Global Business Guide Indonesia

Energy in Indonesia Energy in Indonesia Energy in Indonesia Energy in Indonesia Energy in Indonesia
Sign up for the GBG Indonesia Quarterly Business Intelligence Report for the latest news on your sector.
Sign Up
Energy & Mining | Opportunities in Energy: Beyond Fossil Fuels

The Energy Law of 2007 set in motion Indonesia’s plan to shift its reliance on fossil fuels, mainly coal and oil, towards more environmentally friendly and sustainable means. The reorientation of the energy mix will not be an easy process; in order to tap the abundant reserves of geothermal, hydro energy and coal bed methane wide scale investment and infrastructure will be required to meet the 9% annual growth in domestic energy demands. Energy source reliance as per 2010 was 43.9% on oil, 21.29% on gas, 26.38% on coal and the remaining on geothermal and hydro power. The aim is to reduce oil dependence to 20% by 2025 while increasing the input of renewable and alternative forms of energy to make up 15% of the total. Within non-renewables, the country is seeking to capitalise on its vast reserves of coal bed methane. This presents a number of opportunities for investment and technology partnerships as the government aims to incentivise investment in these areas in order to realise its goals to be a low cost, low carbon economy.

Current Energy Mix Versus 2025 Target

Current Energy Mix Versus 2025 Target

Source: PLN

Coal Bed Methane

Indonesia is the second largest producer of coal bed methane (CBM) after China with reserves of 453 trillion cubic feet, even larger than total gas reserves although it has been slow to utilise it for domestic needs. Plans to develop the source only came about as late as 2008 while such plants have been common place in North America and Australia for decades, accounting for 10% of total natural gas production in the USA. Indonesia has the largest proven global reserves of CBM with the main sources being located in Kalimantan and South Sumatra as well as Riau. The first CBM fed power plant located in East Kalimantan will come on stream in 2011, operated by a local company PT Ephindo in a consortium with General Electric. Five further work areas are also expected in 2011 including West Sangatta I Block operated by West Sangatta CBM Ltd and WK CBM Sekayu Block operated by Medco. The timing for further exploration into CBM is ideal with natural gas prices increasing on the global market and PLN actively searching out cheaper fuel alternatives. Pricing of CBM power for the domestic market is also highly competitive at $0.27 USD per kwh; 50% lower compared to diesel. PLN forecasts that CBM could produce as much as 2000 MW of power for the country by 2015.

The government through the Ministry of Energy and Mineral Resources is stepping up its efforts to encourage investment into CBM by offering a 45% production split and is due to offer 60 CBM blocks in 2011. The production targets are set at 500 mmcf by 2015 rising to 900 mmcf by 2020. Pertamina currently has 4 CBM blocks through its subsidiary PT Pertamina Hulu Energy and international energy giants such as Exxon Mobil have also taken an early stake in this highly promising sector. However, a lot needs to be done in relation to infrastructure and regulations. The construction of the gas pipeline from Kalimantan to Java that was approved back in 2005 and delayed due to a perceived lack of supply, now has impetus to recommence in order to provide distribution infrastructure. Developing the necessary legal framework will take time given the environmental impact of extracting CBM due to the dewatering process required. The mechanism by which CBM producers can sell their gas to PLN is also unclear at this stage as in June 2011 BP Migas announced a ban on selling of electricity directly to PLN to avoid state owned producers underselling their gas.

Waste Fuelled Power Plants

Waste fuelled power plants are another exciting area of Indonesia’s diverse energy mix. Indonesia produces 200,000 MET of garbage per day and it is estimated that of the existing waste, at least 4,000 MW of electricity could be generated. The largest project of its kind was undertaken originally in a joint venture between PT Godang Tua Jaya and PT Navigat Organic Energy Indonesia (PT Navigat’s stake was since sold to Wirose Investments) using General Electric machinery in the plant. Located at Bantar Gabang Landfill in East Jakarta, the waste to power plant had produced 4 MW of power in 2010, due to increase to 16 MW by 2015. The success of the Jakarta plant and other small scale projects around the country such as in Bali and Bandung illustrates the potential of such plants in the future. Yet the required investment is substantial, ranging $33 million to $70 million USD for the development of the plant and obtaining financing can be challenging considering the long pay back period and novelty of the technology. Initial investment is therefore required to set up the plant with a low generating capacity which can then be ramped up on agreement of a commercially viable PPA. However, such projects will require greater attention from financing sources as well as government support considering their twin benefits of power generation and addressing waste management in densely populated urban areas.

Renewable Energy Potential in Indonesia

Source: PLN


The geothermal sector and investment opportunities within it are discussed in depth in Investing in Geothermal in Indonesia.

Indonesia has 27 GW of proven geothermal energy reserves and currently taps less than 5% of the potential. President Yudhoyono announced at the Geothermal Energy conference in Bali in 2010 that he intends to make Indonesia the largest geothermal energy producer in the world. The plans as per the second Fast Track Program are to build 43 geothermal power plants by 2014 and to produce 9,000 MW by 2025. Recent changes within the regulatory framework have been designed to encourage investment into the sector as well as the announcement of the long awaited Power Purchase Agreement with PLN for all coming tenders in geothermal.

