on low carbon energy policies rlce - esci...
TRANSCRIPT
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EWG46 11.c. PRLCE - 1/5
The 46th Meeting of APEC Energy Working Group (EWG)Da Nang, Viet Nam, 19‐20 November 2013
11.c. Peer Review on Low Carbon Energy Policies (PRLCE)
Takato OJIMI President, APERC
EWG46 11.c. PRLCE - 2/5
11.c. (1) Objective of PRLCE
Objective of PRLCE:
• To assist volunteer APEC economy to promote low‐emission power sources such as renewable energy, nuclear and fossil fuel with CCS by providing recommendations from APEC peer review experts.
• APERC is planning to further carry out analyses on best practices for efficient and effective policies to promote low carbon power supplies in APEC economies, and how such best practice policies can be applied, considering different conditions in different economies.
2013/12/13
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EWG46 11.c. PRLCE - 3/5
•The Philippines hosted the second PRLCE in 19~23 November 2012 with the focus on the National Renewable Energy Program (including the Feed‐in Tariff (FIT) system for renewable energy).
•The peer review was conducted by a team of nine experts (from China, Japan, Malaysia, New Zealand, Thailand, IRENA and APERC) .
•The draft final Report is compiled and now presented to this meeting to seek endorsement by EWG.
11.c. (2) PRLCE Phase 1
EWG46 11.c. PRLCE - 4/5
•PRLCE Phase 2 is planned to assist two additional economies in developing policies to promote low‐ carbon energy supply.
•Indonesia hosted the third PRLCE in 13~17 May 2013 with the focus on Renewable Energy.
•The peer review was conducted by a team of eight experts (from China, Japan, Malaysia, Thailand, USA and APERC) .
•The draft final Report is compiled and now presented to this meeting to seek endorsement by EWG.
11.c. (3) PRLCE Phase 2
2013/12/13
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EWG46 11.c. PRLCE - 5/5
11.C. (4) future of PRLCE
• Malaysia will host the fourth PRLCE in 9~13 December2013.
• Given the resource constraints of APERC, and recognizing the smaller number of potential host economies (compared to PREE), it may be necessary to reduce the number of PRLCE peer reviews per year.
Two PRLCEs in 2012 and 2013↓
One PRLCE after 2014
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Peer Review on Low Carbon Energy Policies in Indonesia
Draft Report
October 2013
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TABLE OF CONTENTS
PREFACE. ........................................................................................................................................... iii EXECUTIVE SUMMARY .................................................................................................................. iv RECOMMENDATIONS ................................................................................................................... vii PART 1 : BACKGROUND INFORMATION ................................................................................. 1 1. INTRODUCTION .................................................................................................................... 2 1.1 Energy Situation .................................................................................................................... 2
1.1.1 Oil. ......................................................................................................................................... 3 1.1.2 Natural gas ............................................................................................................................ 3 1.1.3 Coal ....................................................................................................................................... 3
1.2 Electricity Situation ............................................................................................................... 4 1.2.1 Indonesia Electricity Current Condition and Planning ........................................................... 4
1.3 National Energy Policy .......................................................................................................... 5 1.3.1 The Law on Oil and Gas ......................................................................................................... 6 1.3.2 The Law on Mining ................................................................................................................ 7 1.3.3 The Law on Electricity ........................................................................................................... 8 1.3.4 The Law on Geothermal ........................................................................................................ 8
2. ENERGY SECTOR: STRUCTURE AND STAKEHOLDERS .......................................................... 9 2.1 Ministry of Energy and Mineral Resources ........................................................................... 9
2.1.1 Directorate General of Oil and Gas ..................................................................................... 10 2.1.2 Directorate General of Electricity ........................................................................................ 10 2.1.3 Directorate General of Mineral and Coal ............................................................................ 11 2.1.4 Directorate General of New Renewable Energy and Energy Conservation (DGNREEC) ..... 11 2.1.5 Geology Agency................................................................................................................... 12 2.1.6 Research and Development Agency of Mineral and Energy Resources .............................. 12 2.1.7 Education and Training Agency of Mineral and Energy Resources ..................................... 13
2.2 Stakeholders ....................................................................................................................... 13 3. RENEWABLE ENERGY DEVELOPMENT IN INDONESIA ....................................................... 16 3.1 National Energy Policy and Regulations on Renewable Energy ......................................... 16 3.1.1 Current Renewable Energy Development ........................................................................... 17
3.1.1.1 Geothermal Energy ............................................................................................................. 17 3.1.1.2 Hydro Energy ....................................................................................................................... 20 3.1.1.3 Solar Energy ........................................................................................................................ 20 3.1.1.4 Wind Energy ........................................................................................................................ 21 3.1.1.5 Bioenergy ............................................................................................................................ 22 3.1.2 Other New and Renewable Energy ..................................................................................... 27
3.2 Standardization ................................................................................................................... 28 3.2.1 Standardization of Bioenergy Products ............................................................................... 28 3.2.2 Standardization of Hydro Power Plant ................................................................................ 29 3.2.3 Standardization of Solar Power Plant ................................................................................. 29 3.2.4 Standardization of Wind Power Plant ................................................................................. 29
3.3 Clean Energy Development ................................................................................................. 29 3.3.1 National Mitigation Actions ................................................................................................ 30 3.3.2 Indonesia Carbon Market: Policy and Status ...................................................................... 31
3.4 Policy on Incentives and Fiscal ............................................................................................ 32
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PART 2 : REVIEW TEAM REPORT ............................................................................................. 33 1. INSTITUTIONAL CONTEXT .................................................................................................. 34 1.1 Critique ................................................................................................................................ 34 1.2 Recommendations .............................................................................................................. 34 2. RENEWABLE ENERGY GOALS, TARGETS AND STRATEGY .................................................. 36 2.1 Critique ................................................................................................................................ 36 2.2 Recommendations .............................................................................................................. 37 3. REGULATION AND INFRASTRUCTURE................................................................................ 40 3.1 Critique ................................................................................................................................ 40 3.2 Recommendations .............................................................................................................. 42 4. BIOFUELS AND BIOMASS ENERGY ..................................................................................... 45 4.1 Critique ................................................................................................................................ 45 4.2 Recommendations .............................................................................................................. 46 5. GEOTHERMAL, SOLAR AND WIND ENERGY ....................................................................... 47 5.1 Critique ................................................................................................................................ 47 5.2 Recommendations .............................................................................................................. 48 6 HYDRO POWER ENERGY ..................................................................................................... 51 6.1 Critique ................................................................................................................................ 51 6.2 Recommendations .............................................................................................................. 52 7 POWER SUPPLY SYSTEM-FIT, SMART GRID AND PRIVATE PARTICIPATION ..................... 54 7.1 Critique ................................................................................................................................ 54 7.2 Recommendations .............................................................................................................. 55 8 GREEN HOUSE GAS MANAGEMENT .................................................................................. 58 8.1 Critique ................................................................................................................................ 58 8.2 Recommendations .............................................................................................................. 60 APPENDIX A: PEER REVIEW TEAM MEMBERS .................................................................................... 62 APPENDIX B: ORGANISATIONS AND OFFICIALS CONSULTED ............................................................ 63 APPENDIX C: REFERENCES ................................................................................................................. 65 APPENDIX D: USEFUL LINKS .............................................................................................................. 67
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PREFACE
The APEC Peer Review on Low Carbon Energy Policies (PRLCE) was endorsed by the APEC Energy Ministers at the 2010 Energy Ministers Meeting. The review is an extension of APEC’s Peer Review on Energy Efficiency and follows its guidelines. The PRLCE seeks to achieve the following objectives:
Share information on low carbon energy performance as well as on policies and measures for improving and promoting low carbon energy in respective economies;
Provide opportunities for learning from the experiences of other economies and for broadening the network among low carbon policy experts;
Explore how low carbon goals on an overall and/or sectoral basis and action plans could be effectively formulated in each economy under review, taking into account the range of possible strategies that could be used, according to the circumstance of each economy;
Monitor progress on attaining low carbon energy goals on an overall and/or sectoral basis and implementing action plans, if such goal and action plans have been already formulated at the time of the review;
Provide recommendations for voluntary implementation on how implementation of action plans could be improved with a view to achieving low carbon energy goals.
Indonesia volunteered to undertake the third low carbon energy peer review after Thailand and the Philippines. This report presents the results of a peer review of low carbon energy policies conducted in Jakarta, Indonesia. The primary accountability for each peer review is shared by the economy being reviewed and the Review Team. The peer review in Indonesia was conducted by a team of eight experts (see Appendix A) who visited Indonesia from 13 -17 May 2013.
During the visit, the Review Team had comprehensive discussion on low carbon energy policies with representatives and experts from the government ministries and agencies, energy state and private companies, academies, energy organizations, and financial institutions (see Appendix B).
The Review Team wishes to thank all the presenters and others that spent time with the team for discussions, especially the representatives of the Directorate of Bioenergy, Directorate General of New Renewable Energy and Energy Conservation, Ministry of Energy and Mineral Resources who organized the event.
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EXECUTIVE SUMMARY
Blessed with the geographical position and location condition, Indonesia has an abundant potential of renewable energy such as geothermal, hydro, solar and etc. as a modal to promote low carbon energy development throughout the economy. In order to promote low carbon energy development through renewable energy development, the Indonesian Government has issued Law No. 30 Year 2007 regarding Energy as overall legal framework, and established related agencies, namely the National Energy Council (DEN) in 2008 and the Directorate General of New Renewable Energy and Energy Conservation (DGNREEC) in 2010 as a policy maker and regulator. The associations and organizations of renewable energy stakeholders are also encouraged to be established and organized for representing their interests. And to attract investors and developers participation in developing renewable energy, incentives framework such as feed in tariff, subsidies, tax exemptions, etc. are established by the government as well.
From an institutional context point of view, though the Indonesian Government has a clear framework set up, however the review team recommends that the DEN can play a pivotal role under the leadership of the chairman in formulating the National Energy Policy (KEN) and the National Energy Master Plan (RUEN). Since the DEN is in charge of energy policy in general whereas renewable energy entails specific technical/technological issues, an advisory body dedicated to renewable energy development might be needed. In addition it is recommended that further coordination between relevant government offices, not only in the central government but also among local (both provincial and municipal) governments in regulatory or promotional procedures for renewable energy development.
Indonesia has already set a very ambitious target for the promotion of renewable energy. Under the 2006 National Energy Policy (2006 KEN) which is still in force, the share target of renewable energy, nuclear and liquefied coal in total primary energy consumption mix is expected to become greater than 17% in 2025. Under the draft of the KEN, the renewable energy share target (not include nuclear) is expected to become 23% in 2025 and 31% in 2050. However, to achieve the renewable goals in the 2006 KEN or the draft of the KEN, Indonesia will likely need to reduce market barriers to investments in other renewable energy technologies and addressing other non-technical barriers like improving transparency in the permitting process will be critical for achieving the diversification and renewable energy goals. Thus the review team recommends finalizing approval of the draft of the KEN quickly, evaluating the various support mechanisms for renewable energy, developing permitting checklist which clearly define the path and timeline for each type of renewable energy technology and scale, increasing local capacity across renewable energy technologies particularly by providing students with knowledge needed to pursue a career in renewable energy in Indonesia, and adopting internationally recognized standards for renewable energy technologies to ensure quality of products used in Indonesia.
A critical step in the promotion of low carbon energy at the economy level is the development of an alternative energy master plan with aggressive and clear targets. For Indonesia, further implementation of the KEN will be elaborated in the RUEN and the Regional Energy Master Plan (RUED). However, the KEN has not yet been approved by the Parliament. Thus the RUEN and the RUED cannot be developed. In this case, it is strong recommended that the KEN can be approved and issued by Indonesia as soon as possible in which not only to provide a clear market signal to stakeholders but also the RUEN and the RUED can be developed soon. In addition, the mechanism to translate renewable energy target from the KEN to the state owned energy companies, such as through a Key Performance Index (KPI) or assignment to the state owned energy companies under special regulation, to implement is also
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required. It is also important that even the national electrification ratio rate always increases significantly in every year, Indonesia should give priority of the development of electricity infrastructure to the provinces which have low electrification ratio as well as continuing to support and expand the development of hybrid systems, distributed generation and isolated systems in the regions with renewable energy potential that can be economically developed.
Indonesia has a priority to develop bioenergy in the form of biofuel (liquid), biogas, bio-solid (bio-briquettes, pellets), and bio-electricity) by establishing conducive policies and regulations; this is not only for environmental consideration but also for increasing the energy security. So far the biodiesel program in Indonesia became very successful therefore the implementation on biodiesel mixed fuel transportation sector has increased from 5% to 7.5% on the PSO transportation sector in 2013. However it is recommended that establishing clear goals for each bioenergy type and followed by applying Key Performance Index (KPI) for state owned energy companies are required. In addition, promoting human resource development and increasing public awareness about the importance of bioenergy in every aspect are necessary to be conducted.
Indonesia has already set a very ambitious target for the promotion of geothermal energy, meanwhile solar and wind energies will be developed and expanded to remote areas and small systems. It is an important that Indonesia continues to develop solar and wind energies for rural electrification and for the reduction of diesel consumption. On the other hand, periodically evaluate the cost effective mix of renewable energy and the cost/effectiveness of off-grid vs. grid extension for the promotion of renewable energy are important.
The promotion and development of hydro energy in Indonesia is already farther along compared to other renewable energy. However, the review team recommends that Indonesia could encourage further R&D on hydro technology to reduce costs and improve the local manufacturing capabilities to produce turbines with capacity greater than 500 kW as well as to increase training of technical personnel.
Indonesia has implemented FIT mechanism for hydro power, solar, wind, biomass, biogas and municipal solid waste (MSW) based on the Minister of Energy and Mineral Resources regulation, which made PLN is obliged to purchase renewable energy at a pre-determined price. For geothermal, the government is currently developing a pricing structure based on “Ceiling Price Mechanism”. The new pricing structure is expected to reflect true cost of production and a fair margin for the developers. However, it is recommended that FIT rate can be reviewed on a periodic basis, and on top of the base rate, bonuses could be added to promote local content and to encourage the developers to choose the right and reliable technology for the sustainable system performance. FIT for plant capacity more than 10 MW for small hydro and biomass (including biogas and MSW) as well as for small PV system should be encouraged. Indonesia has demonstrated a keen interest in the utilization of smart grids throughout the economy. 1,000 islands project has been launched and Sumba Island as smart grid pilot program has been chosen. It is recommended that smart grid development in Indonesia to get in place as soon as possible, and the planning and implementation stages of this technology can be expedited through the involvement in APEC related activities on smart grid. Since the development of new and renewable energy is still at its infancy, the government requires more participation from the private sector. It is therefore important that the government could set up a higher local equity participation to encourage local investors to participate in renewable energy projects, educating the financing parties, providing the green financing schemes/loan, developing standardization of power purchase agreement (PPA) for projects under FIT, and establishing standard operating procedures and timeframe to ensure efficiency in renewable energy project implementation by private investors.
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Indonesia has demonstrated its leadership among non-Annex I countries in regards to GHG mitigation by setting the goal to reduce GHG emissions by 26% from the projected baseline by 2020. Further, the government has set the target of reducing emissions by an additional 15% if international support, particularly financing, are made available. Though the Indonesian Government has been issued the National Action Plan on GHG Emission Reduction (RAN-GRK) which is already determined the goals for GHG reduction by each sectors and identified mitigation actions, however the review team recommends that Indonesia still needs ensuring the GHG emissions reductions targets align with the other related plans and establishing a clear policy regarding allocation of GHG savings for renewable energy projects. Moreover, capacity building on GHG emissions measurement and reporting for stakeholders as well as expanding the education program targeting the general public regarding the national GHG emissions goals and the benefits should be carried out.
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RECOMMENDATIONS
Institutional Context
Recommendation 1
In formulating the KEN and the RUEN, the National Energy Council (DEN) can play a pivotal role under the leadership of the chairman, the President of Indonesia. The DEN should be strengthened to set up basic policy guidelines on energy issues in timely manner.
Recommendation 2
In the discussion at the DEN, its stakeholder members are recommended to increase feedback from the reality of energy businesses, especially renewable energy development which the private sector plays an important role.
Recommendation 3
As renewable energy development proceeds, an advisory body dedicated to renewable energy development might be needed as a formal channel between the government and renewable energy stakeholders. Such an advisory body can be a subcommittee of the DEN if the DEN expands its mandate to oversight on the energy policy implementation or, if not, an independent advisory committee to the MEMR.
Recommendation 4
Further coordination between relevant government offices, not only in the central government but also among local (both provincial and municipal) governments, is recommended in regulatory or promotional procedures for renewable energy development.
Recommendation 5
Incentives for promoting renewable energy development should be fully used for the sake of renewable energy development itself, regardless of the profitability of the renewable energy developers. Even if the profits of renewable energy developers increase thanks to renewable energy incentives, increased profit should not be considered as a target of “profit sharing” by the public sector, especially local governments.
Renewable Energy Goals, Targets and Strategy
Recommendation 6
Finalize approval of the 2011 KEN quickly to provide a clear market signal to the private sector, financial institutions, international investors, and PLN regarding the long-term demand for electricity generation from renewable energy.
Recommendation 7
Evaluate the various energy support mechanisms (e.g. FITs, fossil-fuel subsidies) to ensure support for renewable energy is sustainable, coordinated, and complementary.
Recommendation 8
Develop permitting checklists that clearly define the path and timeline for permitting each type of renewable energy technology and list separate paths for large-scale and small-scale projects.
Recommendation 9
Increase local capacity for technical, financial, and project development across renewable energy technologies, particularly by providing students with the knowledge needed to pursue a career in renewable energy in Indonesia.
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Recommendation 10
Adopt internationally recognized standards for renewable energy technologies to ensure quality of products used in Indonesia. This is particularly important for small-scale, distributed generation technologies such as solar photovoltaics.
Regulation and Infrastructure
Recommendation 11
Issue the National Energy Policy (KEN) as soon as possible so that the further implementation of this policy through the National Energy Master Plan (RUEN) and the Regional Energy Master Plan (RUED) can be developed.
Recommendation 12
Produce mechanism to translate renewable energy target from the National Energy Policy to state owned energy companies, such as through a Key Performance Index (KPI), to implement.
Recommendation 13
Harmonize the regulations between central government agencies, between central and local governments, and between local government agencies to prevent conflicting regulations that may hinder the development of renewable energy.
Recommendation 14
Set up regulations that encourage and support the development of the domestic renewable energy industry to achieve self-reliance and to strengthen renewable energy standards.
Recommendation 15
Give priority of the development of electricity infrastructure to the 3 provinces (NTB, NTT, & Papua) which have low electrification ratios by providing funding from the central and local governments.
Recommendation 16
Continue to support and expand the development of hybrid systems which use solar PV or wind turbines together with existing diesel power plants in the regions with renewable potential which can be economically implemented to reduce utilization of fossil fuels in power plants.
Recommendation 17
Continue to develop and support distributed generation and isolated systems in the regions with renewable energy potential that can be economically developed.
Recommendation 18
Continue to encourage dialogue between the government and investors and continue to improve the investment climate.
Recommendation 19
Strengthen cooperation with APEC economies as well as regional and international organizations in the fields of information exchange, technology transfer, human resources/capacity building, and financing.
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Biofuels and Biomass Energy
Recommendation 20
Develop clear technical regulations for waste to energy activities in association with the 2008 Law on Waste Management.
Recommendation 21
Create a suitable environment for small-scale projects (mostly for thermal such as solid fuel and biogas) in order to promote production of bioenergy in remote areas.
Recommendation 22
Apply Key Performance Index (KPI) on bioenergy for large players in the energy business, especially state-owned energy companies such as Pertamina and PLN.
Recommendation 23
Promote human resource development and increase public awareness about the importance of bioenergy in every aspect (school, university, and public relation).
Recommendation 24
Establish clear goals for each bioenergy type in terms of primary energy of final energy (e.g. biofuel, thermal, power).
Geothermal, Solar and Wind Energy
Recommendation 25
Periodically evaluate the most cost effective mix of renewables within the budget constraints and while taking into consideration other values like new industries, agricultural development, environmental impacts, and rural electrification.
Recommendation 26
Solar, wind, micro hydro are important for rural electrification and for the reduction of diesel consumption. One can consider such measures like special support for the introduction of those renewable energies under “Rural Electrification with Renewables”.
Recommendation 27
Periodically evaluate the cost/effectiveness of off-grid vs. grid extension for the promotion of renewable energy. For case of off-grid system, local governmental initiatives should also be encouraged.
Recommendation 28
Prepare tools for facilitating better communication considering that the transition of authority shifted from the central to local level making the issue of financing (ex. Taxes), level of experiences, and rules (ex. Land use) more complex.
Hydro Power Energy
Recommendation 29
Encourage further R&D on hydro technology to reduce costs.
Recommendation 30
Improve the local manufacturing capabilities to produce turbines with capacity greater than 500 kW.
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Recommendation 31
Review and redesign the subsidy structure for hydro power project depending on the scale and remoteness of a system.
Recommendation 32
Establish stricter environmental compliance monitoring for hydro power projects, even for mini hydro power plants.
Recommendation 33
Accelerate the process of contract approval through better coordination among relevant government agencies and institutions.
Recommendation 34
Improve awareness and participation of local residents on the development of hydro power projects.
Recommendation 35
Increase training of technical personnel to ensure sufficient support for the operation and maintenance of hydro power plants in remote areas and on small islands.
Power Supply System- FIT, Smart Grid and Private Participation
Recommendation 36
Price structure - On top of the base rate, bonuses could be added to existing tariff to promote local content and also to encourage the renewable energy developer to choose the right and reliable technology for the sustainable system performance.
Recommendation 37
FIT for plant capacity > 10 MW for small hydro and biomass (include biogas and MSW) - Certain project sites may have resources that can produce more than 10 MW of electricity. Economies of scale may mean greater production of energy but with a lower FIT rate (e.g. a win-win situation).
Recommendation 38
Yearly FIT rate review - Sustainability of the FIT mechanism should be reviewed yearly in terms of achievements, tariff rate and funds required for the mechanism.
Recommendation 39
FIT for Small PV systems - Current proposed FIT rates are for solar farm size projects. For capacity building, FIT for rooftop system (<12 kW) should be encouraged to boost expertise of local players.
Recommendation 40
To get smart grids in place as soon as possible - 1,000 islands project requires proper monitoring in terms of system stability, supply and demand patterns, asset utilisation, and operating efficiency. Smart grid could be the solution. Sumba Island is a good start.
Recommendation 41
Capacity building - to be actively involved in APEC related activities on smart grid.
Recommendation 42
Higher local equity participation - To encourage local investors to participate in RE projects under FIT so that they will get the most benefit from the project.
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Recommendation 43
Green Financing Schemes/Loan - Proper support mechanism in terms of “Green Loans“ to be provided to renewable energy developers to encourage more participation from new players.
Recommendation 44
Standardization of PPA(s) for projects under FIT – Standard template of PPA(s) should be in place for projects to be awarded through FIT mechanism to reduce negotiation time for PPA signing.
Recommendation 45
Establish standard operating procedures and time frame– To ensure efficiency in renewable energy project implementation by private investors, standard operating procedures and timeframe should be established in terms of project award time, approval from ministries (Ministry of Finance), PPA signing, etc.
Green House Gas Management
Recommendation 46
Build capacity among developers, banks, local governments, and other stakeholders for measuring GHG emissions and reporting to the central government.
Recommendation 47
Expand the education program targeting the general public the national GHG emissions goals and the benefits of achieving these goals.
Recommendation 48
Ensure the GHG emissions reductions targets are aligned with and incorporated into the national energy plan and the national electrification plan.
Recommendation 49
Establish a clear policy regarding allocation of GHG savings for renewable energy projects such that they are allocated to the project owner and not to an associated ministry for CDM or other carbon market purposes.
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APEC PEER REVIEW ON LOW-CARBON POLICIES (PRLCE)
PART 1 : BACKGROUND INFORMATION
This part of the report was contributed by Indonesia and includes basic information on renewable energy and the main institution associated with energy in the economy. The main purpose of this part is to provide the reader with the context within which the Review team based its recommendations. The report shows the aspect of renewable energy including the current policy and objectives as well as renewable energy activities.
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1. INTRODUCTION
1.1 Energy Situation
Indonesia is a large archipelago located at the south-east of mainland Asia, between the Pacific Ocean and the Indian Ocean. Indonesia’s territory encompasses 17,508 large and small islands and large bodies of water at the equator over an area of 7.8 million square kilometres (including Indonesia’s exclusive economic zone). Indonesia’s total land area (24.5% of its territory) is about 1.91 million square kilometres. The population was 241.13 million in 2011 (KESDM, 2012).
Indonesia had a gross domestic product (GDP) of around USD 951 billion and a per capita GDP of USD 3,944 in 2011 (USD 2000 at PPP). Excluding the oil and gas sector, manufacturing accounted for the largest component of GDP in 2011 (24.3%), followed by agriculture, livestock, forestry and fisheries (14.7%); retail, hotel and restaurant (13.8%); mining and quarrying (11,8%); other services (10.6%); construction (10.2%); finance, leasing and corporate services (7.2%); transport and communications (6.6%); and electricity, gas and water supply (0.8%). In 2011, Indonesia attained economic growth of 6.46%, an increase of 6.2% from 2010 (BPS, 2012).
