I. INTRODUCTION

Indonesia has the 4th largest population in the world with more than 240 million inhabitants. In 2013, Statistics Indonesia reported that the population is growing by almost 4 million annually. This rate is frequently associated with a steep increase in the consumption of both food and non-food products.

The Indonesia’s GDP growth rate is one of the 20 in the world to have reached 5.78%1. With this staggering economic growth, the country has been witnessing social changes which are profoundly altering its society. Currently, approximately 50 % people live in urban areas and have virtually adopted a urban lifestyle, pushing the percentage of consumption on non-food products to 51.08%.

In 2013, the Indonesian market registered an increase of 27.3% of total investment from 2012. The Indonesia Investment Coordinating Board (BPKM) also reported that the 2013 Foreign Direct Investment (FDI) realization was up 17.7% from 2012. In 2014, a new investment record was hit for the first quarter, as investments surpassed Rp105 bn. Almost half of the foreign investment went to the manufacturing sector. In 2012, Indonesia has amended its import duty regulations to motivate investment. In addition, the government has published its latest investment regulation, which now allows for a broader share of foreign investment in several sectors; such as electricity transmission and distribution, transportation, health, pharmaceutical, and creative economy.

In regards to the overall high potential of the Indonesian market, the energy sector remains promising. Indonesian growth in energy consumption reached an average of 7% per year2. However, the capacity of energy supply from existing structures cannot keep up with demand. A major response by the government was given in 2006 with the issuing of the national energy policy, and which aimed for a mixed energy share to be reached in 2025. This was reinforced in the current Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI), which actively promotes a change in energy dynamics in order to foster production efficiency, broader clean energy use and the dissemination of environmental technology.

Clean energy and environmental technology can be sub-divided in several possible segments: waste, water and air pollution management; new and renewable energies (especially bio energy, wind and solar); next generation of electricity transmission and smart grid; sustainable transport; environment consultancy; and green building. The present study will focus on certain fields, following the following categorization: waste management, new and renewable energies, and “green building”.

1 Statistics Indonesia, 20142 Azahari (2012)

Those particular categories are relevant when discussing Indonesia’s current approach in regards to an environmental paradigm change in the country. Indonesia has a national commitment to reduce carbon emissions by 26% in 2020.

Firstly, policy-makers have identified waste management as a potential gateway to consolidate the production of clean energy (also called “bioenergy”). An active approach to the latter is considered key towards sustainably raising energy efficiency and minimizing waste production.

Secondly, concerning the development of renewable energy production, the government established a feed-in tariff policy for hydro power, geothermal, solar, bioenergy, landfill gas and municipal waste applications using “zero-waste” technology. The feed-in-tariff policy typically requires the fulfillment of three key conditions: guaranteed access to the national grid, a long-term purchase agreement, and a payment level based on the generational costs of renewable energy.3

Finally, “green building” has been given a particularly central role in the intended “energy shift”. In April 2013, the current Jakarta administration issued the governor regulation No. 38/2012 regarding green building for future building constructions. The new rules give the Green Building Council of Indonesia (GBCI) the power to certify buildings which have applied the revised National Standard of Energy Conservation System of Air Flows and Building. The current policy trend suggests that the government is indeed mobilizing efforts to enforce, encourage and promote the use of clean energy and environmentally-friendly technology. Foreign investors and producers have been responding well to these recent developments, visible in the ongoing rise of FDI directed at clean energy technology.

II. MARKET ANALYSIS

1. Water, Waste, and Air Pollution ManagementIn 2012, a study reported that only 19% of Indonesian people carry out waste sorting4. Among the rest of people, only 59% would consider doing it. Awareness among Indonesian people regarding waste management is still very low, supported by a low output level concerning municipal waste treatment. The collection and treatment of waste is performed by publicly-owned companies managed by municipalities, which struggle with a lack of resources. In addition, recurrent scavenging and endemic misinformation regarding recycling habits contributes to very poor treatment efficiency. However, the notion that waste management technology for both landfill and open dumping can become a source of bioenergy has been gaining momentum. As such, the central government has been actively pushing for municipalities to develop consolidated sanitation strategies, highlighting solid waste management in its objective of streamlining local, regional, and national

3 Mendonca (2007)4 Aprilia, et al. (2012)

efforts. The current National Mid-Term Development Plan of the Ministry of National Development Planning and National Development Planning Agency (BAPPENAS), for the period 2010-2014, states the following goals for solid waste treatment:

Increase waste collection rates and sanitary disposal Replace local and regional waste dumping with sanitary disposal Increase solid waste service levels and related budget for solid waste management.