Hydro Power

Indonesia has approximately 75 GW of hydro power potential and there are over 100 hydro sources of varying sizes that have been identified as per the end of 2010; yet less than 8% of capacity is utilised. Despite hydro power being considered as part of the second Fast Track Program to generate 10,000 MW of electricity and the Electrical Supply Business Power Plan aiming to have 5,140 MW of hydro powered electricity on stream by 2019, there were only 3 large scale projects being executed at the end of 2010. The varied sizes and lack of experience in quantifying the commercial potential of smaller sources has led to most projects not making it past the pre-feasibility study. Bureaucracy regarding contradictions of land ownership around river areas between central and regional government is a further obstacle holding back development, although not unique to hydro power projects.

While the regulations are still troublesome to navigate, the will from the government to encourage independent power producers is there. Ministerial Regulation No. 9/2009 stipulates that PLN is obliged to buy energy from renewable power plants below 10 MW and ensures a higher pricing system for mini and micro plants outside of Java and the eastern area. Investors in the past have not been interested in really taking advantage of the mini hydro sources (up to 4 MW) or micro (1MW - 10MW) due to the potential returns versus the difficulties of land acquisition. Connecting such plants to the electricity grid is also a challenge requiring consideration due to remote location of sources, although international organisations efforts have improved this situation dramatically such as the United Nations Development Program and the GIZ.

Recent data from the International Energy Agency illustrates the potential long term returns on such projects as the investment needed for small scale plants is $3,000 USD with operational costs at $60 USD per kwh to 2050. The price of generating hydro power is therefore below that of other sources such as coal due to the low upkeep costs of the machinery used. The environmental and social benefits are also a factor to consider when assessing the value of such projects that are often situated in under developed regions thereby creating local self sufficiency as well as generating jobs. Large scale hydro projects have proved more popular as an investment opportunity. The beginning of 2011 saw a number of new projects from foreign companies; South Korea’s Hyundai was awarded at $340 million USD contract to build an 88 MW hydro plant in Aceh, Sumatra in May 2011 while Norwegian and Chinese firms have also won contracts for plants in Sulawesi. The World Bank also announced a $640 million USD loan to contribute to a pumped water system at an existing plant in Upper Cisokan to expand electricity capacity during peak hours.

Potential of Mini and Micro Hydro Plants in Indonesia

Source: Indonesia Renewable Energy Society

Investing in Renewable Energy Incentives

  • Ministry of Energy and Mineral Resources Regulation No.31/2009 on Power Purchase by PT PLN from new small and medium scale power plants using renewable energy sources.
  • Ministry of Finance Regulation No. 24/PMK.011/2010 on tax concessions for renewable energy projects (tax reduced by 5% for 6 years, reduced tax rate on dividend payments for international investors, projects exempted from VAT and import duties for equipment).
  • Negative Investment List 2010 Presidential Decree 36/2010 stipulates that all electricity generating power plants have a maximum limit of 95% foreign ownership.
  • Plans to increase the bio fuel subsidy in the 2012 state budget from 2,000 RP to 3,000 RP for biodiesel and 3,500 RP for bio ethanol.
  • BKPM is due to announce a tax holiday for strategic sectors of investment, believed to include renewable energy, of between 3 to 8 years. The announcement has been delayed but is scheduled for August 2011.

Other Laws to be Considered

  • Presidential Regulation No. 4/2010 stipulates the acceleration of the use of renewable energy alongside coal and gas, to be carried out by PLN and private investors. The regulation actively invites private investors to participate in electricity power plants and transmission infrastructure.
    The regulation also requires for land acquisition for power generation projects to be carried out within 120 days, but this only extends to projects in which PLN is participating.
  • Law No. 30/2009 on Electricity decentralises the authority on the electrical sector and hands over power to local and regional authorities.
  • Ministry of Energy and Mineral Resources Regulation No. 4/2009 on electric power distribution rules.
  • Ministry of Energy and Mineral Resources Regulation No. 7/2009 on establishment and enforcement of practice competency standards in electrical power utilization regarding repairs, installation, design and quality assurance.
  • Ministry of Energy and Mineral Resources Regulation No. 36/2008 on Coal Bed Methane brings CBM working areas permits in line with that of oil and gas and stipulates the domestic priority for use of the gas from CBM sites.
  • Companies engaging in electricity power generation must be legal entity established under Indonesia law and therefore registered with BKPM as per Law No. 20/2002. As per the 2010 Negative Investment List, foreigners may own up to 95% in electricity generating projects. Investment into power generation is under the juristiction of the BKPM for small scale projects; larger scale projects require the approval of MEMR while all projects will involve local government authorities approval to be executed.

Global Business Guide Indonesia - 2012

icone share

Indonesia Energy Snapshot

Contribution to GDP: 3.44% (2016) Oil & Gas Imports: $1.22 billion USD (Jan 2016)
Proven Oil Reserves: 3.69 billion barrels (2016)
Proven Gas Reserves: 2.85 trillion cubic metre (2016)
Proven Coal Reserves: 28 billion tonnes total reserves (2015)
Proven Potential in Geothermal Energy: 27 GW
Proven Potential in Hydropower: 75 GW
Other Energy Sources: Coal Bed Methane, Biomass, Waste, Ocean Current, Solar, Wind.
Current Energy Mix: Petroleum 41%, Coal 30%, Natural Gas 23%, Renewables 6% (2014).