Domestic oil, gas and coal reserves have played an important role in Indonesia’s economy as a source of energy, industrial raw material and foreign exchange. In 2011, oil and gas exports contributed 20.4% and coal exports contributed 13.5% of Indonesia’s total exports of about USD 203.6 billion. Overall, tax and non-tax revenue from oil, gas and minerals including coal accounted for 49.8% of the Indonesian Government’s budget in 2010 (Kemenkeu, 2010). In 2011, coal export contribution increased 46.6% of Indonesia’s coal exports in 2010 (KESDM, 2012).
Indonesia’s proven fossil energy reserves at the end of 2011 comprised 4 billion barrels of oil; 3 trillion cubic metres of natural gas and 5.5 billion tonnes (Bt) of coal.
Table 1. Key data and economic profile, 2011
Key Data Energy Reservesa
Area (million sq. km) 7.8 Oil (billion barrels) 4.0
Population (million) 241.1 Natural Gas (trillion of cubic metres)
3.0
GDP (USD (2000) billion at PPP) 951 Coal (billion tonnes) 5.5
GDP (USD (2000) per capita at PPP) 3,944
a Proven reserves at the end of 2011 (BP, 2012).
Source: EDMC (2012).
In 2011, Indonesia’s total primary energy supply (TPES) was 1 236 million barrel of oil equivalent (boe) of commercial energy—made up of oil (47.93%), coal (27.03%), natural gas (21.17%) and other energy (mainly hydropower and geothermal) (3.86%)—and 280.2 million boe of biomass. Indonesia is a net exporter of energy; overall energy exports of crude oil, condensates, natural gas, liquefied natural gas (LNG), petroleum products and coal totalled 1 569 million boe in 2011. Total energy exports in 2011 increased by 18.13% from 2010 (1,328.3 thousand boe), an increase driven primarily by coal exports (KESDM, 2012).
Total final energy consumption of final energy was 1,114.77 million boe in 2011, an increase of 4.43% from 1,067.53 million boe in 2010. The share of the final energy consumption by sector in 2011 was 32.3% for industry, 28.7% for household, 24.9% for transport and 14.1 % for other sectors. Indonesia’s economy is highly dependent on oil; final energy consumption of oil in 2011 was 363.83 million boe (32.64% of the total final energy consumption).
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Table 2. Key data and economic profile, 2011
Primary Energy Supply (million boe)
Final Energy Consumption (million boe)
Power Generation (GWh)
Indigenous productiona 2 426.7 Industry sector 359.7 Total 183,419
Net imports & other –1 286.3 Transport sector 277.4 Geothermal PP 9,371
Total PESa 1 236.0 Household Sector 320.4 Hydro PP 12,419
Coal 334.1 Other sectors 157.3 Steam PP 88,737
Oil 592.4 Total FEC 1,114.8 Gas PP 56,302
Gas 261.7 Coal 144.6 Diesel PP 16,584
Others 47.8 Oil 433.8 Nuclear PP –
Gas 158.3 Others 5.46
Electricity 98.0
a Excludes biomass.
Source: EDMC (2012). Steam PP = coal, gas, and biomass.
1.1.1 Oil
In 2011, Indonesia produced 375.9 million boe of crude oil, biofuel and condensates; of this, 135.6 million boe (36%) was exported, representing a decrease of 2.8% from 2010. Since oil production has declined significantly over the past decade (in 1997 Indonesia produced 72,474 ktoe of crude oil and condensates) in order to meet its domestic oil requirements, the economy imported 96.9 million boe of crude oil and 167.2 million boe of petroleum products in 2011, up 1.54% from total of 260 million boe in 2010 (KESDM, 2012).
Most crude oil is produced onshore from two of Indonesia’s largest oil fields: the Minas and Duri oil fields in the province of Riau on the eastern coast of central Sumatra. As these fields are considered mature, the Duri oil field in particular has been subject to one of the world’s largest enhanced oil recovery efforts.
1.1.2 Natural gas
Indonesia produced 519 million boe of natural gas in 2011, a decrease of 5.1% from the 542.9 million boe in 2010. Of the total natural gas production, 38% was converted to LNG for export shipping. The economy produced 35,197.2 million boe of LNG in 2011, a decrease of 2.17% from 201.5 million boe in 2010. In 2011, Indonesia also exported 60.3 million boe of natural gas (11.6% of its total natural gas production) through pipelines to Singapore and Malaysia. Overall, 49.6% of Indonesia’s natural gas production is exported; the balance is made available for domestic requirements (KESDM, 2012).
Indonesia’s large natural gas reserves are located near Arun in Aceh, around Badak in East Kalimantan, South Sumatra, the Natuna Sea, the Makassar Strait, and Papua; with smaller gas offshore from West and East Java. LNG exports from Tangguh, Papua began in 2009 with gas being supplied from the onshore and offshore Wiriagar and Berau gas blocks, which are estimated to have reserves of 14 trillion cubic feet (Tcf).
1.1.3 Coal
In 2011, Indonesia produced 1,483.7 million boe of coal, an increase of 28.39% from 1,155.7 ktoe in 2010. Most of Indonesia’s coal production in 2011 (1,145.2 million boe, or 77.2%) was exported with domestic demand (334.1 million boe in 2011) being allocated for power generation (56.7%), and industry (43.3%) uses (KESDM, 2012).
About 57% of Indonesia’s total recoverable coal reserve is lignite, 27% is sub-bituminous coal, 14% is bituminous coal, and less than 0.5% is anthracite. Most of Indonesia’s coal reserves
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are in South Sumatra and East Kalimantan; relatively small deposits of coal are in West Java and in Sulawesi. In consequence, while Indonesian coal’s heating value can range from 5,000 to 7,000 kilocalories per kilogram, it is generally distinctive for its low ash and sulphur content (typically less than 1%).
1.2 Electricity Situation
Indonesia had 39,885 MW of electricity generation capacity in 2011, which was owned by the state-owned electricity company (PLN), independent power producers (IPPs) and private power utilities (PPU). In 2011, 182,622 GWh of electricity had been generated, of which 22.2% was supplied by IPPs. In 2011, electricity production by energy mix was still dominated by coal (50.8%), followed by renewable energy (20.3%), natural gas (16.1%) and oil (12.8%) (KESDM, 2012).
To increase the national electrification ratio, the Government of Indonesia launched the 10,000 MW Fast Track Program Phase I (FTP1) in 2006 and Phase II (FTP2) in 2010. The impact of the program is the increase of national electrification ratio from 63.0% in 2006 to 72.95% in 2011. The FTP2 will add 10,047 MW capacity, of which 49% will be developed from geothermal, 30% from coal, 17% from hydropower, 3% from gas, and 1% from gassified coal. The government has been mandated the state-owned electricity company (Perusahaan Listrik Negara, PLN) to implement fast-track programs to accelerate development of generating facilities. In this case, PLN will focus on the development of medium scale renewable energy generation.
1.2.1 Indonesia Electricity Current Condition and Planning
As of May, 2013, Indonesia had an installed electrical generating capacity of approximately 44,346 MW, of which 5% coming from gas/oil steam power plant, 13.0% from diesel power plant, 9.0% from hydro power plant, 28.9% from gas power plant, 3% from geothermal power plant, 41.0% from coal fired power plant, and 0.4% coming from renewable energy mini scale power plant. PLN owned about 73% of the total installed capacity, IPP about 23% and the rest belonging to PPU. The Indonesia’s electricity sector is facing numerous challenges in its development, including (1) a mismatch between the availability of primary energy resources, which the supply of energy is located mostly in outside Java and Bali, and the demand for electricity, which came mostly from Java and Bali, (2) In 2012, the percentage of oil for producing electricity (fuel mix) was still high (15.02%) despite the abundance of coal resources within the country and (3) the limited availability of the government funds and other resources to finance the construction of new power plants as well as transmission and distribution networks. Regarding infrastructure development initiatives, the government has been placed a special emphasis on the development of power generation plants, particularly coal-fired power plants, in order to reduce dependence on oil for power generation. One of the government’s ten model projects introduced at the Indonesia Infrastructure Conference and Exhibition (IICE) was a power generation project, namely the Central Java Coal-Fired Power Plant. The Indonesian Goverment has been issued Presidential Regulation No. 78 Year 2010 regarding Infrastructure Guarantee for Public Private Partnership Projects through the Infrastructure Guarantee Agency, in which the Indonesia Government will give Goverment Guarantee to the 2 x 1,000 MW Central Java Coal-Fired Power Plant. The winner of the tender of Central Java Coal-Fired Power Plant had been announced by PLN since June 17, 2011. The Central Java Coal-Fired Power Plant was divided into 2 units and expected to be operational in 2018.
In addition, the government assigned PLN to accelerate its construction of coal power plants with aggregate capacity of 10,000 MW and associated transmission line which called the 10,000 MW Fast Track Program Phase 1 (FTP1) in 2006. The total investment needed for constructing the power generation and transmission was estimated to Rp 95.89 Trillion, and for which the
5
government has pledged certain credit support. Currently, all of the power generation projects are entered to the construction stages, in which 11 power plants have been already in the commercial operation, and the rest of the projects are expected to be completed by the end of 2014. The aggregate value of the construction contracts is noted to approximately USD 10 billion (with assumption of 1 USD = Rp. 9,000 and 1 EUR = Rp. 12,153.86). As of June 2013, a total of 5,005 MW of power plants under the FTP1 were in the commercial operation (50% of the total capacity of projects).
Indonesia still needs high investment for developing power generation, transmission and distribution lines and facilities in order to meet the expected demand in the future. The government indicated that from year 2012 to 2021 the electricity sector will need the total investment approximately USD 107.13 billion, of which USD 77.38 billion for developing the additional capacity of power plant, USD 15.98 billion for transmission, and USD 13.77 billion for electricity distribution.
On December 19, 2012, the Ministry of Energy and Mineral Resources submitted the draft of the National Electricity General Plan (Rencana Umum Ketenagalistrikan Nasional, RUKN) 2012-2031 to the Chairman of the House of Representatives Commission VII of Republic of Indonesia for consultation before it stipulated by the government as mandated by the Electricity Law. The RUKN 2012-2031 is intended to coordinate electricity infrastructure development for the various regions of Indonesia. Based on this plan, Indonesia’s demand for electricity is expected to grow at an average annual rate of 10.1% over the period 2012 to 2031. In order to meet high electricity demand growth, Indonesia will need the additional power plant capacity of approximately 237 GW by 2031. As a result, the electricity sector will need high investment in developing power generation, transmission and distribution lines and facilities.
Based on the PLN’s 2012-2021 Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik, RUPTL), the national electricity demand is expected to grow at an average annual rate of 8.65%. In order to meet this demand as well as to support the Masterplan for Acceleration and Expansion of Indonesia Economic Development (MP3EI) program, the government has been planned to increase the capacity of power plants about 57,250 MW by 2021 or an average about 5,725 MW per year. Noting that the demand for electricity is still expected to be concentrated in the Java-Bali electricity system and in Sumatera electricity system by 2021, the additional capacity of power plant portion will be developed more in Java-Bali electricity system (32,637 MW) and in Sumatera electricity system (14,513 MW).
1.3 National Energy Policy
On 10 August 2007, Indonesia enacted Law No. 30 Year 2007 regarding Energy. This Energy Law contains two main principles of the National Energy Policy, which are the energy diversification and conservation energy. The Law mandates the utilization of energy resources on the priority of renewable energy sources. It also defines the roles and responsibilities of the Government and Local Government to prioritize the renewable energy sources.
Further, the Energy Law mandates the formation of the National Energy Council (Dewan Energi Nasional, DEN). The National Energy Council has some tasks as follow:
drafts the National Energy Policy (KEN); and
endorses the National Energy Master Plan (Rencana Umum Energi Nasional, RUEN); and
declares measures to resolve conditions of energy crisis and energy emergency; and
provides oversight on the implementation of energy policies that are cross-sectoral.
The assembly of the DEN members is chaired by the President. As an institution, the DEN is headed by the minister responsible for energy affairs. The DEN has 15 members: Seven
6
ministers and high-ranking government officials responsible for the supply, transportation, distribution and use of energy; and eight stakeholder members from industry, academia, expert groups, environmental groups, and consumer groups. The selection and appointment of members of the DEN was finalized in late 2008.
Both the National Energy Policy and the National Energy Master Plan are now still being formulated, which are expected to address some issues related to the sufficiency of energy to meet the economy’s needs, energy development priorities, utilization of indigenous energy resources, and energy reserves.
Regarding the utilization of energy resources and final energy use, security of supply, energy conservation, protection of the environment with regard to energy use, pricing of energy, and international cooperation, the Energy Law defines the outline of the National Energy Policy (Kebijakan Energi Nasional, or KEN); the roles and responsibilities of the government and regional governments in planning, policy and regulation; energy development priorities; energy research and development; and the role of enterprises.
The National Energy Master Plan (RUEN) implements the KEN. By law, the RUEN is drafted by the government, namely the Ministry of Energy and Mineral Resources, in a process that involves the related ministries and other government institutions, state-owned companies in the energy sector, and regional governments as well as academia and other energy stakeholders, and has due regard to input from the public.
The DEN finalised the draft of the National Energy Policy in March 2011, a document which would need to be discussed with the parliament (the DPR) before being enacted by the government. Thus, this new national energy policy would replace the existing the National Energy Policy that was established by the Presidential Regulation No. 5 Year 2006.
Over the past decade, Indonesia has reformed its energy sector through a series of new laws: the Oil and Gas Law (Law No. 22 Year 2001), the Geothermal Energy Law (Law No. 27 Year 2003), the Mineral and Coal Mining Law (Law No. 4 Year 2009), and the Electricity Law (Law No. 30 Year 2009).
These laws were established to promote an increased role for enterprises in the energy supply chain, in terms of fair competition on an equal playing field (as an alternative to a monopolistic industry), direct contracts between energy producers and buyers, and a transparent regulatory framework.
An advanced reformation in the electricity sector, which would have to establish the possibility of direct competition in power generation, transmission and distribution through Law No. 20 Year 2002 (currently annulled), was rejected by the Constitutional Court in 2004.
1.3.1 The Law on Oil and Gas
Indonesia’s oil and gas industry is currently undergoing regulatory changes. The industry was reformed in 2001 under the Oil and Gas Law (Law No. 21 Year 2001). The regulatory bodies known as BP MIGAS and BPH MIGAS were created to address oil upstream and downstream activities, respectively. Exploration and production activities were conducted based on a fiscal contractual system that relies mainly on production sharing contracts (PSCs) between government and private investors, which may include foreign and domestic companies, as well as the government-owned oil company (Pertamina).
However, on 13 November 2012, the Constitutional Court declared that the existence of BP MIGAS was in conflict with the Constitution of 1945 and ordered its dissolution. At the time of this writing, the government is drafting a new Oil and Gas Law that will determine a new industry structure and until this law can be enacted, an Interim Working Unit for Upstream Oil and Gas Business Activities (SKSPMIGAS) has been established under the Ministry of Energy
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and Mineral Resources (MEMR) to undertake all BP MIGAS roles and responsibilities. Furthermore, on 14 January 2013, the government issued the Presidential Regulation No. 9 Year 2013 as the umbrella for the establishment of the Working Unit for Upstream Oil and Gas Business Activities (SKKMIGAS) with its tasks in managing the upstream oil and gas business in Indonesia.
BPH MIGAS has supervisory and regulatory functions in the downstream oil and gas sector with the aims of ensuring availability and distribution of fuel throughout Indonesia, and the promotion of gas utilization in the domestic market through fair and transparent market competition.
The enactment of the Oil and Gas Law required that the state-owned oil company, Pertamina, relinquish its governmental roles to the new regulatory bodies BP MIGAS (now handed over to SKKMIGAS) and BPH MIGAS, and mandated the termination of Pertamina’s monopoly in upstream oil and gas activities.
1.3.2 The Law on Mining
On 16 December 2008, the parliament passed a new law on minerals and coal mining to replace Law No. 11 Year 1967, which had been in place for 41 years. The new law was enacted by the government on 12 January 2009 as Law No. 4 Year 2009 regarding Mineral and Coal Mining. The new Mining Law basically ended the concession of work areas by contracts of work (COW) and by work agreements for coal mining enterprises, Perjanjian Karya Perusahaan Pertambangan Batubara (PKP2B). Concessions are now based on permits from the central and regional governments. However, as the principle and objective of exertion in mining, in article 5 said that the government have an obligation to make policy about priory of minerals for domestic purposes/Domestic Market Obligation (DMO).
Prior to the new law, the government arguably had less regulatory control over its concessions. For example, any changes to concession terms needed to be agreed to by both the government and the investor. By instituting permits, the government expects to be better positioned to promote investments and to regulate mining.
The law creates greater opportunity for smaller investments in mining and gives regional governments a greater role in regulating the industry, along with revenue from mining. The Mining Law called for regulations on:
concession areas and concession periods (for exploration permits) and production limits (for production permits) in mining for metals, non-metals and specific non-metals;
a requirement that prospective investors submit post-mining and reclamation plans before applying for a permit;
an obligation on permit holders to build smelters;
an obligation on foreign companies to divest shares to the government, or state-owned enterprises and private companies registered in Indonesia;
payment of taxes, fees and allocation of profits; and
reclamation and post-mining costs.
The set of Government Regulations with regard to the Mining Law was completed in 2010 and these are now operational.
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1.3.3 The Law on Electricity
On 23 September 2009, the government enacted Law No. 30 Year 2009 regarding Electricity. This new Electricity Law replaced Law No. 15 Year 1985, which the Constitutional Court had reinstated in December 2004 as a provisional law, upon annulment of Law No. 20 Year 2002.
A notable difference between Law No. 30 Year 2009 and Law No. 15 Year 1985 is the absence of a Holder of Electricity Business Authority (Pemegang Kuasa Usaha Ketenagalistrikan, PKUK). Under Law No. 15 Year 1985, the government had appointed the state-owned electricity company, PLN, as the sole PKUK and so had made it responsible for providing electricity to all parts of Indonesia.
Under the new Electricity Law, the electricity industry will be made up of electricity business entities that are title holders of electricity supply business licences, Izin Usaha Penyediaan Tenaga Listrik (IUPTL). The IUPTL could either be in integrated electricity supply, power generation, transmission, distribution or retailing of electricity. Indonesia’s electricity systems would retain vertically integrated configurations; however, these could comprise several licensed systems—such as PLN’s numerous power systems, provincial government owned systems (to be established, where necessary), and private sector power systems, each operating within their respective business areas Licence holders of specific electricity supply types (such as the IPPs, as licence holders in power generation for supply of electricity to the public) would participate in the vertically integrated systems.
By law, the government and regional governments would regulate the electricity industry within their respective jurisdictions and through electricity regulatory authorities. The Electricity Law allows appointment of an electricity supply business area, cross-border electricity trading, as well as electricity tariffs to be differentiated by region for one certain business area (to allow for different costs of supply). Under the previous Electricity Law, Indonesia had a uniform electricity tariff regime and applied cross-subsidies between regions. At the time of writing, there was no ruling as to whether PLN will implement tariff differentiation over its extensive power systems across Indonesia.
As mandated by Law No. 30 Year 2009, the MEMR has issued three Government Regulations (GR), namely GR No. 14 Year 2012 regarding electricity supply businesses activity, GR No. 42 Year 2012 regarding the buying and selling of electricity across Indonesia’s borders, and GR No. 62 Year 2012 regarding electricity support businesses.
The Ministry of Energy and Mineral Resources (MEMR) Regulation No. 22 Year 2012 regarding the Obligation of PLN to Purchase Electricity from Geothermal Power Plants and the Standard Purchase Price for Geothermal Power by PLN has been issued to replace the MEMR Regulation No. 2 Year 2011 and to set out how PLN purchases geothermal power. This regulation aims to accelerate the development of geothermal power as mandated by the Government Regulation No. 59 Year 2007 regarding Geothermal Business Activities as amended by the Government Regulation No. 70 Year 2010, particularly geothermal projects under the FTP2. The regulation sets the purchase price for geothermal power plant at 10 - 18.5 US cents/kWh depends on region and type of voltage transmission where geothermal power plants are connected to system. PLN will purchase geothermal power at that price without negotiable.
1.3.4 The Law on Geothermal
According to Law No. 27 Year 2003 regarding Geothermal Energy, there are 5 (five) stages in utilizing geothermal energy. The stages are preliminary survey, exploration, feasibility studies, exploitation and utilization. The government could only conduct the two early stages, preliminary survey and exploration whereas private party (business entity) could conduct all the five stages.
9
A business entity could initiate geothermal activities once obtaining Geothermal Business Permit (IUP) through Geothermal Working Area (GWA) tender. The authority to issue the permit is depending on the location where the GWA is located. If the GWA is located within a regent/city, IUP is issued by regent/city government. For GWA is located at across several regent/city areas, IUP is granted by provincial government. The central government (minister) is only giving IUP for GWA which lies across several provinces. IUP period consist of: a. An exploration period valid of 3 (three) years which can be extended 2 (two) times for a
period of one year each.
b. A feasibility study valid for a maximum of 2 (two) years since the exploration time period is ended.
c. An exploitation period valid for a maximum period of 30 years after exploration has ceased and can be extended. Exploitation period may be extended at most of 20 (twenty)years for each extension
2. ENERGY SECTOR: STRUCTURE AND STAKEHOLDERS
2.1 Ministry of Energy and Mineral Resources
Figure 1. The Structure Organization of The Ministry of Energy and Mineral Resources
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The Ministry of Energy and Mineral Resources (MEMR) has responsibilities to manage the part of government affairs in the fields of energy and mineral resources. MEMR has been divided into the following directorate generals and agencies, namely:
2.1.1 Directorate General of Oil and Gas
Directorate General of Oil and Gas has the duty to formulate and implement policies and technical standardizations in the fields of oil and gas. In order to perform her tasks, the Directorate General of Oil and Gas has the functions in preparing and implementing the policies in the fields of oil and gas, preparing the standards, norms, guidelines, criteria, and procedures in the fields of oil and gas, providing technical guidance and evaluation, and conducting the administration affairs of the Directorate General of Oil and Gas.
2.1.2 Directorate General of Electricity
Directorate General of Electricity has the duty to formulate and implement policies and technical standardizations in the fields of electricity. In order to perform her tasks, the Directorate General of Electricity has the functions in preparing and implementing the policies in the fields of electricity, preparing the standards, norms, guidelines, criteria, and procedures in the fields of electricity, providing technical guidance and evaluation, and the administration affairs of the Directorate General of Electricity.
There are three directorates and one secretariat under the Directorate General of Electricity which have different duty and function as shown in the organization chart below:
Director General Oil and Gas
Director of Oil and Gas Program Development
Director of Oil and Gas Upstream
Business Development
Director of Oil and Gas Downstream
Business Development
Director of Oil and Gas Engineering
and Environment
Secretary of Directorate General of
Oil and Gas
Director General of Electricity
Director of Electricity Program Supervision
Director of Electricity Business Supervision
Director of Electricity Technical and Environmental
Secretary of Directorate General of
Electricity
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2.1.3 Directorate General of Mineral and Coal
Directorate General of Mineral and Coal has the duty to formulate and implement policies and technical standardizations in the fields of mineral and coal. In order to perform her tasks, the Directorate General of Mineral and Coal has the functions in preparing and implementing the policies in the fields of mineral and coal, preparing the standards, norms, guidelines, criteria, and procedures in the fields of mineral and coal, providing technical guidance and evaluation, and conducting the administration affairs of the Directorate General of Mineral and Coal.
2.1.4 Directorate General of New Renewable Energy and Energy Conservation (DGNREEC)
Directorate General of New Renewable Energy and Energy Conservation has the duty to formulate and implement policies and technical standardizations in the fields of new, renewable energy and energy conservation. In order to perform her tasks, the Directorate General of New Renewable Energy and Energy Conservation has the functions in preparing and implementing the policies in the fields of new, renewable energy and energy conservation, preparing the standards, norms, guidelines, criteria, and procedures in the fields of new, renewable energy and energy conservation, providing technical guidance and evaluation, and conducting the administration affairs of the Directorate General of New Renewable Energy and Energy Conservation. There are four directorates and one secretariat under the Directorate General of New Renewable Energy and Energy Conservation which have different duty and function as shown in the organization chart below:
Director General Mineral and Coal
Director of Mineral and Coal Program
Development
Director of Mineral Business
Development
Director of Coal Business
Development
Director of Mineral and Coal
Engineering and Environment
Secretary of Directorate General of
Mineral and Coal
Director General of New, Renewable and
Energy Conservation
Director of Geothermal
Director of Bioenergy
Director of Various New Renewable
Energy
Director of Energy Conservation
Secretary of Directorate General of
NREEC
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2.1.5 Geology Agency
Geology Agency has the duty to conduct research and service in the fields of geology. In order to perform her tasks, the Geology Agency has the functions in formulating policies in the fields of geology, formulating research and service plans and programs, fostering and implementing research and service, servicing in geological surveys, as well as researching and servicing in the fields of geology resources, volcanology and geological disaster mitigation and environmental geology, providing recommendation and presentation of information on the results of surveys, researches and services, evaluating the implementation of research and service in the fields of geology, and conducting the administration affairs of the Geology Agency.