Despite the above plan, Government of Indonesia also provides feed-in-tariff for expanding development, increasing investment and increasing the ratio of electrified villages. The FIT is usually applied differently based on the size and location. [what’s the connection with the above?]

Table 1: Feed-in-tariff for municipal waste utilization with zero waste technologyRegion Factor Medium Voltage

(Rp) High Voltage (Rp)

Java, Bali, Sumatera 1 1,050 1,398Kalimantan, Sulawesi, NTB, NTT

1.2 1,260 1,677.60

Maluku/Papua 1.3 1,365 1,817.40Source: Azahari (2012)

With a marked increase in urban population and general consumption, waste management is becoming vital for the welfare of the Indonesian people and the country’s environment. In fact, the already booming urban population is projected to reach 60% in 2025, making the need for active sustainability policies all the more unquestionable. As mentioned above, the government has been acting on its concerns and has been promoting investment in green energy technologies, particularly waste management. Currently, there are several projects are underway, supported by international development support in regional and metropolitan cities, namely:

1. Jatiwaringin solid waste treatment plant (Tangerang), supported by Japan, with an investment of Rp. 1.6 trillion, aiming at increasing processing capacity of 2,500 ton/day5.

2. Solid waste management system improvement in Malang, Jambi, Jombang, Pekalongan, and Sidoarjo6, led by Germany’s support, in an investment of US$ 100 million.

3. Solid waste water management improvement in Jakarta, Manado, and Balikpapan, supported by the World Bank, with a project total of US$ 145 million7.

4. Feasibility Study of the Landfill Methane Gas Utilization Project in Semarang in 2007, supported by Japan, with a total project cost of US$ 4,112,0008.

5 Joniansyah (2013)6 General Directorate Cipta Karya ( 2013)7 World Bank (2013)8 Global Environmental Center Foundation (2007)

Table 2. Feed-in-tariff for landfill gas utilizationRegion Factor Medium Voltage

(Rp) High Voltage (Rp)

Java Bali , Sumatera 1 850 1,198Kalimantan, Sulawesi, NTB, NTT

1.2 1,020 1,437.60

Maluku/Papua 1.3 1,105 1,557.40Source: Azahari (2012)

Feed-in tariffs are provided for municipal waste utilization and landfill gas utilization. However, the project landfill gas utilization is not really developed yet. Due to its big population number, it produces a huge amount of the waste. However, most of the waste is disposed in open dumping area. Due to the lack of preparation for landfill gas utilization system, it cannot generate the potential energy [again, what’s the connection with the above?]

In spite of the aforementioned undertakings, there are several planned waste management projects awaiting initiation, as instated in the government’s Public Private Partnership Book [explain what is the Book], namely:

1. Solid Waste Treatment and Final Disposal – Bogor & Depok (West Java)Project Code No : D - 033 - 22 - 0109 – 26Project concept: Operation of a sanitary landfill site with household and commercial waste from the district of Bogor and Depok.

2. Solid Waste Treatment & Final Disposal - Putri Cempo Mojosongo, Surakarta, Central JavaProject Code No : D – 033 - 22 - 0210 - 221Project concept: establishment and operation of an integrated solid waste management at a landfill in Surakarta.

3. DKI Jakarta Sewage Treatment PlantProject Code No.: Project code: D – 005 - 12 – 030Project Concept: establishment and improvement of wastewater system and sector condition in DKI Jakarta

2. New and Renewable EnergyIndonesia is striving to create a low-carbon economy and President Yudhoyono has taken the lead in committing to cut production-led carbon emissions by 26% in 2020 without international support. In the national energy strategy, Indonesia has also committed to allocating 20% of the energy mix for renewable resources by 2025

Figure 1. National Target of Energy Mix

.

