ADB shared an even more alarmingly forecast with 3.2% growth last year and 4.2% in 2018. Under this assumption, the growth of energy demand will only reach 2%, and Indonesia will only need 15 gigawatts of the additional power plant as stated by Minister of Energy and Mineral Resources, Ignasius Jonan. Excluding further development, there would be a 5,000-megawatt oversupply to the Java-Bali grid by 2024 at the current development rate.

The 20 gigawatt of the dirty fossil fuel energy is unnecessary and may have hidden cost associated with its production. Greenpeace estimated that the additional coal power plant would be responsible for $26.7 billion in annual health cost, or more than threefold of the current government budget for the Ministry of Health. The government needs to consider the annual cost of human health to the cost of coal power plant.

Furthermore, the additional coal power plant will also be responsible for 15,700 victims of respiratory infection due to coal emission. The same report shows that the existing coal power plant is responsible for 6,500 premature deaths in Indonesia.

The above externality only considers the cost of human health and excludes the forest destruction by the industry. Approximately 8.6 million hectares (21.25 million acres) of Indonesia's biodiverse and carbon-dense forests are at risk from coal mining. A Brussel based NGO, Fern, suggests that coal makes Indonesia's forests one of the world's most threatened forest.

However, fossil fuel projects are still backed by the government, including the controversial 2,000-megawatt Batang coal power plant that is being built on a sea conservation area. The same power plant is also evicting farmers from the country’s most fertile rice fields while the country continues to importing rice from Thailand to fulfil domestic demand. The government is also proceeding with the 1,000-megawatt Cirebon coal power plant, which had its environmental permit revoked.  

Ironically, all of these government decisions are happening while the costs of renewables are trending downward. Solar prices keep falling to the point where JinkoSolar and Marubeni bid a tender for 2.42 cents per kWh in Abu Dhabi in 2016. This bid is less than half of the ‘headline’ cost of coal, or the original costs before externalities such as health and environmental degradation are taken into account.

Additionally, International Renewable Energy Agency (IRENA) predict that there will be a significant shift in energy paradigm and global renewable energy price will be as competitive as coal headline price in two years.

Investors and governments across the globe realize the change in the energy market. Even in China, where coal was once the king of energy resource, the government recognized the importance of transitioning to clean energy. In January, for the first time ever, China's National Energy Administration established a mandatory target to reduce coal energy consumption. It also set a goal for clean energy to meet 20% of China's energy needs by 2030. With this objective, the country's wind and solar sectors would, at minimum, attract as much as $782 billion in investment between 2016-2030.

Will Indonesia be part of this shift?