2.1.6 Research and Development Agency of Mineral and Energy Resources
Research and Development Agency of Mineral and Energy Resources has the duty to conduct research and development in the fields of energy and mineral resources. In order to perform her tasks, the Research and Development Agency has the functions in preparing technical policies, plans and programs of research and development in the fields of energy and mineral resources, implementing research and development in the fields of energy and mineral resources, monitoring, evaluating and reporting the implementation of research and development in the fields of energy and mineral resources, and conducting the administration affairs of the Research and Development Agency.
Head of Geology Agency
Head of Geology Resources Center
Head of Volcanology and Disaster
Mitigation Center
Head of Groundwater Resources and Environmental Geology Center
Head of Geology Survey Center
Secretary of Geology Agency
Head of Research and Development Agency
Head of Research and Development Oil and Gas
Technology Center
Head of Research and Development Electricity Technology and NREEC
Center
Head of Research and Development Mineral and Coal Technology
Center
Head of Research and Development Marine
Geology Center
Secretary of Research and
Development Agency
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2.1.7 Education and Training Agency of Mineral and Energy Resources
Education and Training Agency of Mineral and Energy Resources has the duty to conduct education and training in the fields of energy and mineral resources. In order to perform her tasks, the Education and Training Agency has the functions in preparing technical policies, plans and programs of education and training in the fields of energy and mineral resources, implementing education and training in the fields of energy and mineral resources, monitoring, evaluating and reporting the implementation of education and training in the fields of energy and mineral resources, and conducting the administration affairs of the Education and Training Agency.
2.2 Stakeholders
The successful implementation of policies and programs of the government in the energy sector is highly dependent on the support and cooperation of the stakeholders (associations, people, and public and private companies). Therefore, a good and clear communication, and transparency in policies and regulations making between government and stakeholders should be strengthened and expanded. The stakeholders who have had a good relationship and cooperation with the government in the energy sector are as shown in the table below.
Table 3. Stakeholders on New Renewable Energy
No Stakeholders
I STATE OWNED COMPANY
1 State Owned Electricity Company
PT Perusahaan Listrik Negara
PLN
2 State Owned Oil and Natural Gas Mining Company
Perusahaan Pertambangan Minyak dan Gas Bumi
Pertamina
3 State Owned Gas Company
PT Perusahaan Gas Negara
PGN
Head of Education and Training Agency
Head of Education and Training Oil and
Gas Center
Head of Education and Training
Electricity and NREEC Center
Head of Education and Training Mineral and Coal Technology
Center
Head of Education
and Training Geology Center
Secretary of Education and Training
Agency
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No Stakeholders
II. NRE (New and Renewable Energy) CORE BUSINEESS ASSOCIATION
4 Indonesian Biofuel Producers Association
Asosiasi Produsen Biofuels Indonesia
Aprobi
5 Indonesian Bioethanol Producers Association
Asosiasi Produsen Bioethanol Indonesia
APBI
6 Indonesian Palm Oil Association
Gabungan Pengusaha Kelapa Sawit Indonesia
Gapki
7 Indonesian Geothermal Association
Asosiasi Panas Bumi Indonesia
API
8 Indonesian Minihidro Entrepreneur Association
Asosiasi Pengusaha Minihidro Indonesia
APMI
9 Hydro Power Plant Entrepreneur Association
Asosiasi Pengusaha Pembangkit Listrik Tenaga Air
-
10 Indonesian Ethanol and Spiritus Industry Association
Asosiasi Industri Ethanol dan Spiritus Indonesia
Asendo
11 Indonesian Hydro Association
Asosiasi Hidro Indonesia
AHI
12 Indonesia Solar Module Manufacturers Association
Asosiasi Pabrikan Modul Surya Indonesia
Apamsi
13 Indonesian Ocean Energy Association
Asosiasi Energi Laut Indonesia
ASELI
14 Indonesian Network Microhydro
Jejaring Mikrohidro Indonesia
JMI
III. NRE BUSINESS ASSOCIATION SUPPORT
15 New Renewable Energy Support Business Association
Asosiasi Perusahaan Usaha Penunjang EBT Indonesia
Appebti
16 Association of Indonesia Automotive Industries Indonesia
Gabungan Industri Kendaraan Indonesia
Gaikindo
15
No Stakeholders
IV. NRE PROFESSIONAL ASSOCIATION
17 Indonesian Association of Bioenergy Scientist and Technologist
Ikatan Ahli Bioenergi Indonesia
IKABI
18 Indonesian Biofuel Expert Association
Ikatan Ahli Bahan Bakar Indonesia
IABI
19 Indonesian Biodiesel Forum
Forum Biodiesel Indonesia
FBI
20 Indonesian Solar Energy Engineering Association
Ikatan Ahli Teknik Energi Surya Indonesia
IATESI
21 Indonesian National Committee on Large Dams
Komite Nasional Indonesia Bendungan Besar
KNI-BB
22 Nuclear Power Experts Association
Komisi Ahli Tenaga Nuklir
KATN
V NRE COMMUNITY
23 Indonesian Renewable Energy Society
Masyarakat Energi Terbarukan Indonesia
METI
24 Indonesian Wind Energy Society
Masyarakat Energi Angin Indonesia
MEAI
25 Indonesian Palm Oil Board
Dewan Minyak Sawit Indonesia
DMSI
26 Indonesian Biogas Community
Masyarakat Biogas Indonesia
MBI
27 Community for Energy and Environment
Masyarakat Peduli Energi dan Lingkungan
MPEL
VI ENERGY CONSERVATION BUSINESS ASSOCIATION SUPPORT OR CARBON SERVICE
28 Indonesian Association of Energy Conservation
Asosiasi Perusahaan Konservasi Energi Indonesia
Apkenindo
29 Indonesian Lamp Manufacturers Association
Asosiasi Produsen Lampu Indonesia
Aperlindo
16
No Stakeholders
30 Indonesian Electronics Association
Gabungan Elektronika Indonesia
GABEL
31 Indonesian Electrical Industry Luminaries Association
Asosiasi Industri Luminer Kelistrikan Indonesia
AILKI
VII. PROFESSIONAL ASSOCIATION OF ENERGY CONSERVATION OR CARBON SERVICE
32 Energy Conservation Expert
Himpunan Ahli Konservasi Energi
HAKE
33 Indonesian Building Utility & Building Physics Engineers Association Ikatan Ahli Fisika Bangunan Indonesia
IAFBI
34 Indonesian Hotel Engineer Association
Asosiasi Ahli Tekhnik Hotel Indonesia
ASATHI
35 Building Engineer Association BEA
VIII ENERGY CONSERVATION COMMUNITY OR CARBON SERVICE
36 Energy Saving Society Forum
Forum Komunikasi Masyarakat Hemat Energi
FKMHE
37 Green Building Council Indonesia GBCI
38 Indonesian Business Council For Sustainable Development IBCFSD
3. RENEWABLE ENERGY DEVELOPMENT IN INDONESIA
3.1 National Energy Policy and Regulations on Renewable Energy
In 2007, the Government of Indonesia issued the Energy law, which consists of two main policies on energy development as follow:
a. Energy Conservation b. Energy Diversification
Until the time the National Energy Council (DEN) establishes a new National Energy Policy (KEN), the National Energy Policy of 2006 is in force. The aim of this policy is to:
Achieve energy elasticity to GDP of less than one by year 2025
Realise an optimum primary energy consumption mix in 2025, with shares as follows:
– oil,—to become less than 20%
– natural gas—to become greater than 30%
– coal—to become greater than 33%
– biofuels—to become greater than 5%
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– renewable energy and other energy including nuclear—to become greater than 10%
– liquefied coal—to become greater than 2%.
The details of the energy programs and targets of the National Energy Policy are elaborated in the Blue Print – National Energy Management 2005 to 2025 (ESDM, 2006).
Indonesia’s 2006 energy policy expects the combined share of renewable energy and nuclear in the overall energy mix in 2025 to exceed 17%. The policy places special emphasis on enhancing the share of biofuels. Renewable energy and other energy including nuclear (as in the list above) is expected to be made up of at least a 5% share from geothermal and a combined share of biomass, hydropower, solar, wind and nuclear power to comprise the remainder of the 10% by 2025.
3.1.1 Current Renewable Energy Development
3.1.1.1 Geothermal Energy
Indonesia is a country with an abundant potential resources of geothermal energy that spread
along the belt of active volcanoes from Sumatra, Java, Bali, Nusa Tenggara, Sulawesi, Maluku
and West Papua. The data from the Geological Agency, the Ministry of Energy and Mineral
Resources indicates that until 2012 had identified 299 locations with total potential capacity of 28
GWe for further development as shown in Table 4 below.
Table 4. Indonesia’s Geothermal Potential, 2012
RESOURCES (MWe)
% RESERVE (MWe)
%
Speculative Hypothetical
42.37%
Possible Probable Proven
57.63% 7,247 4,886 13,391 823 2,288
12,133 16,502
28,635
Until mid 2013, 58 Geothermal Working Areas (GWAs) had been determined by the
government of which 19 GWAs were the existing GWAs that had been established before the
enactment of Law No. 27 Year 2003 regarding Geothermal, whereas the rests were new GWAs
as shown in Figure 3 below.
18
Figure 3. Distribution of Geothermal Working Area
However, the current indirect utilization of geothermal energy for electricity is only reached 1,341 MW or 5% of Indonesia’s total potential. On the other hand, direct utilization of geothermal energy (for non-electricity purposes) has not been yet optimizing.
Based on the Presidential Regulation No. 5 Year 2006 regarding the National Energy Policy
(KEN), the government has set a target of 9,500 MW electricity by 2025 or equal to 5% of total
primary energy, as shown in Figure 4 below.
Figure 4. Road Map of Geothermal Development 2006 – 2025
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In order to accelerate the geothermal utilization, the government issued the 10,000 MW Fast
Track Program Phase 2 (FTP2), in which geothermal is targeted to contribute 4,965 MW of
electricity.
In order to support the program, at least USD 15,000 million of investment is needed. This
large amount of fund can not be borne entirely by the government. Thus stakeholder’s
participation and support from partners both within and outside the country, are strongly
needed.
There are 2 ways for new investors for becoming a geothermal developers as shown in figure 5, as follows:
1. Preliminary Survey Assignment;
2. Obtaining Geothermal Business Permit (IUP), which awarded through GWA tender mechanism.
Figure 5. Geothermal Business Stages
In 2012, total steam production of geothermal energy was about 69,882,712 tonnes and total
electricity production of geothermal energy was about 9,291,090 MWh as shown in Table 5.
Table 5. Steam and Electricity Production 2012
GWA STEAM PROD (TONNES) ELECTRICITY PROD (MWh)
Kamojang 10,878,385 1,455,258
Lahendong 3,261,670 446,809
Sibayak 160,361 15,960
Ulubelu 1,393,112 206,988
Salak 25,797,305 2,981,160
Darajat 14,174,881 2,189,644
Wayang Windu 13,169,817 1,845,674
Dieng 1,047,181 149,597
Total 69,882,712 9,291,090
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3.1.1.2 Hydro Energy
Currently, Indonesia’s total hydro energy potential resources was 75,670 MW which spreads across in many locations with the total installed capacity of 4,200 MW or 5.6% of the total hydro energy potential, as shown in Table 6.
In the regions with hydro potential, the central and local governments manage to build micro-hydro power plants (MHP) and after the projects completed it handed over to local people for management, operation and maintenance of MHP as efforts to provide electricity access to the community and to encourage community participation in managing its own energy.
Table 6. Potential and Installed Capacity of Hydro Energy
No. Island Large Scale (>10 MW) Small Scale (<10 MW) Total (MW)
Potential Installed Capacity
Potential Installed Capacity
Potential Installed Capacity
1 Sumatera 16,100.00 1,154.00 281.76 83.44 16,381.76 1,237.44
2 Java 12,050.00 2,012.50 222.02 212.32 12,272.02 2,224.82
3 Kalimantan 5,999.50 30.00 277.75 31.27 6,277.25 61.27
4 Sulawesi 14,550.00 352.00 167.56 118.05 14,717.56 470.05
5 Bali-Nusa Tenggara
4,900.00 0.00 31.64 12.25 4,931.64 12.25
6 Maluku-Papua
21,057.00 23.00 32.78 4.67 21,089.78 27.67
Total 74,656.50 3,571.50 1,013.51 462.00 75,670.01 4,033.50
However, there are some challenges currently faced by the government in the development of
hydro energy, as follows:
Despite the good quality of local production turbines, the capacity of turbines are still below 1 MW. Therefore, it still needs support in research and development, as well as local manufacturing capabilities to produce turbines with capacity more than 500 kW;
Hydro energy resources is generally located in forested areas where there are no adequate existing transportation infrastructure, thus its causing high investment cost;
MHP often utilizes the resources of the state-controlled forests or indigenous people. MHP development is often hampered by the difficulty of obtaining permits from various parties. Therefore, it needs a mediation (clearing house); and
MHP sustainability depends on the preservation of water resources, therefore the development of MHP should be protected by policies and regulations on water resources use and spatial planning to ensure water sustainability and availability.
3.1.1.3 Solar Energy
Located in equator line, Indonesia has an abundant resources of solar energy which is suitable to use in small islands, remote areas, and border areas where there are no existing electricity installation. Very small scale electricity system in remote areas is currently planning to be supplied by solar power plants (SPP) in collaboration with the local government.
There are three alternatives of solar project implementation scheme, which are 1) Solar Photovoltaic (PV) or Solar Home System (SHS), 2) Centralized PV power plant, and 3) Hybrid System (using solar PV together with other existing resources, especially diesel power).
In 2009, Indonesia’s total solar photovoltaic/solar home system installed capacity was 13.49 kW or increased by 55.6% from 2008 as shown in Table 7. The total installed capacity of solar photovoltaic/solar home system is still expected to increase in the near future due to the
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government’s electrification ratio program in small islands, remote areas and border areas will use solar photovoltaic/solar home system to electrify community.
Table 7. Installed Capacity of SPP/SHS
No. Island Capacity/Year (kW)
2005 2006 2007 2008 2009
1 Sumatera 0.33 0.78 1.69 2.65 4.28
2 Java 0.33 0.40 0.53 0.78 1.15
3 Kalimantan 0.16 0.38 0.71 1.11 1.93
4 Sulawesi 0.12 0.64 1.37 1.98 2.85
5 Bali, Nusa Tenggara 0.12 0.35 0.62 1.00 1.41
6 Maluku, Papua 0.16 0.36 0.71 1.15 1.87
Total 1.22 2.91 5.63 8.67 13.49
However, there are some challenges currently faced by the government in the development of
solar energy, as follows:
A strategy to encourage the capability of local solar panel industries increased and expanded as well as other components in developing SPP; and
Changing people's image of SPP reliability. SPP devices are already widely trading in the market with vary of the quality that it has not been yet controlled by the government at the moment. So that there are many solar panels with low quality are selling in the market and making disappointed to consumers to use, thus damaging the image of SPP reliability.
In order to encourage the participation foreign companies in developing the solar industry in Indonesia as well as to boost utilization of solar energy, currently the government is finalizing the draft of the Ministerial Regulation regarding feed-in-tariff (FIT) in the field of solar energy. Through this FIT scheme, more incentives will be given to both local and foreign investors who can maximize the local content in their products. Based on the Presidential Regulation No. 54 Year 2010 regarding Procurement of Goods/Services in the Government, the minimum local content that has been set by the government is 40%.
Regarding PV development in Indonesia, there are 3 government programs that could be implemented, namely:
a. Rural PV: the aim is to increase electricity accessibility for rural community, especially in remote areas, small islands, and border areas using Solar Home System and Centralized PV System (off grid).
b. Urban PV: the aim is to provide electricity for own used to middle and high class households, real estates, office and commercial buildings, hotels and resorts, industries and other (off grid and on grid).
c. On grid PV: the aim is to offer business opportunity to Independent Power Producers (IPPs) in developing Solar Power Plant and selling the electricity to PLN.
3.1.1.4 Wind Energy
Since Indonesia is located on the equator line thus by nature the wind energy potential is relatively small. However, there are some areas have a good wind speeds as an effect of nozzle in the narrowing area between two islands or in the mountain slopes between two adjacent mountains.
On the other hand, in order to deal with intermittent characteristic of wind energy, application of wind power generation system with a special design is required for Indonesia.
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Noting this situation and condition, the development of wind energy in Indonesia will be focused on or concentrated in the areas with wind potential, and the development of wind power plants in remote areas, small islands, and border areas is prioritized using hybrid systems together with existing diesel power plants.
In 2010, Indonesia’s total installed capacity of wind power plant was 1,962.36 kW or increased by 5% from 2009 as shown in Table 8.
Table 8. Installed Capacity of Wind Power Plant
No. Island Capacity/Year (kW)
2005 2006 2007 2008 2009 2010
1 Sumatera 1.50 81.50 81.50 81.50 81.50 85.58
2 Java 285.75 285.75 285.75 285.75 285.75 300.04
3 Kalimantan 0.00 0.00 0.00 0.00 0.00 0.00
4 Sulawesi 148.70 228.70 388.70 588.70 588.70 618.14
5 Bali, Nusa Tenggara 591.05 591.05 911.05 911.05 911.05 956.60
6 Maluku, Papua 2.00 2.00 2.00 2.00 2.00 2.00
Total 1,029.00 1,189.00 1,669.00 1,869.00 1,869.00 1,962.36
However, there are some challenges currently faced by the government in the development of wind energy, as follows:
There is not comprehensive data and maps of wind energy potential available.
Investment cost of wind power plant is still relatively high (energy prices are still high) compared to other conventional power plant investments.
There is no significant incentives available for industries in developing wind energy utilization.
3.1.1.5 Bioenergy
As agricultural based country, Indonesia has an abundant resources of bioenergy. The biggest bioenergy potential are coming from agro-industries and municipal wastes. It is estimated that the potential of bioenergy is about 49,810 MW. Similar with other renewable energy, bioenergy is also categorized as a clean energy, which not only could increase the national energy security but also give a good contribution to the environment.
The development of bioenergy in Indonesia is a part of green energy development under the program of the National Action of Greenhouse-gas Mitigation (Program Rencana Aksi Nasional Gas Rumah Kaca–RAN GRK). Bioenergy is also considered as local energy sources that considered as the most proper energy to improve the modern energy access to people in rural areas. Therefore, bioenergy development has become one of the priority energy development in Indonesia in order to increase the national energy security. Under the Presidential Regulation No. 5 Year 2006, bioenergy is expected to have a significant contribution in the national primary energy mix, with minimum share to 5% by 2025 or even the minimum share of bioenergy targets set higher to 8.9% by 2025 under the government’s new vision, namely Vision 25/25.
In Indonesia, products of bioenergy are developed in the form of biofuel (liquid), biogas, bio-solid (bio-briquettes, pellets) and bio-electricity, as shown in Figure 6 below.
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Figure 6. Bioenergy Conversion System
Even though Indonesia has a big potency of bioenergy, the utilization of bioenergy is still very low compared to its potency. It is estimated that the total bioenergy installed capacity has reached about 1,618.40 MW.
As mentioned above, the products of bioenergy are included bio-briquettes and pellets. Bio-briquettes and pellets are not a priority to be developed by the government currently, since its utilization can be replaced by the traditional biomass or simply by agricultural wastes. However, bio-briquettes and pellets are developed by some industries from some agro-industry wastes, and these products are exported to some countries.
A very different situation can be seen in the solid-biomass, the development of biogas currently is done in intensively manner, both for the domestic utilization (cooking and light), and also the electricity production. Biogas technology is considered as the grass-root technology where Indonesia is able to produce the technology. In Indonesia, the biogas development is carried out through 3 (three) following approaches, namely:
a. Non-Commercial (under government investment)
This scheme is addressed to increase the access on modern energy to rural people, especially for those who live in isolated areas. This approach also has aim to introduce the bioenergy technology to stimulate people’s interest to utilize biogas system. Currently, under the Ministry of Energy and Mineral Resources budget, there are two programs using this scheme, namely the Biogas-Energy Self-sufficient Village (ESSV) program and the Special Allocation Fund Program (Program Dana Alokasi Khusus). The non-commercial approach for the biogas development is also conducted by other ministries, such as the Ministry of Agriculture, the Ministry of Cooperative and Small-Medium Enterprises, the Ministry of Environment, and the State Ministry for Development of Disadvantaged Regions.
b. Semi Commercial (under application of partial subsidies)
This approach has a mechanism where subsidy is applied to stimulate participation of people to use the biogas system and the involvement of private sectors and financial institutions. Currently, Indonesia has such program which is implemented under a bilateral cooperation between Indonesia and the Netherlands, namely the Domestic Biogas Program (Program Biogas Rumah-Program BIRU). The chosen area to implement this program is the area where there is credit available to the consumers/biogas users provided by financial institutions. The program provides Rp 2 million to each beneficiary to construct the biogas unit. Remaining cost of the
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biogas unit construction is paid by the beneficiary, by cash or through the credit from the financial institution who involved this program.
c. Commercial (under Private Investment or Public-Private Partnership)
The scheme for commercial approached is under business-to-business (B to B) in where usually biogas is produced in large scales to produce electricity. What the government can do to encourage involvement of private sector in this scheme is to provide proper regulations and to improve the investment climate.
Further, Indonesia has also a priority to develop the biofuel (liquid), which consists of biodiesel, bioethanol and bio-oil. In 2008, the government issued the Ministerial Regulation No. 32 Year 2008 regarding Mandatory of Biofuel Utilization. This regulation mandates the utilization of biofuel in the transportation, industry as well as power plant sectors. Based on this regulation, the minimum of utilization of biodiesel is expected to become 20% and bioethanol to become 15% by 2025, as shown in Table 9 below.
Table 9. MANDATORY ON BIOFUEL UTILIZATION (Ministerial Regulation No. 32 Year 2008)
BIODIESEL (Minimum)
SECTOR Year
2008 2009 2010 2015 2020 2025
Transportation, PSO*) 1% 1% 2.5% 5% 10% 20%
Transportation, Non PSO
- 1% 3% 7% 10% 20%
Industry 2.5% 2.5% 5% 10% 15% 20%
Electricity Generation 0.1% 0.25% 1% 10% 15% 20%
BIOETHANOL (Minimum)
SECTOR Year
2008 2009 2010 2015 2020 2025
Transportation, PSO 3% 1% 3% 5% 10% 15%
Transportation, Non PSO
5% 5% 7% 10% 12% 15%
Industry - 5% 7% 10% 12% 15%
PURE PLANT OIL (Minimum)
SECTOR Year
2008 2009 2010 2015 2020 2025
Industry and transportation (low & medium speed engine)
Industry - - 1% 3% 5% 10%
Marine - - 1% 3% 5% 10%
Electricity Generation - 0.25% 1% 5% 7% 10% *) PSO fuel: Public Service Obligation fuel means subsidized fuel
Indonesia has various sources of raw material for both biodiesel and bioethanol. Biodiesel can be gained through the process of oil from diverse plants, such as from palm, coconut, jarak pagar (Jatropha Curcas), nyamplung (Callophylum), and kemiri sunan (Aleurites Trisperma). However, the current raw material for the Indonesian’s biodiesel production is crude palm oil (CPO), in where
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Indonesia is the biggest producer of the CPO in the worlds. In 2011, the production of CPO was reached 23 million ton or increased about 5% compare 2010’s production (Kemtan, 2013).
Similar with biodiesel, bioethanol also can be produced from various raw materials, such as from mollases from sugar industry, cassava, and sorghum.
Biodiesel industry is more advanced nowadays in Indonesia compared to bioethanol industry. It is estimated that Indonesia produces about 21 million ton per year of biodiesel. Currently, there are 23 biodiesel producers with the total installed capacity of around 4.5 million KL/year. For the bioethanol industry, it is identified that there are only 7 bioethanol producers which have commercial business licenses with the total installed capacity of about 286,686 KL/year. Some small industries have been identified in producing mitanol (kerosene from bioethanol) as a fuel for domestic purposes, for example for cooking and lighting. However, since mitanol is produced in small-scale industry, data and information related to this is limited.
Currently, under the mandatory regulation, the implementation of biodiesel mixed fuel in PSO transportation sector has achieved to 7.5%, in which 7.5% of biodiesel was mixed into the PSO diesel fuels, called as B-7.5. These fuels are distributed by Pertamina (State Owned Oil Company) as the off-taker. Furthermore, the government has a plan to mix 2.5% of biodiesel into the non-PSO diesel fuels, and it will be sold by other oil companies, such as Shell and Petronas.