Source: National Research Council (2014)

Indonesia’s energy sources are still dominated by oil, which reserves are often estimated to become depleted by 2022. The National Energy Policy 2014 (NEP 2014) [explain what this is, if necessary mention it even before in the introduction of the chapter; if you do, then add “as mentioned above” to the beginning of this sentence] aims to elevate renewable energies to represent 23% of the share of the country’ energy sources in 2025. In fact, Indonesia presently boasts a highly promising market regarding new and renewable energies, stemming mainly from the country’s lack of “old energy” infrastructure and its need for a more efficient energy production to sustain economic growth; but also ideal natural conditions, mainly for the production of hydroelectric, geothermal, sea, biomass, solar and wind energy.

Table 3. Renewable Energy Potential vs Installed CapacityNON-FOSSIL

ENERGYRESOURCES (SD) INSTALLED

CAPACITY (KT)RATIO KT/SD

Hydro 75,670 MW 6,848.46 MW 9.05%

Geothermal 29,164 MW 1,341 MW 4,6%Mini/Micro Hydro 769.69 MW 230 MW 29.9%Biomass 49,810 MW 1,644.1 MW 3,3%

Solar Energy 4.80 kWh/m2/day 27.23 MW -Wind Energy 3 – 6 m/s 2.731 MW -Ocean 49 GW 0.01 MW 0%Uranium 3000 MW 30 MW 0%

Source: Ministry of Energy and Mineral Resources (2013)

The NEP 2014 proposes that the country should new and renewable energies should represent more than 20% of the energy mix. As can be seen in the figure above, there is still a long way ahead in the development of renewable energies in Indonesia. It is often pointed out that a major obstacle is insufficient infrastructure, which prevents grid connection between these country’s islands. In order to address this shortcoming, the Indonesian government has found a potential solution to accelerate the development of the needed infrastructure in Public Private Partnership (PPP) and tax relief schemes. In the latest ministerial regulation in 2012, Indonesian authorities sought to decisively encourage further investment by private and foreign companies by granting Feed-in-Tariff (FiT) to projects which focus on developing hydroelectric, biomass, solar, wind and geothermal energy generation9. The development of ocean and wind power plant is still a pilot project as a precondition prior to the stage of commercialization. Thus the [don’t understand what you mean by the this sentence, what is particular about ocean and wind power in the context of the FiT given to new energy generation projects?] Potential for uranium extraction is only found in Kalan, West Borneo. However, the Indonesian government has not suggested that nuclear energy could be part of the country’s present reform master plan regarding energy. The present study will focus only on the market potential regarding hydroelectric, geothermal, biomass and solar energy.

Hydro Power PlantIndonesia is yet to improve its infrastructure to a degree that can allow for an optimal exploitation of its potential hydroelectric resources, estimated to be around 75,000 MW for Hydropower and 770 MW for mini/micro hydropower. The highest potential is found in outside the island of Java. One landmark example in PPP plans for 2013 was the initiation of the implementation of the Karama Hydro Electric Power Plant project. Located in the province of West Sulawesi, the new structure is expected to hold a capacity of 4 x 112.50 MW. In most cases, independent power companies will be required to sell their electricity to PLN (Perusahaan Listrik Negara, the State Electricity Company which has a monopoly on the national market). Hydropower stations with a potential output of more than 10 MW have to negotiate the purchase price with PLN on an individual basis. For hydroelectric power stations below 10 MW, there is a FiT that varies according to voltage and region. For regions outside Java, the basic tariff for the connection to the medium transmission line (20KV) is Rp656, while the connection to the high voltage network is set at Rp1004, multiplied by a factor varying between different regions. As a result, different FiTs apply throughout the country, as shown in the following table.

Table 4. Feed-in-Tariff for Hydropower

9 Ministry of Energy and Mineral Resources (2012)

Region FactorMedium Voltage

(Rp)

High Voltage

(Rp)Java, Bali 1 656 1004 Sumatera, Sulawesi 1.2 787 1205 Kalimantan, NTB/NTT 1.3 853 1305 Maluku/Papua 1.5 984 1506

Source: Azahari (2012)

Conversely, FiT for mini/micro hydropower is still being revised. However, it is already public knowledge that the tariff will be increased from Rp656/kWh to a new number between Rp975-1050/kWh. Currently, Germany is supporting the development of technical advisory and capacity-building concerning renewable energy off-grid installation and which includes up to 136 micro-hydro power plants. According to the Ministry of Energy and Mineral Resources (MEMR), there are 20 private hydropower suppliers officially registered in the country.

GeothermalIndonesia is home to 40% of the world’s geothermal energy resources. Based on a letter of Directorate General of New and Renewable Energy in 2011, there are 33 licensed geothermal energy companies. However, the utilization of geothermal energy resources is still very low, having contributed to only for 5% of the total production of energy in Indonesia [what year?].

Table 5. Geothermal Potential in Indonesia [what year?]Resources

(MWe)% Reserve

(MWe)%

Speculative Hypothetical45.36%

Possible Probable Proven54.43%8,905 4,391 12,756 823 2,288

13296 15867Source: Ministry of Energy and Mineral Resources

The government of Indonesia has included the goal of increasing the utilization of its geothermal energy potential in the currently ongoing reform of the sector. This concern was finally put into action in 2012 in the latest MEMR regulation with the amendment of the previous FiT for prospective producers of geothermal energy. The latter thus adjusted the previous nationwide FiT, which was capped at US$0.97/kWh, to the following: :

Table 6. Feed-in Tariff for Geothermal

Location Tariff (USD cents per kWh)High Voltage Medium Voltage

Sumatra 10.0 11.5Java, Madura, Bali 11.0 12.5South, West, and South East Sulawesi

12.0 13.5

North and Central Sulawesi 13.0 14.5

and GorontaloWest and East Nusa Tenggara

15.0 16.5

Maluku and Papua 17.0 18.5Source: Hasan and Wahjosudibjo (2014)

In response to the industry’s demand, the government plans to amend the regulation that establishes a differentiation of FiT according to the characteristics of the technology used (e.g. size, type or origin) The new FiT proposal establishes a classification based on capacity divided into 4 groups: more than 55 MW; 20-55 MW; 10-20 MW; and smaller than 10 MW. In addition, the classification also attributes a distinction according to the temperature generated by energy production [I added this, is this correct?]: high temperature (higher than 225oC) and medium/low temperatures (lower than 225oC)10.Although Indonesia has committed to increasing the deployment of renewable energies by including, among others, the introduction of FiT schemes for green electricity, several barriers must still be overcome for the country to reach its full potential. In particular, geothermal projects require integrated efforts and risk management between upstream and downstream activities. Beyond investment factors, there is also the fact that about 80% of the country’s geothermal reserves are located in designated protected forest areas. Only a Presidential Decree could allow for the exploitation of geothermal energy in these areas [mention why it would be so hard for a Presidential Decree to pass. Too long? Environmental impact? In 2013, there were 28 projects scheduled to begin implementation until 2017 awaiting pending licenses and certificates.Development of geothermal energy is costly. It is estimated that for 1 MW of energy, US$3 million need to be invested. In addition, the high drilling costs are a risk for developers, as each well excavation can cost between US$3 and US$5 million, regardless of the operation’s success.11 Despite this, the Indonesian authorities believe that this field has an important role to play in the country’s future and are determined to attract investment towards it. In 2013, the BKPM (Indonesian Investment Coordinating Board) opened some investment opportunities in geothermal power plant projects. These are to be located in Sumedang-West Java, Blawan-Ijen (potential 270 MW), Ngebel-Mt. Willis (potential 120 MW), East Lombok Regency (potential 70 Mw) and Dompu Regency-West Nusa Tenggara (potential 69 MW).

Biomass/Biogas EnergyFossil energy resources are feared to become exhausted in 2022. Fortunately, Indonesia is rich in agricultural products, many of which are plants which are apt for the production of bio-energy. Recognizing this potential, the government has also set as a priority to accelerate the country’s progress in the transition from oil to bio fuel (solid, gas and liquid). In 2013, the current total biomass potential of Indonesia is 49,810 MWe, with a real utilization capacity of 689.43 MWe for off-grid installation and 207.3 MW for on-grid installation12. The highest potential is located in the province of West Java, followed by Central Java and East

10 Hasan and Wahjusudibjo (2014)11 Griebeler (2012)12 Ministry of Energy and Mineral Resources (2014)

Java. Biomass can be sourced from various kinds of industrial product residues, such as palm oil (shell, fiber, trunk and frond), bagasse, coconut shell, rubber, rice husk, corn rod and leaves, cassava stem, and wood waste.