In the national market, biofuel is sold based on the Market Price Index, which is regulated under the Ministerial Decree. In order to support the implementation of the mandatory regulation, the government provides subsidy but only for the biofuel which is mixed in PSO-fuel for transportation. Subsidy is defined as the difference between the Market Indeks Price of biofuel and the reference price of conventional fuels (solar/gasoline), which is currently taken from Means of Platss Singapore (MOPS). The figure of subsidy can be seen in Figure 7 below.
Figure 7. Calculation Biofuel Subsidy Simulation
In 2011, the subsidy was set by the government at the maximum of Rp 2,000,- per litre, both for biodiesel and bioethanol. In order to accelerate the utilization of biofuel, the government was allocated subsidy about Rp 2,937 billion in 2012, of which Rp 2,083 billion for biodiesel with quota to 694 thousand KL and Rp 854 billion for bioethanol with quota to 244 thousand KL.
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With this figure, in 2012, the subsidy for biodiesel was became Rp 3,000,- per litre or increased Rp1,000,- per litre compared to 2011’s subsidy and bioethanol became Rp. 3,500,- per litre or increased Rp1,500,- per litre compared to 2011’s subsidy.
In 2012, there were 669 thousands KL of biofuels from blending biofuels and fossil fuels in Indonesia or increased almost doubling from 358 thousands KL in 2011. As of January 2013, the utilization of biodiesel was reached around 59 thousands KL.
A very different situation can be seen in the Indonesian bioethanol utilization, due to constraints on pricing, it is causing reluctances to supply bioethanol in Indonesia and as a result there was no utilization of bioethanol since 2010. To overcome this obstacle, the government under the Ministry of Energy and Mineral Resources has submitted a new proposal on biofuels price index revisions to the Ministry of Finance; however it has not yet been approved.
The Government of Indonesia always recaps and reviews progressing toward the achivement of government program and policy on biogas and biofuels development as an evaluation and annual monitoring. Until the end of year 2012, the government had been implemented several programs for accelerating biogas utilization. One of the programs was Desa Mandiri Energi (DME), which was utilizing the biogas for rural areas. The other program was cooperation between the government and Hivos (Non-Government agency from the Dutch Goverment) for providing biogas unit for households. Table 10 shows the several achievements of biogas program in Indonesia up to year 2012.
Table 10. Achivement for Biogas Program in Indonesia until the End of Year 2012
NO IMPLEMENTOR SPECIFICATION AND
CAPACITY TOTAL
1 Directorate General of New Renewable Energy and Energy Conservation, MEMR (Energy Rural Program/Program DME for Biogas Communal and Household)
Household Biogas Digester: capacity of 4 - 6 M3 ,
Communal: capacity of 20 - 30 M3, and
Waste of Tofu Industry: capacity of 40 - 136 M3
Capacity of 6 M3 : 682 units,
Capacity of 20 M3 : 54 units
Capacity of 40 M3 : 1 unit
Capacity of 90 M3 : 4 units
Capacity of 136 M3 : 1 unit
2 Indonesia Domestic Biogas/ Program BIRU (Cooperation Between GOI-HIVOS)
Target 8,000 of biogas units for household (capacity of 4 - 6 M3)
Realization: 7,432 units
3 PT Navigat Organic Energy Indonesia
Waste Power Plant from Municipal Solid Waste (Biogas), Capacity of 26 MW (COD in Sept. 2012 with total 8 MW of Biogas Landfill), on Grid
1 unit with capacity of 26 MW of electricity
4 PTPN V, Kebun Tandun Waste Power Plant from Palm Oil Mill Effluent (POME), Capacity of 1 MW (COD in March 2012), off grid for own using in palm plantation
1 unit with capacity of 1 MW of electricity
For biofuel, both biodiesel and bioethanol, the realization of biodiesel utilization in Indonesia until the end of year 2012 was only 544,963 kL or 38.93% from 1,400,000 KL of the mandatory
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regulation target, as shown in Figure 8 below. Therefore, to increase the utilization of biofuel and to achieve the mandatory regulation target, the government has increased the subsidy for biofuel in 2013.
Figure 8. Realization of Biodiesel Utilization
3.1.2 Other New and Renewable Energy
3.1.2.1 Nuclear
Based on calculation conducted by PLN, nuclear power plant (NPP) cannot compete with other types of power plant, such as a of 1,000 MW supercritical coal power plant. The Fukushima Daichi NPP accident in March 2011, where thousands of residents who live near the plant must be evacuated to a safe area, has led to an escalation of opposition to develop nuclear energy for power generation. The decision to build a nuclear power plant is not based solely on economic and energy availability considerations, but also other considerations such as political, security, social, cultural and environmental. With those multi-dimensional aspects, the nuclear power plant construction program in Indonesia can only be decided by the government.
3.1.2.2 Liquefied Coal and Gasified Coal
As stated in the Government Regulation No. 5 Year 2006 regarding the National Energy Policy, the share of coal in primary energy consumption is expected to become greater than 33% in 2025. In Indonesia, coal has been projected as the main energy source to replace oil fuels until 2025, mainly for power generation. Therefore, in order to reduce CO2 emission from coal fired power plant, it is necessary developing an environmental friendly power generation through clean coal technology implementation such as coal gasification and coal liquefaction.
Currently, Indonesia has reserves of about 60 billion tons of coal which found it throughout of Indonesia. Nearly 85% of the reserves are young coal (lignite) or in other words, low quality coal. It is because contains of 30% water content and has a low calorie with a low sale value. Lignite, also known as brown coal, in which could be developed as an alternative to petroleum.
In Indonesia, there are 2 potential locations for constructing a liquefied coal factory, one is in Banyuasin in South Sumatra, which has reserves of 2.9 billion tons of coal and the other is in Berau, East Kalimantan, which has reserves of 3 billion tons of coal. In addition, the large number of coal resources in Indonesia caused coal reserves can be utilized both as for gas fuel or power generation through coal gasification process.
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3.1.2.3 Coal Bed Methane (CBM)
CBM resources in Indonesia reached 453.3 Trillion Cubic Feet (TCF) spreads in 11 areas of the coal basin at various locations in Indonesia, namely Sumatra, Java, Kalimantan and Sulawesi. Indonesia’s CBM potential of 453.3 TCF includes proven reserves of 112.47 TCF and potential reserves of 57.60 TCF.
In 2015 Indonesia will be predicted to produce CBM up to 500 million cubic feet per day (MMSCFD) and this production can be increased to 900 MMSCFD in 2020. CBM production in Indonesia is expected to reach 1,500 MMSCFD by 2025.
3.1.2.4 Ocean Energy
Indonesia is a country in the world that has the largest maritime territory, with approximately two-thirds of its total area. Indonesia has the second longest beach in the world after Canada, where the length of the beach is about 80,000 km and the width of the ocean is about 52 million km2.
Indonesia’s ocean area along the southern coast of Java to Lombok is a location that has a large wave energy potential ranging from 10 to 20 kW per meter waves. Some studies have concluded that wave energy at some point in Indonesia could reach 70 kW per meter waves in some locations. The west coast of southern Sumatra island and the south coast of western Java have ocean wave energy potential about 40 kW per meter waves.
There are several alternative technologies that could be chosen for utilizing ocean wave energy. One of them that will be developed by Indonesia in the south coast of Java island is Tapered Channel Technology (Tapchan). However, until now the utilization of wave energy in Indonesia is still in the research stage with small capacity developed by the research and development institutions (BPPT-the Agency for the Assessment and Application Technology, PLN) and other educational institutions.
Indonesia has also tidal energy potential in some areas such as in Bagansiapiapi, Riau where the tidal high reaches 7 feet, in Palu Bay, Central Sulawesi where its geological structure enables the tidal phenomenon, in the Gulf of Bima in Sumbawa, Nusa Tenggara Barat, in West Kalimantan, in Papua, and in the south coast of Java where the tidal can reach more than 5 feet of high.
Not much different from tidal energy, ocean thermal energy in Indonesia also recently reached in the stage of research (potential data collection and feasibility study) conducted by several research institutions. As for ocean currents, current utilization for power generation has reached the implementation phase (pilot project) by T-files team from Bandung Institute of Technology (ITB) and Dr. Erwandi from Indonesia Hydrodynamics Laboratory, the Agency for The Assessment and Application of Technology (BPPT) and the Ministry of Marine Affairs and Fisheries.
3.2 Standardization
3.2.1 Standardization of Bioenergy Products
Like in any other countries, the development of bioenergy in Indonesia also considers the standards and safety aspects in order to protect the consumers from low quality products and to increase the competitiveness of the bioenergy producers. The development of standard is also one effort to make conducive business environment to the bioenergy producers with the guidelines. Some the following standards on bioenergy have been issued by the government, namely:
a. SNI 7826 : 2012 - Biogas producer unit with digester fixed dome type from concrete
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b. SNI 7182 : 2012 - Biodiesel
c. SNI 7390 : 2012 - Denaturized bioethanol for gasohol
Some standards are under preparation, namely:
a. RSNI on Basic security system of hydrogen fuel
b. Biomass stove performance standard
3.2.2 Standardization of Hydro Power Plant
The development of hydro power plant in Indonesia also considers the standards and safety aspects in order to protect the consumers from low quality products and to increase the competitiveness of the hydro power plant industries. The development of standard is also one effort to make conducive business environment to the hydro power plant industries with the guidelines. Some the following standards on hydro power plant are under preparation, namely:
a. RSNI on Capacity design and lay-out of micro hydro power generation system with capacity up to 25 kW.
b. RSNI on Technical specifications of cross-flow turbines with capacity up to 35 kW.
3.2.3 Standardization of Solar Power Plant
The development of solar power plant in Indonesia also considers the standards and safety aspects in order to protect the consumers from low quality products and to increase the competitiveness of the solar power industries. The development of standard is also one effort to make conducive business environment to the solar power plant industries with the guidelines. Some the following standards on solar power plant are under preparation, namely:
a. RSNI on Characteristic parameters of stand-alone photovoltaic (PV) system
b. RSNI on Crystalline silicon terrestrial photovoltaic (PV) modules - design qualification and approval type
3.2.4 Standardization of Wind Power Plant
The development of wind power plant in Indonesia also considers the standards and safety aspects in order to protect the consumers from low quality products and to increase the competitiveness of the wind power industries. The development of standard is also one effort to make conducive business environment to the wind power plant industries with the guidelines. Some the following standards on wind power plant are under preparation, namely:
1. RSNI on Testing performance of electrical power produced by wind turbine
2. RSNI on Plan requirements of small scale wind turbine
3.3 Clean Energy Development
The Indonesian Government has commitment to support the development of clean energy, which is not only dedicated to maintain the environmental friendly, but also to secure the sustainability of energy supply for the nation. The development of new and renewable energy in Indonesia is a major part of clean energy development, a part from clean energy technology and energy efficiency implementation. With the growing concerns on climate change and reducing GHG emission from energy sector, new and renewable energy development obtains enourmous support in the clean energy development.
As a part of clean energy development, new and renewable energy also provides co-benefits to the country, as it supports the sustainable development both in local and national level.
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3.3.1 National Mitigation Actions
In 2010, the President of Republic of Indonesia announced the Indonesia’s voluntary commitment to reduce national GHG emission to 26% in 2020 from the business-as-usual scenario and it can be further reduce to 41% with the international support. This voluntary commitment is part of Indonesia’s active participation to implement the Bali Action Plan that called for the developing countries to contribute in the global GHG emission reduction.
To achieve the voluntary commitment, the Presidential Regulation No. 61 Year 2011 regarding the National Action Plan on Greenhouse Gasses Emission Reduction (RAN-GRK) has been issued by the government. The RAN-GRK is not only enacted the national targets, but also mandated national mitigation actions to achieve the targets, instructed the implementation and evaluation of the actions plans by line ministries/institutions, and guided the development of the Local Action Plan on Greenhouse Gases Reduction (RAD-GRK) by the local governments.
The core activities (defines as the activities that directly reduce the GHG emission) are conducted in 5 main mitigation sectors:
Agriculture;
Forestry and peat land;
Energy and trasnportation;
Industry; and
Waste management.
As defined in Table 11 below.
Table 11. Core Activities of the RAN-GRK
Sector
Emission Reduction (Giga Ton CO2e)
Total Mitigation Actions 26%
15% (Total 41%)
Forestry and Peatland
0.672 0.367 1.039
Control on forest and peatland burning;
Management of water supply & network system;
Forest and land rehabilitation including Industrial forest and community forest;
Removal of illegal logging;
Preventing deforestation;
Community emporwerment
Agriculture
0.008 0.003 0.011
Introduction of low emission rice variety;
Eficiency of irrigation water;
Usage of organic fertilizer
Energy and Transportation
0.038 0.018 0.056
Biofuel utilization;
Utilization of high efficiency engine;
Increasing quality of public transport and roads;
Demand side management;
Energy efficiency;
Renewable energy
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Sector
Emission Reduction (Giga Ton CO2e)
Total Mitigation Actions 26%
15% (Total 41%)
Industry
0.001 0.004 0.005 Energy efficiency,
Renewable energy
Waste
0.048 0.030 0.078 Waste management with 3R (reduce, reuse,
recycle);
Integrated waste management in urban areas
Total (Gton) 0.767 0.422 1.189
As stipulated in the Presidential Regulation No. 61 Year 2011, new renewable energy
development, such as renewable energy-based power generation and bioenergy development (biogas and biofuel), is not only measured for its energy supplied, but also monitored and reported for its contribution on GHG emission reduction in national level.
As a part of the RAN-GRK, the Presidential Regulation also stipulated that the local governments must participate in reducing greenhouse gas emission in each respective provinces/regencies through the development of Local Action Plan on Greenhouse Gases Reduction (RAD-GRK). The RAD-GRK is defined as the workplan to implement activities that directly and indirectly reduce the GHGs emission reduction according to local development target and taking into account the RAN-GRK. The RAD-GRK will be legally binding policy for 1 (one) year after the issuance of the Presidential Regulation by Governor Decree (approximately by September 2012). The RAD-GRK will be reported to the Bappenas (the Ministry of National Development Planning) and the Minister of Interior.
In December 2012, the Bappenas and the Minister of Interior officially launched the 33 RAD-GRK developed and issued by the local governors in Indonesia.
3.3.2 Indonesia Carbon Market: Policy and Status
Indonesia participation in carbon market officially started in 2004, after the ratification of Kyoto Protocol under Law No. 17 Year 2004. The entry of Indonesia as part of the Kyoto Protocol enabled Indonesian project proponent to be involved in the flexible mechanism, namely Clean Development Mechanism (CDM). In order to answer the inquiry on the national approval of the CDM projects from the United Nations Framework Convention on Climate Change (UNFCCC), the Ministry of Environment had issued the Ministerial Decree No. 206 Year 2005 regarding the National Commission on CDM, which is mandating several representative of the ministries as the Committee members and appointing the Ministry of Environment as the authorities’ institutions to manage the approval process. The 2005 decree was renewed by the Ministerial Decree No. 522 Year 2009, where the management of the approval process has been moved to the National Council on Climate Change (NCCC).
The first project of CDM conducted by the Indonesian project proponent was the solar cooker project in Province of Aceh, registered in the Executive Board of CDM in year 2006. Up to now, the National Committee on CDM has been reported that there are 240 CDM projects in Indonesia, in which 81 projects registered to the EB of CDM, including 4 Programmatics of CDM. Most of the projects are coming from energy sector related to energy supply, energy distribution and transmission, and energy efficiency in demand side. In Indonesia, proposing the energy projects as the CDM projects is perceived getting financial and political supports to the projects development. However, since the CDM windows are closed for the Indonesian stakeholders, with the EU—ETS as the main buyer of CER restricting the supply to the Least Developed Countries (LDCs).
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Apart from CDM, the National Committee on CDM also processes and facilitates the national approval of voluntary carbon market. For anticipating new market mechanisms under the Post-Kyoto regimes, the National Council on Climate Change will explore and participate in international, regional and bilateral carbon market initiatives, such as new CDM, REDD+, crediting NAMAs, regional market, domestic market, joint credit mechanism (i.e with the Japanese Government), framework of various approaches (FVA), and others.
Those various initiatives and mechanisms on carbon markets can be classified into several carbon markets development strategies as follows:
Multilateral carbon market: currently being negotiation; robust, and slightly complicated; environmental integrity and sustainable development criteria are not clearly defined yet;
Bilateral and regional carbon market: directly between Indonesia and some developed countries; International carbon offset; Japan has already expressed their interests and it would be started soon; and
Domestic carbon market: can be mandatory or voluntary basis; national boundary; simple and robust; can be used for NAMAs.
As for domestic carbon market, currently the NCCC develops the Nusantara Carbon Scheme (SKN) as the national appropriate carbon crediting mechanism. There are several considerations for the development of SKN, as follows:
1) as an alternative for the financial support in domestic mitigation actions;
2) as a catalyst for other new market mechanisms;
3) to maintain the momentum of Indonesia carbon market development; and
4) to ensure environmental integrity and sustainable development in Indonesia mitigation actions.
Currently, the NCCC has been developed at least 6 methodologies to the projects that could be divided into the afforestation and reforestation sector, biomass boiler utilization, composting, high-efficient boiler, biomass cookstove and mini/micro hydro power plant.
3.4 Policy on Incentives and Fiscal
In order to encourage and attract the participation of foreign and domestic investors as well as developers in developing new and renewable energy in Indonesia, the government has provided some initiatives on incentive and fiscal, as follows:
1. Increasing tariff/electricity selling price of new and renewable energy through feed in tariff (FIT)in which PLN is obliged to purchase renewable energy at a predetermined price (MEMR Regulation No. 04 Year 2012 (for Small and Medium Renewable Power Plant) and MEMR Regulation No. 17 Year 2013 (for Solar Photovoltaic Power Plant));
2. Giving fiscal incentive such as provision of corporate income tax relief or reduction facility (Regulation of the Minister of Finance (PMK) No. 130/PMK.011/2011). The government also gives tax breaks and customs (PMK No. 21/PMK.11/2010).
3. Incentive of funding;
4. Incentive of market support; and
5. Ease of licensing/finishing of overlapping the land.
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APEC PEER REVIEW ON LOW-CARBON POLICIES (PRLCE)
PART 2 : REVIEW TEAM REPORT
This part of the report presents the PRLCE Team’s conclusions and recommendations about low carbon energy policies and programs in Indonesia.
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1. INSTITUTIONAL CONTEXT
1.1 Critique
Indonesia has clearly established an overall legal framework for renewable energy by adopting Law No. 30 Year 2007 regarding Energy in order to realize its large potential of renewable energy. The Energy Law mandates the use of renewable energy sources be prioritized over non-renewable resources. It also defines the roles and responsibilities of the central government and local governments to prioritize renewable energy sources. In addition, a special legal framework for geothermal energy is supplied by the Geothermal Energy Law (Law No. 27 Year 2003).
In order to discharge the mandate of the Energy Law, the National Energy Council (DEN) was formed in 2008 with the tasks are drafting the National Energy Policy (KEN) and endorsement the National Energy Master Plan (RUEN). The assembly of the DEN members is chaired by the President of Indonesia. As an institution, the DEN is headed by the minister responsible for energy affairs. The DEN has 15 members: 7 ministers and high-ranking government officials responsible for the supply, transportation, distribution and use of energy and 8 stakeholder members from industry, academia, expert groups, environmental groups, and consumer groups. The selection and appointment of members of the DEN was finalized in late 2008. However, though the DEN is chaired by the President of Indonesia, policy formation and authorization occur slowly.
The Directorate General of New Renewable Energy and Energy Conservation (DGNREEC) was created within the Ministry of Energy and Mineral Resources (MEMR) in 2010 to focus on the implementation and regulation of renewable energy development. Other relevant government offices, including other directorate generals of MEMR, the Ministry of Environment, the state-owned electricity company, and state banks are also involved in policy implementation and regulation for renewable energy development. As renewable energy development inevitably entails many regulatory procedures at various governmental levels, the success of renewable energy implementation sometimes depends on the coordination between DGNREEC/MEMR and relevant offices not only within the central government but also local governments both at the provincial and municipal levels.
On the other hand, associations of renewable energy stakeholders, such as project developers, are organized for representing their interests to the society at large and especially to the government. However, based on consultation with a few renewable energy developers, in the discussion at the DEN, representative stakeholder members at the DEN are still not vocal enough to provide sufficient feedback based on the experience of energy businesses, especially renewable energy development in which the private sector plays an important role.
Incentive frameworks, such as feed in tariff (FIT), subsidies, and tax exemptions, have been established by the government to attract renewable energy investors and project developers.
1.2 Recommendations
Recommendation 1
In formulating the KEN and the RUEN, the National Energy Council (DEN) can play a pivotal role under the leadership of the chairman, the President of Indonesia. The DEN should be strengthened to set up basic policy guidelines on energy issues in timely manner.
Though the DEN is chaired by the President of Indonesia, policy formation and authorization could be accomplished more quickly. For example, the DEN finalized the Draft of KEN in March 2011 and has already submitted it to the Parliament to get the necessary approval before being enacted by the government. However, at the time of writing, the KEN has not yet been approved by the Parliament. As a consequence, the RUEN cannot yet be developed as well.
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Recommendation 2
In the discussion at the DEN, its stakeholder members are recommended to increase feedback on the reality of energy businesses, especially renewable energy development in which the private sector plays an important role.
It is very important that representative stakeholder members at the DEN should become more vocal and provide increased feedback on the reality of renewable energy development during in the discussion within the DEN. This will ensure that the DEN adequately understands the real situation and condition of the private sector before making decisions on important policy that might impact the private sector.
Recommendation 3
As renewable energy development proceeds, an advisory body dedicated to renewable energy development might be needed as a formal channel between the government and renewable energy stakeholders. Such an advisory body can be a subcommittee of the DEN if the DEN expands its mandate to oversight of energy policy implementation or, if not, an independent advisory committee to the MEMR.
The DEN is in charge of energy policy in general, not only renewable energy but also fossil energy such as oil and natural gas. As renewable energy entails specific technical/technological issues, the DEN may face difficulty in formulating renewable energy policies due to the lack of technical/technological capacity. Thus the Advisory Body on renewable energy might be needed.
Recommendation 4
Further coordination between relevant government offices, not only in the central government but also among local (both provincial and municipal) governments, is recommended in regulatory or promotional procedures for renewable energy development.
Though the DGNREEC/MEMR is trying hard to coordinate relevant offices within not only the central government but also among local governments, both at provincial and municipal levels, it is almost natural to require further coordination among them, as renewable energy development inevitably entails many regulatory procedures at various level of government.
Recommendation 5
Incentives for promoting renewable energy development should be fully used for the sake of renewable energy development itself, regardless of the profitability of the renewable energy developers. Even if the profits of renewable energy developers increase thanks to renewable energy incentives, increased profit should not be considered as a target of “profit sharing” by the public sector, especially local governments.
To attract investors and project developers to renewable energy development, incentive frameworks such as feed in tariff (FIT), subsidies, and tax exemptions are already established by the government. Those incentives, of course, tend to increase the profit of renewable energy developments. Otherwise those developers would not continue to develop renewable energy due to the lack of profitability. Even if the renewable energy developers become more profitable partly due to the incentives, their increased profit should be recognized as a legitimate reward for developing renewable energy. Therefore, it would not be appropriate for other stakeholders, including the public sector and especially local governments, to demand distribution of the increased profit as a target of “profit sharing.” Such demand will discourage development of renewable energy in the long run, counteracting the intent of the incentive programs.
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2. RENEWABLE ENERGY GOALS, TARGETS AND STRATEGY
2.1 Critique
Indonesia is evaluating options to diversify its energy sources in recognition of the fact that the cost of oil is increasing and excess reliance on this fuel source will likely result in lost economic opportunity. The planned diversification will also increase energy security and economic benefits for the country through increased use of domestic resources. The current energy mix, as of 2011, can be seen in Figure 9.
Figure 9. Energy Sources in 2011 (Tunggal, 2013)
Short- and long-term goals have historically shown to be key elements in achieving renewable energy targets. The PRLCE team received a comprehensive review of Indonesia’s currently enacted energy goals in the 2006 National Energy Policy (2006 KEN) in which the Government of Indonesia has established clear targets for renewable energy generation. The 2006 KEN defines the goal of diversifying energy sources by increasing the share of renewable energy and nuclear to 17% by 2025 (Figure 10). Furthermore, the draft 2011 National Energy Policy (2011 KEN) increases the share of renewable energy to 23% by 2025 and 31% by 2050 (Figure 10). The 2011 KEN has not yet been approved. An important difference to note is that while the 2006 KEN includes nuclear and liquefied coal in the 17% by 2025 target, the 2011 KEN does not and requires the full 23% (and 31% by 2050) target to be met with renewable energy sources. This increases the proportion of energy from renewable sources substantially.
Figure 10. Energy Source Breakdown for 2006 KEN (Tunggal, 2013) and Draft 2011 KEN (Saleh, 2013)
During the PRLCE, a number of representatives from the government agencies highlighted the importance that the government is placing on increasing the domestic capacity for renewable energy. Private sector representatives also identified the need to increase capacity for renewable
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energy. There is a clear interest in increasing local manufacturing of renewable energy technologies, particularly solar. As an example of the current efforts, the central government has established a renewable energy training program that provides training to approximately 1,500 local government officials each year.