Table 7. Feed-in Tariff in biomass/biogas plantsRegion Factor Medium Voltage

(Rp) High Voltage (Rp)

Java, Bali, Sumatera 1 975 1325 Kalimantan, Sulawesi, NTB, NTT

1.2 1170 1590

Maluku/Papua 1.3 1267.50 1722.50Source: Azahari (2012)

The Indonesian electricity market is still dominated by PLN, which has a monopoly for feed-in electricity in the national grid. In order to foster expand total national capacity, private electricity providers were given the opportunity to become independent power producers (IPP) and to sign power purchasing agreements (PPA) with PLN. The PPA determines the agreed terms and conditions under which electricity can be fed onto the PLN grid.International equipment suppliers can act as project developers who sell their equipment to the owner of the power plants, which would be in most cases the owner of the palm oil mill or specific project vehicle [I don’t understand this sentence. To me it sounds like this: People who sell equipment can become project developers – what is a project developer in this sense? - by selling their equipment to the owners of the plant, who are in turn owners of a palm oil mill – from which they extract the biomass to be used on their plant I assume –; or owners of a specific project vehicle – I don’t know what this is] Investing stakeholders are also encouraged to coordinate their operations with the local government closely, to foster capacity-building and knowledge of bioenergy among the local authorities.

Solar EnergyIndonesia’s geographic location, along the equator, provides the country with an average of 10-12 hours (depending on location) of daily sunlight throughout the year. The solar electricity generation potential stands, in most regions, at 4.8 kWh/sqm/day and up to 5.4 kWh/sqm/day in Eastern Indonesia13. One of the major challenges in this subsector is the lack of the logistics supply necessary to reach the more remote areas. To make the most of this resource, the government launched the bid [what is “the bid”? when was it launched, what is it? the following only mentions who can participate and what documents they should sign, but it does not explain the policy instrument.]. The programme is open to state-owned enterprises, local government-owned enterprises, private Indonesian incorporated enterprises, and bidding consortia. Foreign companies can participate in consortia, KSO (Project Joint Cooperation – what is this?), and joint ventures with private Indonesian incorporated or state-owned enterprises.

Figure 2. The Capacity of Photovoltaic Power Plant in Indonesia

13 Ministry of Energy and Mineral Resources (2012), p. 22.

Source: Kruse (2014)

Before the Regulation no.17/2013 of MEMR came into force, PLN was allowed to purchase electricity from solar power producers through direct appointment without tender. Conversely, new regulation establishes an FiT for solar photovoltaic power projects capped at US$0.25/kWh, or US$ 0.30/kWh (if at least 40% of the production unit’s components are made in the country).In 2013, the Directorate-General for New and Renewable Energy and Energy Conservation of the MEMR announced the opening of a bid for several solar energy plant projects, which should achieve the output of 140 MW in many areas in Indonesia14. Bids open to state-owned enterprises, local government-owned enterprises, private Indonesian incorporated enterprises and bidding consortia. Participation of international companies requires establishment of a KSO (Project Joint Operation), Consortium or JV with private Indonesian incorporated or state-owned enterprises. [repeats what was written above ipsis verbis]Currently, there are mere 5 locations being exploited by 48 successful participants. The projects are located in the eastern part of Indonesia, mostly in the Nusa Tenggara islands. The investment on solar power plants is projected as Rp2.8 billion for a total output of 140 MW. Thus, there are still 124.5 MW power volume left in 72 locations for tender. It is estimated that in order to produce 1 MW, an area of 1.2 ha is necessary.At present, Germany is supporting technical advisory and capacity-building regarding off-grid installation, counting 117 PV [what’s PV?] mini-grids in total.

14 Antara News (2013)

In the long-term, the production of solar energy can evolve to become increasingly cheaper with the emergence of a local production of solar cells. Presently, there is no production of solar cells in Indonesia. Currently, existing companies in the photovoltaic business are dedicated to assembling solar cell modules using imported solar cells. At the moment, there are eight such companies in Indonesia. As a result, this demand creates a large export market for international producers and suppliers in Indonesia.