While local capacity for many renewable energy technologies is limited, Indonesia does have a strong local capacity for small hydro. Local companies not only manufacture small hydro technologies for use in country, but also export these technologies to other countries in Asia and Africa. Local experts also provide small hydro training to other member countries of the Association of Southeast Asian Nations (ASEAN) (Faisal, 2013).
Indonesia has a long history of supporting the development of geothermal and hydroelectric generation and has, more recently, expanded support for bioenergy. For example, in 2010 Indonesia had the third highest installed capacity of geothermal power plants in the world (Holm et al., 2010). However, to achieve the renewable goals in the 2006 KEN or the draft 2011 KEN, the country will likely need to reduce market barriers to investments in other renewable energy technologies. Feed-in Tariffs (FITs) for solar and wind are currently under revision (see FIT section on page 53). Finalizing these support programs and addressing other non-technical barriers like improving transparency in the permitting process will be critical for achieving the diversification and renewable energy goals.
Regarding renewable generation, PLN is focused primarily on renewable resources that provide base-load generation and appears hesitant to develop other renewable resources that provide variable generation like solar and wind. PLN plans to increase the installed capacity of renewable energy over the next decade, but the focus is only on hydro and biomass. By 2020, PLN plans to have a total of 5.7 GW of hydro online and, between 2012 and 2021, the utility plans to bring 447 MW of biomass generation online (Anang, 2013).
The Indonesia’s National Energy Master Plan (RUEN) requires local governments to develop a local energy master plan that aligns with the RUEN. This is important particularly because many local governments are involved in small-scale renewable energy projects such as micro-hydro. Furthermore, approximately 24% of the population lacked access to electricity in 2012 and encouraging local governments to develop an energy master plan may increase their participation in activities to improve electricity access within their communities.
The banking and private sectors are actively engaged in financing and developing renewable energy projects throughout the country. However, past experiences where renewable energy plants, particularly hydro and solar, have not performed as expected have caused financial institutions to treat them as “high risk” projects. Building the local capacity to ensure that projects are designed and constructed well, and that only quality technologies are used, will improve renewable energy performance and reduce the associated risk for financial institutions and investors.
Indonesia has successfully supported the development of hydro and geothermal electricity generation. However, supporting the development of generation from variable resources like solar and wind will allow the country to exploit additional renewable resources to meet the draft 2011 KEN targets and to provide electricity to more remote areas.
2.2 Recommendations
Recommendation 6
Finalize approval of the draft 2011 KEN quickly to provide clear market signals to the private sector, financial institutions, international investors, and PLN regarding the long-term demand for electricity generation from renewable energy.
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The current new and renewable energy (NRE) target as outlined in the 2006 KEN is broken down in Table 12. The draft 2011 KEN increases the 2025 NRE target to 23%. Finalizing approval and implementing the draft 2011 KEN will provide a clear and long-term market signal for investment opportunities in renewable energy in Indonesia. Establishing a similar NRE resource-specific breakout in the 2011 KEN as occurs in the 2006 KEN will also provide greater certainty on which types of technologies will be supported under the new KEN over a specific time horizon. However, resource-specific breakouts can possibly limit investment in renewable technologies that may be more cost-effective in Indonesia. It is recommended that any breakout by resource establish a minimum for each resource that is in line with the government’s goals, but also allows a high degree of flexibility so that the most cost-effective technologies can be utilized. For example, the target could be established with the minimum for each resource as outlined in the 2006 KEN leaving an additional 6% to be met by any of the renewable resources. If the goal for Indonesia is to have 23% of energy sources in 2025 be from renewable resources, it is recommended that any goals for nuclear and liquefied coal be stated in a separate category, as in the draft 2011 NEP that was presented to the PRLCE team, in order to clearly delineate renewable technologies from other low-carbon technologies.1
Table 12. 2006 KEN New and Renewable Energy Targets for 2025
Energy Source Percentage of Total
Energy Use
Biofuel 5%
Geothermal 5%
Nuclear, Hydro, Solar, Wind, and other NRE 5%
Liquefied Coal 2%
Recommendation 7
Evaluate the various energy support mechanisms (e.g. FITs, fossil-fuel subsidies) to ensure support for renewable energy is sustainable, coordinated, and complementary.
Indonesia has supported the development of renewable energy, particularly geothermal and hydroelectric, for many years. Broader support for other renewable energy technologies has more recently been developed (or is under development), particularly in the form of the various FITs. At the same time, Indonesia provides substantial financial subsidies for fossil fuels. While these are designed to ensure low income households can meet their basic energy needs, the financial support for fossil fuels and renewable energy are often contradictory and can be economically inefficient for the Indonesian society as a whole. To ensure the economic and political sustainability of support mechanisms, alternate approaches may want to be considered such as establishing a program to provide direct financial support to low income households rather than providing it through reduced fossil fuel prices. Alternate structures such as these may also help to identify more efficient ways to both meet the needs of low income households and support the growth of renewable energy in Indonesia over the long term.
Recommendation 8
Develop permitting checklists that clearly define the path and timeline for permitting each type of renewable energy technology and list separate paths for large-scale and small-scale projects.
The permitting or licensing process for renewable energy projects can be very complicated, and requires developers to meet various requirements established by multiple agencies. This
1 At the PRLCE, it was stated that nuclear is now considered only a last option as an energy source for Indonesia.
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process can pose a significant barrier to the development of renewable energy projects. For example, it takes a minimum of two years to acquire the necessary permits from the Ministry of Forestry for projects in forested areas. Developing a public checklist clearly cataloguing the permitting process for different types of renewable technologies will likely increase transparency in the process, clarify the roles for the various central government ministries and local government agencies, and likely help reduce the time required for approval. In the process of developing these checklists, the relevant ministries may identify areas of overlap or other opportunities to streamline the permitting process without sacrificing safety or environmental standards.
Separate checklists could be developed for each type of technology (e.g., photovoltaics, concentrating solar power, hydro, etc.) to assist developers in the permitting process of specific projects. Furthermore, it may be beneficial to separate the technology checklists into categories based on the size of the project as permitting requirements can vary greatly between residential-scale and utility-scale systems. For example, the photovoltaic category could include three checklists: large-scale utility projects (larger than 1 MW), medium-scale projects (10 kW – 1 MW), and small-scale residential and small-commercial projects (smaller than 10 kW). These numbers are examples; as the size of the systems in each tier should be determined by the system size at which a substantially different permitting process is triggered.
Recommendation 9
Increase local capacity for technical, financial, and project development across renewable energy technologies, particularly by providing students with the knowledge needed to pursue a career in renewable energy in Indonesia.
Indonesia is clearly focused on increasing renewable energy generation and has a definite understanding of the benefits to the economy of increasing the in-country technical, financial, and project development capacities. However, it can be challenging to develop a cohesive, integrated approach to building renewable energy capacity. It is recommended that the MEMR consider expanding existing renewable energy education programs, targeting both secondary and higher education institutions. Beginning education programs focused on renewables for younger students may encourage them to pursue a related degree at a university and, later, a related career. It may also be beneficial to establish a strong partnership between the renewable industry and these education institutions to ensure that the curriculum is developed in line with the needs of industry so that students are well prepared after graduation. These types of partnerships often also include an internship program so that students can get direct experience within the industry at an early stage. Through this framework, the industry partners benefit from the well-qualified work force and the students benefit by increasing their work experience and knowledge.
Indonesia could also benefit by establishing partnerships with other countries or international organizations that are involved in renewable energy trainings to leverage existing resources and broaden the knowledge base of the educators and participants in a capacity building program. Through such a program, Indonesia could offer hydro and geothermal training to representatives from other countries. In developing such an exchange program, the MEMR may choose to target specific technologies or skills such as photovoltaic (utility-scale and small-scale off-grid applications), large-scale wind, and renewable energy financing.
Building local entrepreneurial capacity and expertise related to renewable energy development can increase the opportunities for locally developed renewable energy projects and new sources of innovation. This can benefit the economy by providing the local population with the skills necessary to fill the positions that will be needed to meet Indonesia’s long-term renewable energy goals. Furthermore, developing this capacity may increase the success of renewable energy projects as local developers may be able to rely on their knowledge of local conditions to better engage with communities in which renewable energy projects may be developed.
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Recommendation 10
Adopt internationally recognized standards for renewable energy technologies to ensure only high-quality products are used in Indonesia. This is particularly important for small-scale, distributed generation technologies such as solar photovoltaics.
In some cases, poor quality renewable energy technologies in the market have resulted in investments in energy projects that failed within a short time after installation. This type of occurrence is not only costly to the investor, but can reflect poorly on the sector as a whole and hinder future investment in quality renewable technologies and projects. To protect consumers and investors alike, the MEMR can adopt internationally recognized standards as requirements that must be met for technologies to qualify for government funding. Furthermore, the MEMR can encourage financing institutions to adopt the same requirements. The government may want to consider establishing a certification body to certify technologies that meet minimum quality standards or partner with a credible international certification body. These types of activities will strongly incentivize the private sector to install only quality renewable technologies.
3. REGULATION AND INFRASTRUCTURE
3.1 Critique
Regulation
In order to give guidance for managing the national energy use and supply, including renewable energy development, the Indonesian Government has issued the National Energy Policy of 2006 under the Presidential Regulation No. 5 Year 2006. The 2006 Energy Policy expects the combined share of renewable energy and nuclear in the overall energy mix in 2025 to exceed 17%. Until the new National Energy Policy under Law No. 30 Year 2007 regarding Energy is adopted by the government, the National Energy Policy of 2006 is still in force.
Following the enactment of the Energy Law on 10 August 2007 and the formation of the National Energy Council (Dewan Energi Nasional, DEN) in 2008, the DEN drafted the new National Energy Policy in March 2011 with the aim to enhance energy self-reliance, strengthen R&D, increase electrification ratio to 100% by 2020, and secure strategic energy reserves (Saleh, 2013). Though Indonesia’s 2011 Energy Policy is better than the Indonesia’s 2006 Energy Policy in terms of renewable energy development aims, the Indonesia’s 2011 Energy Policy cannot be enforced by the government until it receives approval from Parliament (Dewan Perwakilan Rakyat, DPR).
Despite this, the Indonesian Government still gives a priority and great attention to encourage the development of renewable energy by preparing and issuing of conducive regulations such as, ease of licensing/finishing of overlapping the land, incentives on tax and facilities, pricing, subsidies, funding, and the government guarantees.
In 2010, the government mandated the state-owned electricity company (Perusahaan Listrik Negara, PLN) to implement the 10,000 MW Fast Track Program Phase 2 (FTP2) under the Presidential Regulation No. 4 Year 2010. In this second phase, generating capacity is expected to rapidly increase not only to meet rising electricity demand but also to increase renewable energy utilization. In 2012, the Ministry of Energy and Mineral Resources (MEMR) announced the FTP 2 will add 10,002 MW capacity, of which 49% will be developed from geothermal, 17% from hydropower, and 1% from gassified coal. In order to ensure sustainability and energy security, the composition of the generation capacity mix for FTP2 is updated as required even though the validity period of the Presidential Regulation No. 4 Year 2010 will expire on 31 December 2014 (KESDM, 2012a).
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Further, Indonesia also has a priority to expand the development of liquid biofuels (biodiesel, bioethanol and bio-oil). In 2008, the Government issued the Ministerial Regulation No. 32 Year 2008 regarding Mandatory Biofuel Utilization. This regulation mandates the utilization of biofuel in the transportation, industry and power plant sectors. In 2025, the minimum utilization in the power plant sector is expected to be only 20% biodiesel and 10% pure plant oil.
Infrastructure
Currently, the Java-Bali power system and the Sumatera power system are each well interconnected. Other power systems are either partially interconnected or isolated systems.
As of June 2013, the total installed capacity of power plants was about 44,661 MW, transmission line length was about 33,403 kms, and distribution line length was about 741,957 kms (see Figure 11). Most of the existing electricity infrastructure is located on the island of Java because the electricity demand is most concentrated on this island, followed by Sumatera, Sulawesi and Kalimantan islands. The electricity infrastructure on Nusa Tenggara, Maluku and Papua islands are less established due to the lower electricity demand and uneven distribution of population. These situations and conditions (less electricity demand and uneven distribution of population) in some regions are becoming challenges to the development of electricity infrastructure in Indonesia, and it seems the trend of electricity infrastructure development in the future will continue to be concentrated in Java-Bali and Sumatera.
: Existing transmission line
: Planning transmission line
: Power generation
• INSTALLED CAPACITY : 44,661 MW• TRANSMISSION LINE (38,096 kms):
- 500 KV : 5,052 kms- 275 KV : 1,028 kms- 150 KV : 27,780 kms- 70 KV : 4,228 kms
• DISTRIBUTION LINE (741,957 kms):
- MV : 313,050 kms- LV : 428,907 kms
SUMATERA : •Power Generation: 7,420 MW (17%)• 275 kV: 1,028 kms• 150 kV: 8,753 kms• 70 kV: 332 kms•MV : 94,957 kms• LV : 93,757 kms
JAMALI : •Power Generation : 31,923 MW (71%)• 500 kV : 5,052 kms• 150 kV : 13,100 kms• 70 kV : 3,239 kms•MV : 148,080 kms• LV : 262,584 kms
Nusa Tenggara:•Power Generation : 514 MW (1%)•MV : 9,441 kms• LV : 9,390 kms
KALIMANTAN : •Power Generation : 1,949 MW (4%)• 150 kV: 2,477 kms• 70 kV: 123 kms•MV : 25,467 kms• LV : 25,019 kms
SULAWESI : •Power Generation : 2,318 MW (5%)•150 kV : 3,450 kms• 70 kV : 534 kms•MV : 27,105 kms• LV : 31,441 kms
PAPUA : •Power Generation : 251 MW (0,6%)•MV : 3,126 kms• LV : 3,916 kms
MALUKU :•Power Generation : 286 MW (0,6%)•MV : 4,852 kms• LV : 2,780 kms
Figure 11. Indonesia Electricity Infrastructure (Hasril, 2013)
At the end of 2012, the electrification ratio was 76.56%, or 2.96% higher than the Midterm Development Plan target (Rencana Pembangunan Jangka Menengah, RPJM) and 3.61% higher than 2011 (Hasril, 2013). However, there were still 3 provinces, namely Nusa Tenggara Barat (NTB), Nusa Tenggara Timur (NTT) and especially Papua, with low electrification ratios as shown in Figure 12 below.
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2006 2007 2008 2009 2010 2011 2012 2013 2014
Electrif ication ratio 63.00% 64.34% 65.10% 65.79% 67.15% 72.95% 76.56% 79.30% 81.40%
Target of RPJM 67.20% 70.40% 73.60% 76.80% 80.00%
PLANREALIZATION
Aceh90,96%
Sumut86,70%
Sumbar76,14%
Riau 85,09%
Sumsel73,97.%
Bengkulu79,37%
Babel94,13%
Lampung74,91%
Jakarta99,99%
Banten77,52%
Jabar76,03%
Jateng79,95%
Jambi70,37%
DIY77,26%
Jatim74,31%
Bali74,95%
NTB53,63%
NTT53,42%
Kalbar71,46%
Kalsel76,74%
Kaltim73,08%
Sulut76,22%
Sulteng66,83%
Sulsel76,29%
Malut74,12%
Maluku72,07%
Papua34,62%
Sulbar66,65%
Kepri83,56%
Sultra60,53%
Papua Barat67,88%
Kalteng73,32%
Gorontalo60,99%
Figure 12. Realization of Electrification Ratio as of December 2012 (Hasril, 2013)
The Indonesian Government has established a fund for geothermal projects with an initial 1.126 trillion rupiah from the 2011 state budget (APBN) to encourage the promotion of development projects upstream under the government investment central unit called “Pusat Investasi Pemerintah, PIP” (BKF, 2012). This fund is intended to mitigate the high risks associated with the upstream stages of geothermal development. However, the magnitude of available geothermal funds depends largely on the allocation provided by the government in the APBN.
3.2 Recommendations
Regulation
Recommendation 11
Issue the National Energy Policy (KEN) as soon as possible so that the further implementation of this policy through the National Energy Master Plan (RUEN) and the Regional Energy Master Plan (RUED) can be developed.
It is important that the KEN be issued by the government as soon as possible after it receives approval from the parliament. This would ensure that the energy management plan under RUEN and RUED, which is to be developed under the KEN with the intent to meet energy needs throughout the country, will be developed soon.
In order to provide a strong legal framework to the KEN and the RUEN, the KEN should be stipulated by the government through government regulation or at least through presidential regulation. For the RUEN, it should be enacted through presidential regulation. And for the RUED, it is already clearly defined that it shall be stipulated through regional regulation.
If these three regulations can accommodate the current and future challenges of renewable energy development and have a strong legal framework to encourage the development of
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renewable energy, the government’s efforts to develop the Renewable Energy Law can be neglected. However, if evaluation of these three regulations leads to the results that the existing regulations are not sufficient to address the challenges faced by renewable energy development, then the Renewable Energy Law could be drafted by the government as the supreme law or regulation.
Recommendation 12
Produce mechanism to translate the renewable energy target from the National Energy Policy to state owned energy companies, such as through a Key Performance Index (KPI), to implement.
The KEN has clearly defined targets for diversifying energy sources from renewable energy, with the total share from renewables increasing from 23% by 2025 to 31% by 2050. Further details of the renewable energy targets will be translated and implemented into the RUEN and the RUED.
In order to assure these three regulations can be applied and implemented in a consistent and sustained way by all the state owned energy companies (such as PLN, Pertamina, etc.), the government should prepare a clear and transparent implementation mechanism to mandate the energy companies comply with everything that has been targeted by the government. One mechanism that can be used is a KPI or assignment to state owned energy companies under special regulation that contains a target to be achieved, sanctions and rewards, and reporting and monitoring mechanisms.
Recommendation 13
Harmonize the regulations between central government agencies, between central and local governments, and between local government agencies to prevent conflicting regulations that may hinder the development of renewable energy.
Since each central government agency, as well as local government agencies, have existing regulations based on their own laws and the central government delegates authority widely to local governments, the main important factor for driving successful renewable energy development is the creation of conducive and synergistic regulations at all levels of government. It is imperative to ensure that there are not conflicting regulations among the central government agencies itself, the central and local governments, and between the local government agencies.
Harmonization of regulations should be made in advance before the regulations are drafted or issued. For the regulations that have already been established and between which there are conflicts, a mutually positive approach could be carried out where the result of the understanding which has been agreed to by all parties may be embodied in the other regulations or an MoU.
Recommendation 14
Set up regulations that encourage and support the development of the domestic renewable energy industry to achieve self-reliance and to strengthen renewable energy standards.
Based on the KEN, renewable energy resources in Indonesia will be developed on a large-scale so that the share of renewables will become 23% in 2025 and 31% in 2050. This will be translated to increasing needs of renewable energy equipment, machineries and spare parts in the future. In order to minimize dependency on foreign products, regulations that encourage and support the development, self-reliance, and competitiveness of the domestic renewable energy industry should be set up in advance.
In addition, to avoid the entry of sub-standard equipment, machineries and spare parts as well as increasing the quality and reliability of the domestic products, strengthening equipment standards will be imperative.
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Infrastructure
Recommendation 15
Give priority of the development of electricity infrastructure to the 3 provinces (NTB, NTT, & Papua) which have low electrification ratios by providing funding from the central and local governments.
The central and local governments in each province should allocate funds from the state budget (APBN) and the regional budget (Anggaran Pendapatan Belanja Daerah, APBD) for the development of electricity infrastructure in the three provinces, so that the electrification ratio in each of these 3 provinces reaches at least 60%2.
The development of power plants in these 3 provinces should be prioritized using local and renewable energy sources. If diesel power plants must be developed, they should be developed as “hybrid system” with other renewable energy sources in all feasible situations.
The development of distributed generations or isolated systems in these 3 provinces should be prioritized if it meets economical and technical feasibility aspects.
Recommendation 16
Continue to support and expand the development of hybrid systems which use solar PV or wind turbines together with existing diesel power plants in the regions with renewable potential which can be economically implemented to reduce utilization of fossil fuels in power plants.
In 2011 the total capacity of existing diesel power plants belonging to PLN was 3,267 MW (Anang, 2013). In order to reduce utilization of fossil fuels in power plants as well as to encourage utilization of renewable energy, the hybrid systems which use solar PV or wind turbines together with existing diesel power plants should be strongly supported and expanded in locations in which they can be economically implemented. Hybrid systems can also increase the economic efficiency of diesel power plant.
Recommendation 17
Continue to develop and support distributed generation and isolated systems in the regions with renewable energy potential that can be economically developed.
Noting that Indonesia is a large archipelago economy consisting of 17,508 islands and also that most renewable energy sources are located far up in the mountains or in the forests (e.g. geothermal and hydro), electricity system development on the basis of distributed generation and isolated systems should continue to be developed and supported in regions with renewable energy potential that can be economically developed. A new electricity technology system that could be considered for development in regions with renewable energy potential is micro-grids.
Micro-grids are modern, small-scale versions of the centralized electricity system. They achieve specific local goals, such as reliability, carbon emission reduction, diversification of energy sources, and cost reduction, established by the community being served. Like the bulk power grid, smart micro-grids generate, distribute, and regulate the flow of electricity to consumers, but do so locally. Smart micro-grids are an ideal way to integrate renewable resources on the community level and allow for customer participation in the electricity enterprises (Galvin, 2013).
Recommendation 18
Continue to encourage dialogue between the government and investors and continue to improve the investment climate.
2 This value is the percentage of positive psychological figure.
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A key step in developing energy infrastructures is securing the necessary funds to develop reliable and efficient systems. Since it is sometimes difficult for the central and local governments to provide all funds, it is important that the central and local governments work with investors and seek to improve the investment climate where possible by providing and implementing conducive regulations or providing incentives/government guarantees to boost funding in this area.
Dialogue with investors should continue in order to get positive feedback for the improvement of the investment climate.
Recommendation 19
Strengthen cooperation with APEC economies as well as regional and international organizations in the fields of information exchange, technology transfer, human resources/capacity building, and financing.
One important factor in supporting the successful development of renewable energy is to strengthen cooperation with APEC economies and regional and international organizations that have extensive and successful renewable energy experiences, expertise and advanced technologies, as well as strong funding. The scope of cooperation may include information exchange, technology transfer, human resources/capacity building, and financing.
4. BIOFUELS AND BIOMASS ENERGY
4.1 Critique
Biofuel
Biofuels in Indonesia are derived from domestic resources. It is estimated that the annual CPO production is 23 million ton, where 6 million tons went to domestic use and 17 million tons were exported. This CPO is converted to biodiesel via 23 biodiesel producers with a total installed capacity of around 4.5 million KL/year. The biodiesel production in 2012 was estimated about 2 million KL, a 25% increase from 2011. However, the actual production is only about 45% of the installed production capacity. About 30% of biodiesel production is consumed domestically and the remaining biodiesel is exported.
The biodiesel is blended in subsidized fuel oil and is used in transportation (both PSO and non PSO), industry and for electricity generation. According to the mandate on biofuel utilization under the Ministerial Regulation No. 32 Year 2008, the percentage of blending in 2010-2015 varies depending on different uses. The biodiesel program in Indonesia became very successful. Therefore, the implementation on biodiesel mixed fuel transportation sector has increased from 5% to 7.5% on the PSO transportation sector in 2013.
Electricity
The bioenergy potential in Indonesia is large; however its use as fuel for power generation is rather limited. This is due to the fact that most of the resources are located in remote areas where there are no transmission lines available. Most of the installed biomass-based power plants use waste from the palm oil industry. In February 2011, the first and only MSW power plant was able to dispatch 12 MW to the grid. At the current stage, the total capacity of bioenergy-based on-grid generation was 75.5 MW in 2012.
Thermal
Biomass is used for heat in many households and several industries in the form of traditional biomass, bio-briquettes and pellets. However, the development of these technologies is not a priority for the government which is more focused on biogas production. The biogas development is carried out through the following three approaches, namely Non-Commercial
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(government investment), Semi Commercial (application of partial subsidies), and Commercial (Private Investment, Public-Private Partnership). So far, more than 8,500 biogas digesters have been built. Most of them are small in scale (less than 6 m2 reactor size).
Policy Instrument
A number of policies supporting bioenergy have been established in order to promote development such as the staging of mandatory biofuel utilization, tax exemption on VAT, investment tax incentives, direct subsidy on retail price for transportation sector, interest rate subsidy for biofuel feedstock plantation, simplifying the license procedure on biofuel business, priority for locally available bioenergy, and a FIT. However, most of the supports are available only for large scale projects.
4.2 Recommendations
Recommendation 20
Develop clear technical regulations for waste to energy activities in association with the 2008 Law on Waste Management.
Waste to energy activities is one of the activities that could significantly reduce the amount of waste. Thus, this activity should be incentivized based on Article 21 Clause (1) Law No. 18 Year 2008 regarding Waste Management that states “incentives to everyone who reduce waste” (KLH, 2013). However, since there is no clearly defined terminology of waste to energy and the technical details of this activity are not accommodated on this Law, this has caused different interpretations among the central government and local governments regarding the provision of incentives or fees.
In order to develop waste to energy more rapidly, clear technical regulations in association with the 2008 Law on Waste Management should be developed.
Recommendation 21
Create a suitable environment for small-scale projects (mostly for thermal projects using solid fuel and Biogas) in order to promote production of bioenergy in remote areas.
Even though higher efficiencies are typically achieved with larger capacities, sometimes large-scale projects are too costly to be implemented in remote areas where the demand is insufficient. Thus, in order to promote production of bioenergy in remote areas, small-scale projects could be created by developing some supporting efforts, such as:
Develop financial supports such as incentives or FIT;
Establish technical supports such as standards;
Create markets and distribution infrastructure;
Raise public awareness;
Support distributed energy generation facilities.
Recommendation 22
Apply Key Performance Index (KPI) on bioenergy for large players in the energy business, especially state-owned energy companies such as Pertamina and PLN.
In order to assure the implementation of bioenergy utilization by the energy companies meets with the government target it is necessary to apply KPI to these companies, especially state-owned energy companies such as Pertamina and PLN.
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The KPI should be evaluated yearly by the government to monitor progress toward the achievement of the targets by companies and it could include rewards and punishments to incentivize activities.
Recommendation 23
Promote human resource development and increase public awareness about the importance of bioenergy in every aspect (school, university, and public relation).
Promoting human resource development and increase public awareness about the importance of bioenergy will be necessary to achieve the long term bioenergy target. Currently, while the goals of bioenergy are well known throughout the central and local governments and within private sector organizations, there is a lack of understanding regarding the goals and the benefits of achieving these goals in the general public. It is recommended that the government develop an education campaign to inform the public about the bioenergy goals and the associated benefits. Such a campaign could be developed to target the public in general (for example, through something like public service announcements) and both school and university students through collaboration with the Ministry of Education and Culture.
If awareness from public increases and continues to grow, it eases the government’s ability to promote and develop human resources development.
Recommendation 24
Establish clear goals for each bioenergy type in terms of primary energy or final energy (e.g. biofuel, thermal, power).
It is necessary for the government to establish clear goals for each bioenergy type in terms of primary energy or final energy so that the later implementation of bioenergy targets by energy companies could be determined clearly on the KPI. Perhaps, the detailing of the goals for each bioenergy type could be developed through the National Energy Master Plan (RUEN) and the Regional Energy Master Plan (RUED).
5. GEOTHERMAL, SOLAR AND WIND ENERGY
5.1 Critique
Geothermal
Since the issuance of law No. 27 Year 2003 regarding Geothermal, only few new public or private investments in the geothermal sector have occured. However, the potential for investment are promising as the following factors are expected to contribute. First, the increased volatility of fossil fuel prices has forced the government to provide an unexpected additional subsidy for electricity. Second, proposed the 10,000 MW Fast Track Programme Phase 2, in which geothermal is expected to produce 4,965 MW of electricity under this programme. Third, the considerable potential to reduce CO2 emissions.
To increase the utilization of geothermal energy and attract investors, the government has made various efforts, related to legal certainly, improvement on geothermal energy price structure, providing various facilities and incentives, improvement of public facilities and infrastructure, coordinating with all relevant parties to accelerate and simplify permitting process.
Solar
Indonesia is a rich country in solar energy. Naturally, it is very important to increase the share of renewables from solar in energy mix. In fact, PLN has a strategy for solar PV development with the objective to replace diesel power plants or to reduce fossil fuel oil consumption, as well
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as to increase the electrification ratio. Priority is given to regions with electrification rates below 60% and without access to other renewable energy sources, and to the systems have been electrified, it will not increase cost of existing electricity supplied. In 2012, PLN had developed solar PV with total capacity of 2.84 MW in 16 regions (Anang, 2013). Though Solar PV is still the most expensive option among renewable energy, it is competitive in some remote areas because of the high transportation cost of diesel fuel (the primary source of rural electrification is diesel generators).
It is good news that there are currently 6 manufactures of solar module in operation in Indonesia with a total capacity of about 110 MW per year (Dharman, 2012).
The application of solar energy is limited to the isolated area with lower electrification rate. In considering the increasing fossil fuel prices and decreasing prices of photovoltaics, solar PV can have bigger role in the future. Especially, it could be used to reduce peak demand in areas where peak demand in day time is a factor of increased cost. Because the solar power has the potential to reduce the peak in day time, it should be considered for the grid of large daytime peak.
Limited application of promotional measures such as FIT for PV will become very important for the purpose of peak cut, supply electricity in isolated areas, and replace diesel fuel for areas depend on diesel generation (see also FIT section on page 54).
Wind
Wind power potential in Indonesia is limited. Nonetheless, small wind energy systems have been constructed in several locations (Sulawesi, etc.) with a total installed capacity of 1,962.36 kW in 2010.
In Indonesia, development of wind energy systems in remote islands is prioritized using hybrid systems in combination with solar PV or interconnected with existing diesel power plants. Wind power is now becoming competitive with conventional energy scale as the size of wind turbines has increased. However, small wind energy systems are not yet competitive and need to compete with Solar PV. It is essential if it is to stay small, it has to compete with solar PV or it should find a location where a large system can be interconnected to the grid.
It should be noted that although the cost of the wind power is now becoming competitive with conventional energy scale, the cost of the wind power depends strongly on the local condition. However, the overall wind power potential in Indonesia is still limited. It is very important to find an appropriate location including the potential of off-shore as a long-term development options.
5.2 Recommendations
Recommendation 25
Periodically evaluate the most cost effective mix of renewables within the budget constraints and while taking into consideration other values like new industries, agricultural development, environmental impacts, and rural electrification.
Renewables are expensive; however, their costs are decreasing faster than those of conventional energies such as coal and oil products. This dynamic change in relative costs among energy options means that the best energy mix in terms of total costs can change significantly over time as the shares of renewables increase in the energy mix.
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Table 13. Power Generation in the New Policies and 450 Scenarios: Different Learning Rates among Renewable Technologies (IEA, 2013)
Renewables Category
Plant Specification
Technological Learning (assumed future learning rates)
2010 to 2035
Biomass
Large-scale unit 5%
Medium-scale CHP 5%
Small-scale CHP 5%
Biogas 5%
Waste incineration 5%
Cofiring 5%
Geothermal
Geothermal Electricity only 5%
Geothermal CHP 5%
Hydropower
Large-scale unit 1%
Small-scale unit 1%
Photovoltaic
Large-scale 17%
Buildings 17%
Concentrating Solar Power 10%
Marine 14%
Wind Energy
Onshore 5%
Offshore 9%
Figure 13. Trend of Solar PV Module Cost (Michael, 2012)
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The above table of technological learning rates of renewables assumed in IEA’s World Energy Outlook as important indicators of cost reduction. The rate shown that hydro is the lowest and the Photovoltaic is the highest. In fact, the cost of PV modules has been decreased by one tenth over the decade (see figure 13).
Moreover, energy access is closely connected to the development of industry, agriculture, rural areas and environmental sustainability. Also, the development of renewables is essentially based on distributed system; therefore it can contribute to the local development and industries related to geothermal, wind and solar energies. Nevertheless, the budget for renewables is mostly paid by subsidies through PLN and/or the central government. This budget is closely linked to the price level of electric power, indicating that the best mix of renewables could change depending on the level of the electric power price.
Regarding this situation and condition, periodical evaluation of the budget allocation becomes more important and is recommended to improve the cost efficient mix of renewables in consideration of decreasing costs of renewables, contribution to creation of new industries, rural development and environmental sustainability. The evaluation should consider the following points:
a. Which renewables have the most potential?
b. Which renewables can generate more energy (kWh)?
c. Which renewables are the most cost efficient in terms of levelized cost (Rp/kWh)?
d. What is the contribution to local community? Is it just connecting to grid or supplying electricity to the local community? Is there an opportunity to promote local industries? Can unused lands be utilized?
e. Feed-In-Tariff or Subsidies (to PLN or direct), which can contribute to the local community (FIT or subsidies)?
Recommendation 26
Solar, wind, and micro hydro are important for rural electrification and for the reduction of diesel consumption. One can consider such measures like special support for the introduction of those renewable energies under “Rural Electrification with Renewables”.
The mission of rural electrification is very important for Indonesia as tens of millions of rural residents do not have access to electricity. There are two categories in current status of rural electrification in Indonesia. One is a local grid or off-grid system using diesel generators with limited supply. Another is a rural area without electricity. The problem with the former is the high cost of the fuel and supply being limited to times of high demand such as mornings and evenings. The problem of the latter is the high cost of grid connection. Currently grid extension through PLN is the primary measure for this purpose. In the past, solar PV and wind power was not an option for rural electrification because of high costs. The significant reduction of costs of these options in recent years has made it possible to use solar and wind power as sources of rural electrification.
Indonesia is a country of islands. The cost advantages of using renewables for distributed generation systems in comparison to an over- or under-water extension of transmission lines across islands increasingly larger. Grid connection from one island to another is costly. As such, the utilization of solar and wind power for electrification in locations where grid connections is difficult emerges as a cost-effective option, particularly with the cost reductions of solar and wind in combination of diesel generator.
Also important is the characteristics of resources and the technologies to use them. A geothermal power plant provides baseload generation and can take advantage of economies of
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scale. Wind power can also take advantage of economies of scale, but it provides intermittent generation based on the wind resource available. Solar PV is most expensive and also an intermittent energy source, but can more easily be applied from the small scale to large scale depending on the availability of land and solar resource.
In this context, in locations with access to the grid where there is sufficient wind potential, wind power can be cost effective compared to Solar PV. In remote areas, a micro grid system can also be an option to reduce the utilization of diesel generators.
Recommendation 27
Periodically evaluate the cost/effectiveness of off-grid vs. grid extension for the promotion of renewable energy. For the case of off-grid systems, local governmental initiatives should also be encouraged.
Local energy supply is the responsibility of the local government. The energy needs in local areas can be better understood by the local authorities. This is particularly the case for renewables, such as geothermal, solar and wind, where resource potential and land availability are essential for effective use.
To increase the share of renewables, there are two options in Indonesia. One is to connect to grid and extend the grid. Another is utilization of renewables as a part of off-grid system. For the case of the former, such measures like feed-in-tariff and/or renewables portfolio standards are popular support mechanisms. But for the latter case, involvement of the local government will be helpful by encouraging them to design and implement rural electrification using locally available renewables to achieve higher cost effectiveness. It is important that the evaluation should consider the dynamic changes of comparable costs, namely that 1) solar and wind power are relatively expensive, but their costs are decreasing fast and they can contribute to remote areas where geothermal, biomass and hydro are relatively difficult to develop, and the 2) differences between the costs for grid extension and the costs of solar-wind-diesel generation based off-grid system.
Recommendation 28
Prepare tools for facilitating better communication considering that the transition of authority has shifted from the central to local level making the issues of financing (ex. Taxes), level of experiences, and rules (ex. Land use) more complex.
The transition of authority from the central government to local government has increased the importance of local rules. Local involvement is also important for renewables because the availability of lands is one of the most important factors for renewables such as geothermal, solar and wind power. Especially because geothermal resources can be distributed across more than one province and the different jurisdictions can delay the administrative process and increase the cost of management. The complexities include differences of taxes, land use regulations, and transmission of electricity across the local borders.
6 HYDRO POWER ENERGY
6.1 Critique
Indonesia has an abundant potential of hydro resources which is estimated to be to support 75,670 MW capacity. The hydro resources exist in many locations throughout the country. In order to develop hydro energy potential, PLN, as a State Owned Electricity Company, has been developing a detailed roadmap for development of hydro power under the PLN’s Electricity Supply Business Plan 2011-2020 (RUPTL). Based on the RUPTL, it is expected that 5.7 GW
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capacity of hydro power will be developed by 2020 (Anang, 2013). However, the additional capacity of hydro power development only accounts for 7.5% of total hydro energy potential.
Indonesia has extensive experience with and technical knowledge of hydro power projects. The first turbine was installed in 1885 in West Java, one of the main tea regions in Indonesia. At this time, the turbines only rotated the shaft of tea rollers and other machinery in the tea factory; it was not used to directly rotate a generator. Later, with advances in turbine and generator technologies, hydro power plants were built. In 1910, 40 private tea plantations owned hydro power plants, and 15 years later there were already 400 hydro power plants in operation with a total capacity of approximately 12.5 MW (Faisal, 2013). It is therefore no wonder that the promotion and development of hydro energy in Indonesia is already farther along compared to other renewable energy in terms of total installed capacity, local capability development and the domestic existence of industries and manufacturing capabilities.
In order to protect the consumers from low quality products and to increase the competitiveness of the hydro power plant industries, the Indonesian Government is currently in the process of establishing standardization for hydro power plants, namely RSNI on Capacity design and lay-out of micro hydro power generation system with capacity up to 25 kW, and RSNI on Technical specifications of cross-flow turbines with capacity up to 35 kW.
Indonesia has the local capability to produce turbines (Francis turbine up to 1 MW, cross-flow turbine T15 up to 400 kW, vertical axis propeller turbine up to 60 kW, and tubular propeller turbine up to 200 kW) which cover a wide range of suitable sizes for a variety of projects such as stand-alone, captive, and grid connected projects. In 2005, the first locally manufactured T15 cross flow turbine with a runner diameter of 500 mm was commissioned and began selling power to the grid. Currently, more than 10 turbine manufacturers are in operation in Indonesia in which 3 of them have already exported their products to ASEAN, African and European countries. Besides that, the local manufacturers in Indonesia can also produce other hydro power equipment such as Electronic Load Controller (ELC), Induction Generator Controller (IGC), Digital Turbine Controller (DTC), and Flow Control System (Faisal, 2013). However, most of the equipment produced by local industries is still for small-scale systems.
In the last 20 years, Indonesia has accumulated a lot of knowledge about micro hydro power (MHP) with a capacity up to 250 kW. Currently, there are 400 people qualified for building and operating MHP with a capacity up to 1 MW. This figure represents an experience of 4,000 man per-years (Faisal, 2013). In order to dispatch and disseminate the experts’ MHP project development knowledge and experience to public and private institutions and organizations in Indonesia as well as ASEAN region, a regional learning center for MHP has been established in Bandung.
In order to increase hydro energy development, a FIT for grid-connected hydro power has been established by the government. Besides that, the government also provides some funding through the state budget (APBN) for developing micro hydro in remote areas, small islands, and border areas with hydro energy potential. Positively, the financial sector supports hydro power projects as long as meet their financing schemes.
6.2 Recommendations
Recommendation 29
Encourage further R&D on hydro technology to reduce costs.
In order to promote the application of different scale hydro power projects in remote areas, small islands, and border areas, the initial cost of hydro power should be reduced through further R&D by the governments, institutes, and/or private sectors.
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Recommendation 30
Improve the local manufacturing capabilities to produce turbines with capacity greater than 500 kW.
The bigger the capacity, the higher efficiency is. In the regions with a large hydro energy potential, turbines with capacity greater than 500 kW will be needed in order to optimally utilize the hydro resource, which will be more cost-effective even though the initial cost is higher than the small ones. In this case, supporting R&D as well as improving the local manufacturing capabilities to produce turbines with capacity greater than 500 kW is needed.
Recommendation 31
Review and redesign the subsidy structure for hydro power projects depending on the scale and remoteness of a system.
The government should reconsider the subsidy structures for hydro power projects to incorporate the scale, region and period of the projects into each type of subsidy structure. For example, the subsidy for hydro power projects in remote areas should be much higher than those projects in the main islands. Also, the subsidy for small-scale projects should be much higher than those for large-scale projects.
Recommendation 32
Establish stricter environmental compliance monitoring for hydro power projects, even for mini hydro power plants.
Most of hydro power plants are generally located in forested areas thus the environmental assessment should be carried out not only before the projects has begun construction, but should also be conducted while the project is in operation.
Recommendation 33
Accelerate the process of contract approval through better coordination among relevant government agencies and institutions.
Most areas suitable for hydro power projects with run of river schemes are within forested areas. None of the regulations has made licensing simpler, though some have included a rhetorical statement mentioning that this is “a strategic industry.” Based on the forestry regulations, processing of the forestry license requires two years before it issued without any dispensation. Therefore, it is necessary to educate the policy makers from the Ministry of Forestry that hydro power projects with run-of river schemes are environmentally beneficial. Thus mediation action is needed to facilitate faster permitting processes for the various parties.
Recommendation 34
Improve awareness and participation of local residents on the development of hydro power projects.
In order to continue hydro power project development, it is necessary to improve the awareness and encourage an active participation of the people around the project and educating them about the benefits of the project for them. The awareness and participation of the people not only could mitigate rejection of the project from the local residents but could also influence the residents to save the energy and to protect the environment surrounding the power plant.
Recommendation 35
Increase training of technical personnel to ensure sufficient support for the operation and maintenance of hydro power plants in remote areas and on small islands.
Though there are more than 400 people qualified to build and operate MHP plants to date with more than 4,000 man per-years’ experience, more technical personnel are still needed. The technical personnel could be obtained through training conducted not only by the central or local governments but also institutes or other private sector entities.
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7 POWER SUPPLY SYSTEM-FIT, SMART GRID AND PRIVATE PARTICIPATION
7.1 Critique
On 23 December 2009, the Indonesian Government enacted Law No. 30 Year 2009 regarding Electricity. The new Electricity Law was drafted to replace Law No. 15 Year 1985 which the Constitutional Court had reinstated in December 2004 as a provisional law upon annulment of Law No. 20 Year 2002. The main difference between Law No. 30 Year 2009 and Law No. 15 Year 1985 is the absence of a Holder of Electricity Business Authority (Pemegang Kuasa Usaha Ketenagalistrikan, PKUK). Under Law No. 15 Year 1985, PLN was the sole PKUK and thus was responsible for providing electricity to all parts of Indonesia.
To prevent a monopolistic industry for the electricity sector, the new Electricity Law allows the electricity industry to be made up of electricity business entities that will be able to obtain electricity supply business licenses. Subsequent to the Electricity Law, the Feed-In Tariff (FIT) mechanism was implemented based on the Minister of Energy and Mineral Resources Regulation. Under the FIT mechanism, PLN is obliged to purchase renewable energy at a pre-determined price. Currently, the geothermal pricing mechanism is under revision. The aim of revision of geothermal pricing mechanism is to formulate the best geothermal energy structure to increase the bankability of geothermal business activity. The existing FIT tariffs for others renewable energy in Indonesia, except for geothermal are as follows:
Table 14. FIT Rates in Indonesia (Tunggal, 2013)
Hydro Power, Solar and Wind Power Electricity Price (MEMR Regulation No. 04 Year 2012)
No.
Region
Price (Rp/kWh)
High Voltage Medium Voltage
1 Java and Bali 656 1,004
2 Sumatera and Sulawesi 787 1,205
3 Kalimantan, West and East Nusa Tenggara 853 1,305
4 Maluku and Papua 984 1,506
Electricity Ceiling Price is still subject to be revised
Mini and Micro Hydro will be increased from Rp 656/kWh to Rp 975 – 1,050/kWh.
Solar will be increased from Rp 1,880 – 3,135/kWh.
Biomass, Biogas, and Municipal Solid Waste Electricity Price (MEMR Regulation No. 04 Year 2012)
No. Energy Capacity Electricity Buying Price Notes
Medium Voltage
1 Biomass up to 10 MW Rp 975/kWh x F
2 Biogas up to 10 MW Rp 975/kWh x F Non MSW
3 Municipal Solid Waste (MSW)
up to 10 MW Rp 1,050/kWh x F Zero Waste
4 Municipal Solid Waste (MSW)
up to 10 MW Rp 850/kWh x F Landfill
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Low Voltage
1 Biomass up to 10 MW Rp 1,325/kWh x F
2 Biogas up to 10 MW Rp 1,325/kWh x F Non MSW
3 Municipal Solid Waste (MSW)
up to 10 MW Rp 1,398/kWh x F Zero Waste
4 Municipal Solid Waste (MSW)
up to 10 MW Rp 1,198/kWh x F Landfill
Incentive Factor (F)
Java, Bali, Sumatera : F = 1
Kalimantan, Sulawesi, West and East Nusa Tenggara : F = 1.2
Maluku and Papua : F = 1.3
Since the development of new and renewable energy is still at its infancy, the government requires more participation from the private sector. To increase participation from the private sector in terms of renewable energy development, the Indonesian Government has initiated fiscal incentives in the form of reduction in corporate income tax (PMK No. 130/PMK.011/2011) and also custom duty and tax “breaks” (PMK No.21/PMK.11/2010).
Based on consultation with a few renewable energy developers, it seems that they are happy with the interaction between them and the related government agencies. However, it was also noted that they have highlighted the following complaints:
The cap on power plant capacity of 10 MW to be eligible for FIT (hydro, biomass, biogas and MSW) limits the development of larger-scale projects which may be more cost-effective.
The lack of financial support from banks makes it difficult to obtain financing.
It is difficult to obtain competitive financing rates (current interest rates ~12%).
There is insufficient compensation/support for developers who were the first movers in the industry.
There is a perception of lack of action by PLN to find alternatives to diesel plants in rural populated islands.
Bankability of the PPA especially for geothermal where there is a need for a cost pass through mechanism in the case of cost increase not due to the developer after PPA signing.
7.2 Recommendations
Feed-In Tariff (FIT)
Recommendation 36
Price structure – On top of the base rate, bonuses could be added to existing tariff to promote local content and also to encourage the renewable energy developer to choose the right and reliable technology for sustainable system performance.
Proven technologies: Enhancing energy performance and sustaining the energy generation can be one of the key criteria in securing the energy supply. The selection of appropriate technology may add value in solving the economy’s problems by, for example, using indigenous sources like municipal solid waste (MSW) as fuel which not only generates electricity but also provides a solution to dispose waste. Giving incentives to renewable energy developers for using high efficiency equipment can prevent waste and ultimately allow more power production with the
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same amount of fuel (biomass, biogas feedstock) in comparison with using lower efficiency but cheaper equipment.
Local content: This is to encourage the local expert, for example scientists, industry players, financiers and relevant beneficiaries, to take part in sharing their knowledge and grasp the opportunities to increase economic growth. Giving more incentives to projects using local content will help stimulate the whole value chain of renewable energy development from local equipment manufacturers to raw material suppliers and will also support services such as logistic companies and downstream markets such as local contractors and entrepreneurs. More job creation means reducing unemployment and government liability for social issues. Currently, incentives for local content are being proposed for solar PV. At the same time, those incentives should also be extended to other renewable energy resources.
Recommendation 37
FIT for plant capacity > 10MW for small hydro and biomass (include biogas and MSW) – Certain project sites may have resources that can produce more than 10 MW of electricity. Economies of scale may mean greater production of energy but with a lower FIT rate (e.g. a win-win situation).
In project development, economies of scale are the cost advantages that developers obtain due to size, with cost per unit of output generally decreasing as fixed costs are spread out over more units of output. The Ministry of Energy and Mineral Resources should leverage this and allow renewable energy developers, especially small hydro and biomass (incl. biogas and MSW), with generation potential greater than 10 MW to enjoy the benefits of FIT albeit with a lower FIT rate. This generates a win-win situation whereby the renewable energy developers enjoy better returns of investment and the government will be able to tap in to additional clean energy production at a lower cost.
Recommendation 38
Yearly FIT rate review - Sustainability of the FIT mechanism should be reviewed yearly in terms of achievements, tariff rate and funds required for the mechanism.
A sustainable program is a program that meets the needs of the present without compromising the ability of future generation to meet their own needs. The same should be reflected in the FIT mechanism for Indonesia. Current tariffs under the FIT mechanism are subsidized from the government’s budget. Frequent reviews (yearly, half-yearly review) should be done to ensure that the program is on track in terms of achieving the goals and targets of the National Energy Policy, and also the impact of achieving those targets to the funds required to subsidize the tariffs under the mechanism. Yearly review of the FIT tariff is necessary to ensure that the tariffs are set according to the current market prices for renewable energy technologies and also to allow reasonable returns to the renewable energy developers. Ultimately, the government should start identifying more sustainable means of funding the FIT mechanism to ensure continuity of renewable energy development.
Recommendation 39
FIT for Small PV systems – Current proposed FIT rates are for solar farm size projects. For capacity building, FIT for rooftop system (<12kW) should be encouraged to boost expertise of local players.
The proposed FIT mechanism for solar PV seems to lean towards large-scale solar farm size projects. However, solar farm projects require huge land areas and not many local contractors have the capability and expertise to construct plants of that size. In terms of capacity building, encouraging the growth of smaller rooftop systems can boost the expertise of local players in terms of technology familiarization and system installation. Encouraging rooftop programs will also enable utilization of existing free space on rooftops and thus prevent the usage of agriculture land or green areas for solar farm construction.
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Smart Grid
Recommendation 40
To get smart grids in place as soon as possible – 1,000 islands project requires proper monitoring in terms of system stability, supply and demand patterns, asset utilisation and operating efficiency. Smart grid could be the solution. Sumba Island is a good start.