Wind and Ocean EnergyThe development of wind and ocean energy-related initiatives is currently made solely through the implementation of pilot projects. In 2014, the country’s output capacity of wind energy stands at a mere 1.4 MW installed. With respects to ocean energy, a few small projects make up a total capacity of 10kW. The government is engaging in foreign partnerships targeting capacity building and technology transfer to foster further development. The wind and ocean energy FiT is also being worked on to find figures which can attract more investments. In parallel, the government also expressed a concern towards developing the manufacturing of related components in the country, which is expected to be realized in upcoming policies for this area. [I added this, is this Ok?]

3. Green BuildingIndonesian authorities have realized that investing in developing new and renewable energy production would involve high risks if energy efficiency is not improved. This concern has been put forth in recent developments in the real estate and civil construction regulatory landscape. In April 2013, the current Jakarta administration issued the new governor regulation No. 38/2012 regarding green building for future building constructions. With this regulation, the city government wants to reduce carbon emissions from buildings by 138 MT CO2 (47 MT for commercial buildings and 91 MT for residential building) annually.15 In addition to this regulation, the International Finance Corporation (IFC) has shown interest in facilitating the funding for retrofit projects and has begun cooperating with local banks for financing such projects.16 This new regulation will be applied to:

Office buildings, shopping malls, apartment complexes

> 50,000 M2

Hotels and hospital > 20,000 M2

Education Facilities > 10,000 M2

Source: Governor Regulation no. 38 Year 2012According to the new regulation, new buildings have to comply with several energy efficiency standards. For instance, the overall thermal transmittance value (OTTV) for the building shall not exceed 45 watts per sqm. Details regarding the OTTV can be found in the national product standard regulation SNI 03-6389.17 Cooling systems have to provide efficiency according to the

15 Jakarta Green Building User Guide (2013).16 ibid17 Jakarta Green Building User Guide Vol. 5 (2013).

national product standard regulation SNI 6390-2011. Chilled water pipes have to be insulated.18

Through the observance of the standards for the building envelope alone, it is expected that energy savings hit between 6% and 19%. 19

Nonetheless, the Green Building Certification (GBC) applies for both new and existing buildings. There are 6 aspects in the assessment: (1) Appropriate Site Development (ASD); (2) Energy Efficiency & Refrigerant (EER); (3) Water Conservation (WAC); (4) Material Resources & Cycle (MRC); (5) Indoor Air Health & Comfort (IHC); and (6) Building & Environment Management20. Currently, the Green Building Council Indonesia (GBCI) is the only authorized institution in the country to perform the assessment and issue the Certification. The GBCI has also been trying to promote the notion that the costs of the GBC will be compensated by lower building maintenance and expenditure in the future [can we say that the GBCI has been promoting? I added that].

III. Market potential in Indonesia Clean TechnologyOverall, there are several general challenges in developing clean technology activities in Indonesia. The main challenges are as follows.

Firstly, the high production costs become an inherently primary challenge in competing with traditional energy and products. In addition, the government’s insistence on maintaining subsidies which directly benefit fossil energy competitiveness creates a lock-down for end-users and clean technology businesses. Moreover, components must be imported, which inevitably burdens any type of investment in the field.

Secondly, the investment and property ownership regulations may constitute an obstacle for foreign investors that are interested in entering the Indonesian market. However, partnering with a local investor can open many doors, added to the fact that the probability to find a partner is now high, given the high demand for investments in new and renewable energy. Despite this, the country’s resources remain highly promising, although in fact still to be further unlocked by more agile regulations and governance. Last but not least, Indonesia lacks in both technology and human resources to be able to implement and develop clean technology industries in a consistent fashion. Moreover, the consumer and the average citizen’s awareness about clean-technology is still low. Nevertheless, surveys have postulated that due to the influence of societal changes which stem from the country’s steady economic growth and rising middle class, a future market for clean technologies and energy production is increasingly well perceived.

18 Jakarta Green Building User Guide Vol. 3 (2013). 19 Jakarta Green Building User Guide Vol. 5 (2013).20 Green Building Council Indonesia Rating Tools (2014)