The smart grid represents the merging of multiple technologies into a system that provides reliable and cost-effective energy. The smart grid has extensive communications capabilities that enable smart metering, as well as remote monitoring and data gathering devices. Operationally, the smart grid provides increased reliability, more effective asset and energy management and reduction of CO2 while integrating systems and devices on the distribution grid. In Indonesia’s case, the number of populated island that are not connected to the main grid makes distributed generation more appealing than transmitting electricity from island to island. Having a smart grid could be a solution in managing possible bidirectional energy flows from distributed generation such as from solar farms, wind turbines, mini hydro and other sources. Sumba Island is a good start but an acceleration program should be implemented to go hand in hand with the 1,000 islands project.
Recommendation 41
Capacity building – to be actively involved in APEC related activities on smart grid.
It is important that there is capacity building in the area of smart grids. Currently there are a number of projects on smart grid technology in the APEC region. It will be beneficial to Indonesia in the planning and implementation stages to coordinate with its neighbors in the APEC region and learn from similar examples within the APEC region to work together to bring the most effective and efficient results for their economy.
Private Participation
Recommendation 42
Higher local equity participation - To encourage local investors to participate in renewable energy projects under the FIT so that they will get the most benefit from the project.
Usually, local equity participation is used by companies operating in emerging economies in which the local governments want to reap the rewards brought on by development. For Indonesia’s case, the government should look into policies or incentives that encourage local investors to participate in renewable energy projects. Criteria such requiring a minimum threshold of local equity participation are necessary to prevent a major outflow of government subsidies out of Indonesia. Moreover, local share ownership also allows locals to have a say in company decisions.
Recommendation 43
Green Financing Schemes/Loan – Proper support mechanism in terms of “Green Loans” to be provided to renewable energy developers to encourage more participation from new players.
Green financing describes a broad range of funding for environment-oriented technologies, projects, industries or businesses. Green industries and technologies are all at different levels of maturity, thus, requiring different levels of funding from different sources of capital. Green finance is a core part of low carbon green growth because it connects the financial industry, environmental improvement and economic growth. Since lack of financing is one of the most common barriers in developing renewable energy projects, private sector participation can be enhanced through a proper support mechanism and financing incentives such as a Green
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Technology Financing Scheme whereby the industry players will benefit from 2% interest rate absorption that will be covered by the government.
Recommendation 44
Standardization of PPA(s) for projects under FIT – Standard template of PPA(s) should be in place for projects to be awarded through FIT mechanism to reduce negotiation time for PPA signing.
The key contract document for any IPP project is the Power Purchase Agreement (PPA) between the developers and the off-taker. However, the most time consuming activity for any power projects is to negotiate and execute the PPA documents. Standardized PPA contracts for all the renewable energy sources under the FIT mechanism will reduce time and costs for investors/developers and off-takers and allow for more efficient analysis by the rating agencies and capital market investors.
Recommendation 45
Establish standard operating procedures and timeframe – To ensure efficiency in renewable energy project implementation by private investors, standard operating procedures and timeframe should be established in terms of project award time, approval from ministries (Ministry of Finance), PPA signing, etc.
Standard Operating Procedures (SOP) are detailed instructions to achieve uniformity of the performance of a specific function. A proper SOP should be established to determine the requirements and timeframe for a project to be awarded under the FIT mechanism. A transparent process will give comfort to lenders and ultimately ensure efficiency in renewable energy project implementation. Commitment from all parties are required to ensure the successful implementation of the FIT mechanism and compliance to the establish SOP.
Recommendation 46
Need to educate the financing parties – Most financiers are risk adverse and not willing to finance new technology or new markets which have not matured. Therefore, there is a need to consistently have dialogues/consultation/workshop between the regulators and the financiers to allay the worries of financial institution.
Most financiers are risk adverse and will not venture into new markets which are still not matured. This causes problems to the renewable energy developers in terms of getting financing and also being able to obtain competitive interests rates. Financiers need to be educated on the importance and benefits of green technology so that they are more willing to provide financing and categorize renewable energy developments as low risk and bankable projects. Consistent stakeholder consultation between the government agencies, manufacturers, developers and financiers should be held so that all parties are comfortable to be part of the renewable energy industry.
8 GREEN HOUSE GAS MANAGEMENT
8.1 Critique
The energy sector is the fastest growing sector in terms of greenhouse gas (GHG) emissions and could equal forestry sector emissions by 2030. Indonesia has demonstrated its leadership among non-Annex I countries in regards to GHG mitigation by setting the goal to reduce GHG emissions by 26% from the projected baseline by 2020. Further, the government has set the target of reducing emissions by an additional 15% if international support, particularly financing, is made available. These goals, listed in Table 15, were enacted in 2011 in the National Action Plan on Greenhouse Gases Emission Reduction (RAN-GRK). The RAN-GRK also mandated
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the implementation of mitigation activities and developed the process for engaging local governments in addressing climate change in the Local Action Plan on Greenhouse Gases Reduction (RAD-GRK). The major activities identified in the Energy and Transportation sector include increasing the use of biofuels, increasing the use of high efficiency engines, improving the quality of public transportation, increasing utilization of demand side management, improving energy efficiency, and increasing generation from renewable energy. Renewable energy was also designated as an activity in the industrial sector. Under RAN-GRK and RAD-GRK, the Government of Indonesia is moving away from a project-based approach and is increasing the focus on developing nationally appropriate mitigation actions.
Table 15. RAN-GRK Goals for GHG Reduction from 2020 Projected Baseline, by Sector
Sector GHG Reduction Goal
(Gigatons of CO2e)
26% Target Additional 15%
Forestry and Peatland 0.672 0.367
Waste 0.048 0.030
Energy and Transportation 0.038 0.018
Agriculture 0.008 0.003
Industry 0.001 0.004
TOTAL 0.767 0.422
Under the RAD-GRK, each province is mandated to develop plans that include a GHG inventory and baseline, a selection of mitigation actions, and mitigation scenarios with prioritized actions. The RAN-GRK Secretariat is designed to support the local governments as they develop these plans, but local capacity is very limited. The Secretariat, which was launched in December 2012, is led by the Ministry of National Development Planning (BAPPENAS) in partnership with international agencies.
In addition to the RAN-GRK Secretariat, the Government of Indonesia has established two other notable organizations dedicated to climate change. The National Council on Climate Change (DNPI), established by the Presidential Regulation No. 46 Year 2008, and the Indonesia Climate Change Trust Fund (ICCTF). The DNPI is a multi-ministerial organization focused primarily on climate change adaptation but also responsible for managing the Nusantara Carbon Scheme. The scheme is a voluntary carbon trading program in Indonesia and is currently under development. The ICCTF was established to coordinate and harmonize donor and private sector funds and activities targeting climate change mitigation activities to ensure that these activities are aligned with national plans.
The Presidential Regulation No. 61 Year 2011 stipulates that new renewable energy generation and bioenergy development activities must monitor and report on GHG emission reductions.
The first commitment period under the Kyoto Protocol concluded in December 2012 and the second commitment period will run from 2013 through 2020. The Clean Development Mechanism (CDM), a market mechanism established to increase investment in clean energy in developing countries and reduce global GHG emissions, faces much uncertainty due to the reduced participation in the second commitment period and the very low prices for certified
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emission reduction (CER) credits.3 Through 2012, Indonesia had 137 projects registered with the Clean Development Mechanism (CDM) Executive Board, 75 of which were in energy or energy-related sectors (UNFCCC, 2013). It is unclear what role CDM, the nascent Nusantara Carbon Scheme, or other carbon trading schemes will play in the future of renewable energy development in Indonesia.
Regardless of the existence of carbon trading mechanisms, Indonesia will need to closely measure GHG emissions in order to demonstrate achievement of the 26% reduction goal by 2020. The government is in the process of establishing measurement and verification methodologies and protocols for GHG emissions. The DNPI and the Ministry of Environment are collaborating on this initiative and do not expect that emissions from the energy sector will be difficult to measure.
8.2 Recommendations
Recommendation 46
Build capacity among developers, banks, local governments, and other stakeholders for measuring GHG emissions and reporting to the central government.
Indonesia will need to methodically track GHG emissions across all sectors in order to demonstrate compliance with the President’s goal of reducing GHG emissions 26% by 2020. Besides developing capacity within the government for the Nusantara Carbon Scheme, it will be imperative for the country to build capacity within the non-governmental sector, particularly among financing institutions, local governments, renewable energy developers, and other stakeholders. Doing so will ensure accurate reporting to the central government for renewable energy-related GHG emissions savings. The government can begin by providing trainings to the non-governmental sector in the methodologies that will be used in the Nusantara Carbon Scheme. The government may also consider partnering with climate change non-governmental organizations (NGOs) that can provide additional technical training and lessons learned from experiences in measuring GHG emissions in other countries.
Recommendation 47
Expand the education program targeting the general public regarding the national GHG emissions goals and the benefits of achieving these goals.
Public support for GHG reduction initiatives will be necessary to achieve the long-term GHG emissions reduction goals established by the government. Currently, while the goals are well known throughout the central government and within private sector organizations focused on climate change and renewable energy, there is less of an understanding regarding the goals and the benefits of achieving these goals in the general public. The DNPI’s Communication, Information and Education Division has conducted an education program; however, a lack of awareness of the GHG reduction initiatives and benefits still persists. It is recommended that the DNPI, expand the education campaign to inform the population about the national goals and the associated benefits. Such a campaign could be developed to target the public in general (for example, through something like public service announcements) and both primary and secondary students through collaboration with the Ministry of Education and Culture.
Recommendation 48
Ensure the GHG emission reductions targets are aligned with and incorporated into the national energy plan and the national electrification plan.
3 At the time of this writing, CERs were valued below $1 USD.
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The Indonesian government has multiple national plans that relate to renewable energy and, therefore, GHG emissions. The 2006 KEN, the one that is in force until the draft 2011 KEN is approved, calls for a substantial increase in the use of coal for electricity generation by 2025, which may impede Indonesia’s ability to meet the GHG targets. Efforts should be taken to ensure that the 2011 KEN and the National Electricity General Plan (RUKN) are complementary to the GHG emissions reductions targets.
Recommendation 49
Establish a clear policy regarding allocation of GHG savings for renewable energy projects such that they are allocated to the project owner and not to an associated ministry for CDM or other carbon market purposes.
The sale of carbon credits can contribute to the financing of a renewable energy project if a carbon market and viable price signal for credits exists. While the future of the CDM is less certain, Indonesia’s development of the Nusantara Carbon Scheme and other new market mechanisms may lead to a revived carbon market in the country. Accordingly, it is imperative that there are clear rules regarding the allocation of carbon credits for renewable energy projects. For example, under the CDM, mini-hydro project developers were unable to obtain carbon credits for the reduced GHG emissions associated with their projects because the Ministry of Forestry maintained that any carbon credits should belong to the ministry. Allowing the developer to maintain ownership of the credits increases the incentives for renewable energy development. The developer may choose to sell the carbon credits at market value and the entity that purchases the carbon credits can use them toward offsetting their own GHG emissions. Providing certainty that the developer will have ownership of the GHG savings allows the developer to incorporate the potential sale of the carbon credits as a revenue stream when financing the project. The ability to access this future revenue stream can also make it easier for projects to attract investment and be financed when the market value for carbon credits is strong.
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APPENDIX A: PEER REVIEW TEAM MEMBERS
The report was produced by the Asia Pacific Energy Research Centre (APERC) for the Asia-Pacific Economic Cooperation (APEC). The Peer Review Team was made up of the following experts from APEC economies as well as APERC, with each contributing to specific sections:
1. Mr. Takato OJIMI, Peer Review Team Leader, President, Asia Pacific Energy Research Centre (APERC), Japan
2. Dr. Kazutomo IRIE, General Manager, Asia Pacific Energy Research Centre (APERC), Japan (Part II, Section #1)
3. Dr. Li KUISHAN, Director of Design and Research Team No. 1, East China Architectural Design & Research Institute Co. Ltd, (ECADI), China (Part II, Section #6)
4. Dr. Kaoru YAMAGUCHI, Senior Researcher, New and Renewable Energy Group, New and Renewable Energy and International Cooperation Unit, The Institute of Energy Economics, Japan (IEEJ), Japan (Part II, Section #5)
5. Mr. Koh Keng SEN, Deputy Director of FIT, Sustainable Energy Development Authority (SEDA), Malaysia (Part II, Section #7)
6. Dr. Chatchawan CHAICHANA, Head of Energy Technology for Environment Research Centre (ETE), Faculty of Engineering, Chiang Mai University, Thailand (Part II, Section #4)
7. Ms. Sarah BUSCHE, Policy Analyst, the Strategic Energy Analysis Center, National Renewable Energy Lab (NREL), United States of America (Part II, Section #2 and #8 as well as editor for Part II)
8. Mr. Chrisnawan ANDITYA, Researcher, Asia Pacific Energy Research Centre (APERC), Japan (Part II, Section #3)
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APPENDIX B: ORGANISATIONS AND OFFICIALS CONSULTED
GOVERNMENT OFFICIALS
Directorate General of New Renewable Energy and Energy Conservation (DGNREEC)
Mr. Rida Mulyana, Director General
Mr. Tunggal, Secretary of DGNREEC
Dr. Dadan Kusdiana, Director of Bioenergy
Mrs. Maritje Hutapea, Director of Energy Conservation
Mr. Sjaiful Ruchijat, Head of Sub-Directorate of Investation and Coopertaion on Geothermal
Mrs. Anna Rufaida, Deputy Director of Investment and Cooperation on Bioenergy
Mrs. Ida Nuryatin, Head of Subdivision of Cooperation on Various Energy
Mrs. Fitria Astuti Firman, Head of Subdivision of Cooperation on Bioenergy
Mr. Ibnu Syahrudin, Head of Subdivision of Investment on Bioenergy
Ms. Fitria Yuliani, Staff of Sub-Directorate of Investment and Cooperation on Bioenergy
Mr. Galan Perdana, Staff of Sub-Directorate of Investment and Cooperation on Bioenergy
The National Energy Council (NEC)
Mr. Saleh Abdurrahman, Head, Bureau for Facilitation of Energy Crisis Response and Energy
Supervision, Secretariat General of NEC
Directorat General of Electricity (DGE)
Mr. Hasril Nuzahar, Director of Electricity Program Supervision
Research and Development Center of Technology for Electricity, Renewable Energy and
Energy Conservation
Mr. Didi Sukaryadi, Coordinator Group of Research and Development Implementing for
Techno Economic, Energy and Environmental Conservation of Electricity
ENERGY COMPANIES
State Owned Electricity Company (PLN)
Mr. Anang Yahmadi, Senior Manager of Geothermal, New and Renewable Energy Division
PT. Navigat Organic Energy Indonesia
Ms. Cynthia Hendrayani, Vice President, Project Development & Environmental Finance
PT. Bumi Invesco Energi
Mr. Riza Husni, Head of Hydro Power Business Association
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PT. Chevron Geothermal Salak
Ms. Ferry Shaza, PGPA Operation Support Team Manager, Chevron Geothermal & Power
Operation
ACADEMIA
Center for Research on Energy Policy, Bandung Institute of Technology (ITB)
Dr. Retno Gumilang, Head of Center for Research on Energy Policy
Dr. Ucok Siagian, Senior Researcher and Expert
ENERGY ASSOCIATIONS
Indonesia Renewable Energy Society (METI-IRES)
Dr. Surya Darma, Expert Member of METI
Indonesia Geothermal Association (API-INAGA)
Mr. Abadi Poernomo, Chairman of INAGA
The Indonesian Association of Bioenergy Scientists and Technologists (IKABI-
IABEST)
Mr. Tatang H. Soerawidjaja, President of IABEST
The Indonesian Solar Module Manufacturer Association (APAMSI)
Mr. Dharman Mangaparna, Chairman of APAMSI
Bandung Hydro Association (AHB)
Mr. Faisal Rahadian, Chairman of AHB
The Indonesia Wind Energy Society (MEAI-IWES)
Mr. Sahat Pakpahan, Head of MEAI
Mr. Soeripto MS, Secretariat Member of MEAI
FINANCIAL INSTITUTION
Bank Negara Indonesia (BNI)
Mr. Andi F. Rahmawan, Local Corporate & Multinational Company I Division
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APPENDIX C: REFERENCES
Anang Yahmadi (2013). Senior Manager of Geothermal, New and Renewable Energy Division,
PT PLN (Persero). “New and Renewable Projects in Indonesia”, Presented on APEC Peer Review on Low Carbon Energy Policy (PRLCE), Jakarta, 13 May 2013.
BKF (Fiscal Policy Agency – Badan Kebijakan Fiskal, Kementerian Keuangan) (2012). “Dukungan Kementerian Keuangan dalam Program Efisiensi Energi di Indonesia”, Jakarta, 31 January 2012.
http://www.iesr.or.id/wp-content/uploads/Kemenkeu.pdf
BPS (Indonesia Statistics Agency – Badan Pusat Statistik) (2012). “Berita Resmi Statistik No.13/02/Th.XV”, 6 February 2012.
www.bps.go.id/brs_file/pdb_banner1.pdf
Dharman Mangaparna (2013). Chairman of APAMSI. “Potential and Challenge in The Indonesian Solar Development”, Presented on APEC Peer Review on Low Carbon Energy Policy (PRLCE), Jakarta, 14 May 2013.
Faisal Rahadian (2013). Small Hydro Power Association. “Indonesian Small Hydro Power Development: Potential and Challenges”, Presented on APEC Peer Review on Low Carbon Energy Policy (PRLCE), Jakarta, 14 May 2013.
Galvin Electricity Initiative (2013). “What are Smart Microgrids?”. http://galvinpower.org/microgrids. Accessed June 2013
Hasril Nuzahar (2013). Director of Electricity Program Supervision, Directorate General of Electricity. “Overview of Indonesia Electricity Policy”, Presented on APEC Peer Review on Low Carbon Energy Policy (PRLCE), Jakarta 13 May 2013.
Holm, A.; Blodgett, L.; Jennejohn, D.; Gawell, K. (2010). Geothermal Energy Association. “Geothermal Energy: International Market Update.” http://www.geo-energy.org/pdf/reports/GEA_International_Market_Report_Final_May_2010.pdf.
IEA (International Energy Agency) (2013). World energy Outlook: Investment Costs of Power Generation. Assumed Investment Costs, Operation and Maintenance Costs and Efficiencies. http://www.iea.org/publications/worldenergyoutlook/weomodel/investmentscosts/. Accessed June 2013.
Kemenkeu (Ministry of Finance) (2010). “Nota Keuangan dan APBN 2010”. www.anggaran.depkeu.go.id/Content/10-01-06,NKAPBN2010.pdf
Kemtan (Ministry of Agriculture - Kementerian Pertanian) (2013). “Basis Data Statistik Pertanian, Sub Sektor Perkebunan, Komoditi Kelapa Sawit, Level Nasional, Status Angka Angka Tetap, Tahun 2010-2019”. Accessed July 2013. http://aplikasi.deptan.go.id/bdsp/hasil_ind.asp
KESDM (Ministry of Energy and Mineral Resources – Kementerian Energi dan Sumber Daya Mineral) (2006). “Blueprint Pengelolaan Energi Nasional 2006-2025”. www.esdm.go.id/publikasi/lainlain/doc_download/714-blue-print-pengelolaan-energi-nasional-
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KESDM (Ministry of Energy and Mineral Resources – Kementerian Energi dan Sumber Daya Mineral) (2012). “Handbook of Energy and Economic Statistics of Indonesia 2012”. http://prokum.esdm.go.id/Publikasi/Handbook%20of%20Energy%20&%20Economic%20Statistics%20of%20Indonesia%20/Handbook%20of%20Energy%20&%20Economic%20Statistics%20ind%202012.pdf
KESDM (Ministry of Energy and Mineral Resources – Kementerian Energi dan Sumber Daya Mineral) (2013a). “Peraturan Presiden No. 4 Tahun 2010 tentang Penugasan kepada PT PLN (Persero) untuk Melakukan Percepatan Pembangunan Pembangkit Tenaga Listrik yang Menggunakan Energi Terbarukan, Batubara dan Gas”. Accessed June 2013. http://prokum.esdm.go.id/perpres/2010/Perpres%204%202010.pdf
KESDM (Ministry of Energy and Mineral Resources – Kementerian Energi dan Sumber Daya
Mineral) (2013b). “Undang-Undang No. 27 Tahun 2003 tentang Panas Bumi”. Accessed June 2013. http://prokum.esdm.go.id/uu/2003/uu-27-2003.pdf
KLH (Ministry of Environment – Kementerian Lingkungan Hidup) (2013). “Undang-Undang No. 18 Tahun 2008 tentang Pengelolaan Sampah”. Accessed June 2013. http://www.menlh.go.id/DATA/UU18-2008.pdf
Michael Taylor (2012). IRENA Innovation and Technology Centre. “The Renewable Revolution: Power Generation Costs”. 26 October 2012. http://iea-retd.org/wp-content/uploads/2012/10/1-1-TAYLOR_costing-IRENA-IEA-RETD-Oct-26-Version-3.pdf
Saleh Abdurrahman (2013). Deputy Secretary General, National Energy Council. “National Energy Policy: Towards Sustainable Energy Future”, Presented on APEC Peer Review on Low Carbon Energy Policy (PRLCE), Jakarta, 13 May 2013.
Sjaiful Ruchijat (2013). Head of Sub-Directorate of Investation and Coopertaion on Geothermal. “Up-Date on Geothermal Energy Development and Utilization in Indonesia”, Presented on APEC Peer Review on Low Carbon Energy Policy (PRLCE), Jakarta, 13 May 2013
Tunggal (2013). Secretary Directorate General of New Renewable Energy and Energy Conservation. “Policies and Strategies for the Development of New Renewable Energy”, Presented on APEC Peer Review on Low Carbon Energy Policy (PRLCE), Jakarta, 13 May 2013
UNFCCC (2013). “Clean Development Mechanism.” http://cdm.unfccc.int/Projects/projsearch.html. Accessed June 2013.
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APPENDIX D: USEFUL LINKS
Bank Negara Indonesia (BNI) – www.bni.co.id
Center for Research on Energy Policy, ITB – www.crep.itb.ac.id
Directorate General of New Renewable Energy and Energy Conservation (DJEBTKE) – www.ebtke.esdm.go.id
Directorate General of Electricity (DJK) – www.djlpe.esdm.go.id
Indonesian Geothermal Association (API) – www.inaga.org
Indonesia Renewable Energy Society (METI) – www.meti.or.id
Ministry of Energy and Mineral Resources (KESDM) – www.esdm.go.id
National Energy Council (DEN) – www.den.go.id
PT PLN (Persero) – www.pln.co.id
PT Navigat Organic Energy Indonesia – www.noei.co.id
Research and Development Center of Technology for Electricity, Renewable Energy and Energy Conservation – www.p3tkebt.esdm.go.id
The Indonesian Solar Module Manufacturer Association (APAMSI) – www.apamsi.org
1
Peer Review on Low Carbon Energy Policies in the Philippines
Final Report
June 2013
ii
CONTENTS
Contents .................................................................................................................................. i
Preface…………………………………………………………………………………………………...3
Executive Summary ............................................................................................................... 5
Recommendations .................................................................................................................. 8
PART 1: Background Information
1. Energy Situation .………………………………..……………………………………………... 14
1.1 Primary Energy Supply ……………………………………………………………………..… 14
1.2 Total Final Energy Consumption …………………………………………………………......16
2. Energy Sector : Structures and Stakeholders ……………………………………………….16
2.2 Other Related Organizations ………………………………………………………………. ....18
3. National Renewable Energy Program (NREP) 2011-203)………………………… ………19
3.2 NREP Development Framework ………………………………………………………………21
3.3 Sectoral Sub-Programs ………………………………………………………………….………24
3.4 Investment Requirements ………………………………………………………………….......33
4. Clean Development Mechanism (CDM) ……………………………………………………...34
4.2 CDM Steering Committee ……………………………………………………………………...35
4.3 CDM Updates …………………………………………………………………………………… 35
PART 2: Review Team Report …………………………………………………………………......36
1. Institutional Context ………….……….……………………..………..……..…..………….... 36
1.1Critique ……….…………………………………………………………..………..…………..... 36
1.2 Recommendations …………………………………………………………………………….…36
2. Renewable Energy Goals, Targets and Strategy ................................... ………………… 38
2.1.Critique ......................................….……….. ………………………………………………….38
2.2.Recommendations ................................................................................................... …....42
3. Regulation and Infrastructure ………………………………………………………………. .43
3.1 Critique …………………………………………………………………………………………. ..42
3.2 Recommendations ………………………………………………………………………………..46
4. Biofuels and Biomass Energy …………………………………………………………...47
4.1 Critique ……………………………………………………………………………………………47
4.2 Recommendations …………………………………….………………………………………….49
5. Geothermal, Solar and Wind Energy ………………..………………………………………..49
5.1 Critique …………………………………………………………………………………………... 49
5.2 Recommendations ………………………………………………………………………………..52
6. Hydro Power Energy …………………………………………………………………………… 54
iii
6.1 Critique …………………………………………………………………………………………... 54
6.2 Recommendations ………………………………………………………………………………..55
7. Power Supply System : FiT, Smart Grid and Private Participation ………………….… 56
7.1 Critique ……………………………………………………………………………………….... 56
7.2 Recommendations …………………………………………………………………………….… 58
8. Greenhouse Gas Management ………………………………………………………………... 61
8.1 Critique ………………………………………………………………………………….............. 61
8.2 Recommendations …………………………………………………………………………….… 64
Appendix A: Peer Review Team Members ……………………………………………………...lxvi
Appendix B: Organisations and Officials Consulted …..……………………………………. lxvii
4
PREFACE
The APEC Peer Review on Low Carbon Energy Policies (PRLCE) was endorsed by the APEC
Energy Ministers at the 2010 Energy Ministers Meeting. The review is an extension of APEC’s Peer
Review on Energy Efficiency (PREE) and generally follows the same guidelines. The PRLCE seeks to
achieve the following objectives:
Share information on low carbon energy performance as well as on policies and measures for
improving and promoting low carbon energy in respective economies;
Provide opportunities for learning from the experiences of other economies and for
broadening the network among low carbon policy experts;
Explore how low carbon goals on an overall and /or sectoral basis and action plans could be
effectively formulated in each economy under review, taking into account the range of possible
strategies that could be used, according to the circumstance of each economy;
Monitor progress on attaining low carbon energy goals on an overall and/or sectoral basis
and implementing action plans, if such goal and action plans have been already formulated at
the time of the review, and
Provide recommendations for voluntary implementation on how implementation of action
plans could be improved with a view to achieving low carbon energy goals.
The Philippines is the second economy who volunteered to undertake the low carbon energy peer
review. This report presents the results of the peer review of low carbon energy policies conducted in
Makati, Philippines.
The primary accountability for each peer review is shared by the economy being reviewed and the
Review Team. The peer review in the Philippines was conducted by a team of nine experts (see
Appendix A) who visited the Philippines from 19-23 November 2012.
During the visit, the Review Team had comprehensive discussion on low carbon energy policies in
the Philippines with representatives and experts from government ministries and agencies, private and
state companies (see Appendix B). The Review Team wishes to thank all the presenters and others who
spent valuable time with the team for discussions, especially the representatives of the Renewable
Energy Management Bureau of the Philippine Department of Energy who organized the event.
5
EXECUTIVE SUMMARY
The Renewable Energy (RE) Act of 2008 which was signed into law last December 16, 2008,
affirms the government’s commitment to accelerate the exploration and development of renewable
energy (RE) resources in the Philippines. It also mandates the development of a “strategic program” to
increase RE usage. The RE Act of 2008 likewise gave birth to the Renewable Energy Management
Bureau (REMB) and the National Renewable Energy Board (NREB). While the REMB-DOE as
mandated by the Law led the formulation of RE plans and programs in consultation with its
stakeholders, the NREB serves as its guiding arm when deemed necessary. Further to its benefits, the
RE Act will try to address possible bureaucratic constraints in developing RE by streamlining the
registration process and promoting transparency and open competition. Future policy requirements to
commercialize RE, such as the formulation of a feed in tariff (FIT) and bidding for its allocation, are
submitted to ERC and were approved with revisions. In conjunction with the enactment of the Act,
the National Renewable Energy Program (NREP) was formulated.
The NRE) presents the overall approach to accelerate the development and utilization of the
RE resources in the country. The NREP begins from the individual work programs which are referred
to as the sectoral sub-programs for each of the RE resource covered under the RE Law, namely:
geothermal, hydro, biomass, wind, solar, and ocean. Each sectoral sub-program follows a roadmap
which serves as a framework for the achievement of the market penetration targets of a particular RE
resource.
The PRLCE team is pleased to note that after the enactment of the RE Act of 2008, the
economy is successfully implementing some of the policies and programs formulated in conjunction
with its implementation. While some of them are being successfully implemented, some needs further
action and attention, which resulted to drawing of a number of recommendations from the experts.
While several developers have shown significant interest in investing in renewable energy, most
however would be discouraged due to time-consuming regulatory procedures. To uplift the interest of
investors the government should review its regulatory procedures to shorten the time usually spent in
processing the documents required from RE developers. Likewise, actions to reduce the number of
permissions and substantially reduce the timeframe to obtain consents such as legislative reform,
improved process facilitation (One Stop Shop), and increased staff resourcing will reduce the costs to
the developers as well. In addition, it is recommended to develop a database of requirements, (e.g.
Checklist, best practices, etc,) where the entire relevant government agency as well as RE developers
can look for reference to avoid duplication of requirement and hence, facilitate processing. Relatedly,
the Team found it necessary for a Ministerial level action which will establish a Ministerial decision
6
(action plans) to address the issue on tedious processing of document which will also consequently
achieve the government’s goal of good governance.
While the economy was able to formulate a lot of policies and programs such as the NREP; the
National Biofuels Program; the NEECP and other energy related plans and programs to help them
achieve their goals, these should be harmonized and the updated copies be posted in a single website
location. The plans should each quote the aims of the relevant legislation that they are seeking to fulfill.
The setting of effective RE targets requires a sound platform of scientific information from
which the potential of RE generation can be estimated. The existing modeling work will be enhanced
with a structured plan to extend the scope of models of primary energy resource and land use. For
instance a model of the potential use of energy resources should include competing sectors in
electricity generation, alternative fuels production, and industrial processing. Model outputs should
include long term electricity prices, biofuel prices, vehicle fleet profiles and environmental and health
related externalities at a multi-regional level. A range of scenarios can then be developed and
progressively modified as further information on resource use becomes available.
Several recommendations were also provided on a per RE resources and technology basis. It is
recommended that the economy should have comprehensive feedstock plans to prevent shortage on
biofuels resources. On geothermal, the Team found out the potential of low enthalpy geothermal for
non-energy, hence it was recommended that the economy should look into its further development.
Since there are also indication of increased solar and wind for power generation in the next 20 years,
the economy should also consider to set its target for off-grid solar and wind power generation.
Similarly for hydro resources, the experts recommended the economy to increase its technological
research on small hydro systems. Generally, recommendations for specific RE sources were focus on
increasing researches, renewable portfolio standards (RPS), capability enhancement and setting of
targets specifically for off-grid.
On greenhouse gas management, since the transport sector and energy sector together
contribute about 70% of GHG emissions in the Philippines, recommendations are separately given to
the transport sector and the energy sector.
Finally, strong recommendations were provided for the feed-in-tariff (FiT) such as the
introduction of additional incentives based on technology selection and local content as well as
developing FiT for sub-categories of RE technologies depending on technology maturity, regional
application and socio-economic conditions (e.g. solar PV for household, solar farm, commercial
rooftop utilization, etc.) among others.
7
The likelihood of implementing these recommendations will possibly provide the economy
direction in achieving energy sustainability and security as well as in achieving low carbon energy goals
in the future.
8
RECOMMENDATIONS
Institutional Context
Recommendation 1
Regulatory procedures for RE development should be less time-consuming.
Recommendation 2
It may be worthwhile to reinforce the policy formulation function of REMB for RE, in collaboration with EPPB which
is the policy formulation group of the DOE, to increase feedback from policy implementation to policy formulation at the
implementation of RE development proceeds.
Recommendation 3
It may also be worthwhile to reconsider the composition of NREB to make governmental and private members in equal
number, thus giving the independent chairperson a casting vote, which will give more voice to the private sector and enhance
the neutrality of NREB.
Renewable Energy Goals, Targets and Strategy
Recommendation 4
The NREP; the National Biofuels Program; the NEECP and other energy related plans and programs should be
harmonized and the updated copies be posted in a single website location. The plans should each quote the aims of the
relevant legislation that they are seeking to fulfill.
Recommendation 5
Implement a review in processing of documents to reduce the costs to developers in obtaining consents, permits and licenses.
Recommendation 6
Implement broad scope multi-regional techno-economic modeling of the Philippines energy and agricultural economies to
provide more certainty on future targets and investment strategies.
Recommendation 7
Set and monitor the penetration of national RE goals into barangay plans and where relevant sitio plans.
Recommendation 8
Provide more technical standards along with an Information Education and Communication campaign to enhance
adoption of sustainable technologies.
Regulation and Infrastructure
Recommendation 9
The Team found it necessary for a Ministerial level action which will establish a Ministerial decision (action plans) to
address the issue on tedious processing of document which will also consequently achieve the government’s goal of good
governance;(this recommendation is on top of the recommendation given in “Goals and Strategies” part which generally
aimed at reducing cost incurred by RE developers in processing the required documents)
9
Recommendation 10
In addition to the issue on the tedious processing of document, it is recommended to develop a database of requirements,
(e.g. Checklist, best practices, etc,) where the entire relevant government agency as well as RE developers can look for
reference to avoid duplication of requirement and hence, facilitate processing;
Recommendation 11
Develop a comprehensive Information Campaign Plan (regulatory and statutory requirements) that would include those in
the local government and the general public;
Recommendation 12
Monitoring and evaluation of project-related activities should continue even after the project has been implemented;
Recommendation 13
Maximize the application of GFI’s comprehensive loan packages, especially on capacity enhancement;
Recommendation 14
Need to review RE Law to give more attention to off-grid RE issues; The DOE, RE developers and NGCP should
continue its coordination and dialogues to address transmission/grid issues;
Biofuels and Biomass Energy
Recommendation 15
Government biofuels stockpiles should be set in order to prevent shortage;
Recommendation 16
More R&D should be undertaken to support the domestic uptake of biofuels;
Recommendation 17
Upgrading of the existing biomass power plant (i.e sugar industry) should be supported;
Recommendation 18
Small and medium size biogas technology for rural areas should be implemented since it can be an alternative sustainable
energy source;
Recommendation 19
Renewable Heat Incentives (RHI) should be introduced support RE as an alternative source of heat, including
cogeneration.
Geothermal, Solar and Wind Energy
Recommendation 20
Enhance the promotion of non-power applications of geothermal energy.
Recommendation 21
Develop incentives to encourage the use of low enthalpy geothermal energy in rural areas (e.g. FIT for low enthalpy
geothermal).
10
Recommendation 22
Accelerate the use of low enthalpy geothermal energy in rural areas (e.g. off grid areas) by developing value-added
geothermal facilities which produce both heat and power for industry, commercial and household sector use, especially in
remote areas.
Recommendation 23
Set the target for the development of solar and wind for off-grid areas and roof-top solar PV, as well as start creating
official statistics for solar and wind;
Recommendation 24
Accelerate the process of finaliing the RPS guideline;
Recommendation 25
The government should increase its efforts in the assessment of potential sites for wind power while assessment of potential
sites for solar energy utilization should be underway;
Recommendation 26
Reduce the peak demand in urban areas and improve access to electricity in rural areas by accelerating the development of
roof-top solar PV. (Introduce incentives for accelerating its development.)
Recommendation 27
To secure the stable deployment of solar and wind power, accelerate the development of the net metering system, which can
be part of the smart grid programme;
Recommendation 28
Leading organizations in solar and wind energy development or deployment face several challenges such as the lack of
capable human resources. Securing a sufficient number of staff is critical in achieving targets for 2030.
Hydropower Energy
Recommendation 29
Promotion of multi-scale hydro power supply system’s especially in the remote areas;
Recommendation 30
Detailed assessment and publication of water resource distribution;
Recommendation 31
Increase technological research on small hydro power systems;
Recommendation 32
Accelerate the process of contract approval through better coordination among relevant agencies and institutions;
Recommendation 33
Increase training of technical personnel.
11
Power Supply System: FiT, Smart Grid and Private Participation
Recommendation 34
Develop FiT for sub-categories of RE technologies depending on technology maturity, regional application and
socio-economic conditions (e.g. solar PV for household, solar farm, commercial rooftop utilization, etc.);
Recommendation 35
Introduce additional incentives based on technology selection and local content;
Recommendation 36
Accelerate implementation of smart grid beyond the solar sector;
Recommendation 37
Detailed planning of transmission line installation based on associated RE resource assessment
Recommendation 38
Awareness programme to local government and public (not limited to government initiative also require participation from
NGOs and private sectors).
Recommendation 39
Formulate a ‘win-win” approach to encourage more private sector investments and participation in RE development.
Recommendation 40
There is also a need to intensify human capital development in RE industry to serve the RE industry needs via
comprehensive training courses.
Greenhouse Gas Management
Recommendation 41
Life cycle GHG emissions should be analyzed by utilizing the actual data to predict more accurate GHG emissions.
Recommendation 42
To target a higher blending rate with only locally produced bioethanol, in relation to GHG emissions, (i) relevant land
use patterns such as land expansion should be examined, (ii) R&D for agricultural technology (e.g., more harvest per ha,
less fertilizer application etc.) should be enhanced, and (iii) investment plans and processes should be implemented as soon
as possible.
Recommendation 43
For additionally installed RE capacity, life cycle GHG emissions factors of each energy type should be used to estimate the
emissions
Recommendation 44
The optimal management of the revenue earned from CERs should be examined to promote RE or reduce GHG
emissions afterward
12
Recommendation 45
Accelerate the registration procedures for applications for FIT qualification and also the joint use of FIT and RPS for
RE promotion should be optimized and clarified.
13
PART 1 : Background Information
This part of the report was contributed by the government of the Philippines and includes
basic information on renewable energy and the main institution associated with energy in the economy. The main purpose of this part is to provide the reader with the context within which the review team based its recommendations.
The report shows the aspect of renewable energy including the current policy and objectives as well as renewable energy activities.
14
INTRODUCTION
1. ENERGY SITUATION 1.1 Primary Energy Supply
The country’s total primary energy supply (TPES) in 2010 reached 40.7 MTOE, 3.2 percent
higher than the 2009 level of 39.5 MTOE (Figures 1 and 2). This was due to the increase in total net
energy imports, compensating for the 0.3 percent decline in total indigenous energy production. Net
imports grew by 8.5 percent, from 16.0 MTOE in 2009 to 17.3 MTOE in 2010.
Oil remained as the country’s major energy source, accounting for 35.9 percent of the primary
energy supply mix, followed by geothermal with 21.0 and coal with 17.3 percent share.
Total primary oil supply increased by 8.4 percent from 13.5 MTOE in 2009 to 14.6 MTOE in
2010. Similarly, total primary coal supply increased by 19.4 percent reaching 7.0 MTOE from 5.9
MTOE in 2009. On the other hand, major renewable energy resources experienced decreases in
production levels during the year.1
Figure 1: Total Primary Energy Mix (In Percent), 2010
Figure 2: Total Primary Energy Mix (In Percent), 2009
1 Key Energy Statistics 2010
Total Energy: 40.7 MTOESelf Sufficiency: 57.5 %
2010
Total Energy: 39.5 MTOESelf Sufficiency: 59.5 %
2009
15
1.1.1 Indigenous Energy (Domestic Energy Supply)
Total indigenous energy production slightly went down by 0.3 percent from 23.5 MTOE in
2009 to 23.4 MTOE. This is attributed to lower production of local resources-crude oil, natural gas,
geothermal, hydro, biomass and biofuels-reducing their contribution to the total indigenous energy
supply. However, production of local coal and solar power increased by 41.9 percent and 0.2 percent,
respectively.
Table 1. Local Energy Production In Mtoe, 2009 & 2010
ENERGY SOURCE 2009 2010
Fossil Fuels
Oil 0.96 0.92
Natural Gas 3.2 3
Coal 2.5 3.5
Renewable Energy
Geothermal 8.9 8.5
Hydro 2.4 1.9
Biomass 5.37 5.35
Biofuels 0.1248 0.1067
Solar 0.0001 0.0001
Wind 0.0055 0.0055
1.1.2 Imported Energy Supply
Net energy imports in 2010 accounted for 42.5 percent of the total energy supply, reaching 17.3
MTOE or 8.5 percent higher than the 2009 level of 16.0 MTOE. Net imported energy in 2010 is
comprised of 79.1 percent oil and oil products; 20.3 percent coal; and 0.6 percent biofuels (Figure 3).
Net oil importation went up by 9.4 percent
from 12.5 MTOE (95,539.9 MB) in 2009 to 13.7
MTOE (104,061.9 MB) in 2010, augmenting the
country’s demand for oil and oil products. Crude oil
comprised the bulk of net energy imports for 46.4
percent share, while 32.7 percent were finished
petroleum products.
The country’s coal importation exhibited a
significant boost of 56.1 percent, reaching 5.8 MTOE
in 2010 from 3.7 MTOE in 2009. Indonesia was the country’s most signifiacnt coal trading partner
accounting for 96.7 percent of the total coal importation in 2010.
Figure 3 : Net Energy Products Importation, 2010
16
Ethanol imports in 2010 increased more than twice from 35.9 kTOE in 2009 to 77.9 kTOE.
The rise in ethanol imports may be attributed to non-operation of bioethanol producers in the country
due to higher production cost and consequently, the market’s preference for lower-priced imported
bioethanol.
1.2 Total Final Energy Consumption
As the country’s economy grew by record-high of 7.3 percent in 2010, spurred by strong
domestic climate, international trade and a renewed confidence in the government, total final energy
consumption (TFEC) reached 24.5 MTOE, a 4.2 percent increase from the previous year’s level of
23.5 MTOE.
Transport remained as the biggest
energy-consuming sector with 36.8 percent share of
the total final energy demand, followed by industry
with 26.0 percent and residential with 25.0 percent
(Figure 4). All sectors registered higher energy
consumption in 2010 led by the commercial sector,
where energy use grew fastest by 10.4 percent from
2009 to 2010. Industry followed closely with 10.1
percent hike while AFF sector’s energy use increase by 5.2 percent. On the other hand, transport sector
up by a modest 1.5 percent while the demand from the residential sector posted a minimal increase of
0.2 percent.
2. ENERGY SECTOR: STRUCTURES AND STAKEHOLDERS
2.1 Department of Energy
The following are the functions of each bureau presented in the structure of the Department:
2.1.1 Energy Resource Development Bureau formulates and implements government
policies, programs and regulations relating to the exploration, development and production of indigenous
petroleum and coal resources, and related product and market development thereof.
2.1.2 Renewable Energy Management Bureau implement policies, plans, and programs
related to the accelerated development, transformation, utilization, and commercialization of renewable
energy resources and technologies.
2.1.3 Energy Utilization and Management Bureau formulates and implements policies,
plans, programs and regulations on new energy technologies, alternative fuels and the efficient, economical
Figure 4. Total Final Energy Consumption By Sector, 2010
17
transformation, marketing and distribution of conventional and renewable energy resources, and ensures
efficient and judicious utilization of conventional energy resources.
Department of Energy Organizational Structure
18
2.1.4 Oil Industry Administration Bureau formulates and implements policies, plans, programs and
regulations on the downstream oil industry, including the importation, exportation, stockpiling, storage, shipping,
transportation, refining, processing, marketing and distribution of petroleum crude oils, products and
by-products, and monitors developments in the downstream oil industry.
2.1.5 Energy Policy and Planning Bureau
2.1.6 Electric Power Industry Management Bureau supervises the implementation of electric
power industry restructuring to establish a competitive, market-based environment, and encourage private-sector
participation; ensures adequate, efficient and reliable supply of electricity, and formulates plans, programs
and strategies relative to rural electrification.
2.2 Other Related Organizations 2.2.1 Philippine National Oil Company (PNOC) was created on November 9, 1973
through Presidential Decree No. 334, the Philippine National Oil Company (PNOC), to provide and
maintain an adequate and stable supply of oil. Focusing its efforts and resources in learning the ropes
of the petroleum industry, PNOC rose to occupy market leadership in an industry thought to be the
domain of multinationals. Its charter was amended to include energy exploration and development.
2.2.2 National Power Corporation (NPC) is a state-owned company created under
Republic Act No. 6395, as amended by Republic Act No. 9136.
2.2.3 National Electrification Administration (NEA) was given certain powers, duties,
and functions to attain total electrification on an area coverage basis, to set up cooperatives for the
distribution of power, and to determine privately-owned public utilities which should be permitted to
remain in operation.
2.2.4 Power Sector Assets and Liabilities Management Corporation (PSALM)
structures the sale, privatization or disposition of NPC assets and IPP contracts and/or their energy
output based on such terms and conditions that will optimize the value and sale prices of these assets,
liquidates NPC’s stranded contract costs using proceeds from sales and other properties, including
proceeds from the Universal Charge, restructures existing loans of NPC; and collects, administers and
applies the NPC portion of the Universal Charge.
2.2.5 National Transmission Corporation (TransCo) protects national government’s
interests by closely monitoring National Grid Corporation of the Philippines’ (NGCP) compliance
with the terms and conditions of the Concession Agreement, divests remaining sub-transmission assets
to qualified distribution utilities, handles all existing cases including right-of-way and claims which
accrued prior to the turnover date (January 15, 2009), and undertakes operation, maintenance,
19
consultancy and other technical services for the power distribution systems under the Philippine
Economic Zone Authority.
2.2.6 Energy Regulatory Commission (ERC) enforces the rules and regulations governing
the operations of the Wholesale Electricity Spot Market (WESM) and the activities of the WESM
operator and other WESM participants, for the purpose of ensuring greater supply and rational pricing
of electricity.
2.2.7 Wholesale Electricity Spot Market (WESM) is a centralized venue for buyers and
sellers to trade electricity as a commodity where prices are based on actual use (demand) and
availability (supply). The WESM was created by Republic Act 9136, the Electric Power Industry
Reform Act (EPIRA) of 2001. This provided for the establishment of an electricity market that reflects
the actual cost of electricity and lowers its price through more efficient production through
competition.
3. NATIONAL RENEWABLE ENERGY PROGRAM (NREP) - 2011-2030:
3.1 Goals, Objectives and Targets/Roadmap
The NREP seeks to increase the RE-based power capacity of the country to 15,304 MW by the
year 2030, almost triple its 2010 capacity level of 5,438 MW.
To realize the goals of the NREP, the following shall be carried out:
1. Institutionalize a comprehensive approach to address the challenges and gaps that would
prevent and/or delay wider application of RE technologies in a sustainable manner; and
2. Outline the action plans necessary to facilitate and encourage greater private sector investments
in RE development.
On a per technology basis, the NREP intends to:
1. Increase geothermal capacity by 75.0 percent;
2. Increase hydropower capacity by 160 percent;
3. Deliver additional 277MW biomass power capacities;
4. Attain wind power grid parity with the commissioning of 2,345 MW additional capacities;
5. Mainstream an additional 284 MW solar power capacities and pursue the achievement of
the 1,528 MW aspirational target;
6. Develop the first ocean energy facility for the country.
The NREP is initially focused towards the addition of RE-based capacity for power generation. The
program for non-power applications shall be incorporated later.
20
The estimates for the expected capacity additions are based on the RE Service/Operating Contracts
which have been awarded and are being evaluated by the DOE. These are presented by RE sector in Table 2.
The entry of the above-cited RE-based capacities is highly dependent on the successful
implementation of the NREP as well as the policy and incentive mechanisms in the RE Law. Particular
attention shall be given to the timely conduct of grid impact studies required for all facilities connecting to
the grid.
Table 2. Re-Based Capacity Installation Targets, Philippines
Pursuant to Rule 2, Section 8 of the RE Law's Implementing Rules and Regulations (IRR), the
Transmission and Distribution Development Plans of TRANSCO, its concessionaire or successor-in-interest
and the distribution utilities (DUs) shall be reviewed regularly to ensure that the interconnection of the RE
facilities are incorporated as they become ready for commercial delivery.
Arrangements shall be coordinated with relevant DOE units and its attached agencies as well as
TRANSCO or NGCP to trigger actions for intervention, as may be warranted. It must, however, be
emphasized that the aggressive development of RE resources shall be balanced with the need to provide an
adequate, reliable and high quality power. In a sense, while efforts to facilitate RE entry into the grid shall
continue to be intensified, the grid stability shall be ensured as well. Hence, innovative mechanisms to assist the
concerned industry participant, as may be necessary, may be developed as the NREP progresses.
Furthermore, for RE projects in off-grid and Small Power Utilities Group (SPUG) or missionary areas,
proper coordination among concerned DOE units and its attached agencies (i.e., NPC-SPUG, NEA), as well as
the electric cooperatives shall be made. The RE project developers' work programs shall be aligned or
harmonized with the Missionary Electrification Development Plan as well as comply with the relevant
procedures and guidelines for Qualified Third Parties (QTP) or New Power Providers.
The consolidated RE Roadmap shown in Figure 5 summarizes the milestones and capacity additions
envisioned for the respective Sectoral Sub-Programs.
21
Meanwhile, the expected milestones over the period 2011 to 2030 are reflected in Table 3.
Table 3. NREP Milestones
3.2 NREP Development Framework
The NREP presents the overall approach to accelerate the development and utilization of the
RE resources in the country. The framework for its development is shown in Figure 6. The NREP
begins from the individual work programs which are referred to as the sectoral sub-programs for each
Figure 5: Consolidated Renewable Energy Roadmap
22
of the RE resource covered under the RE Law, namely: geothermal, hydro, biomass, wind, solar, and
ocean.
Each sectoral sub-program follows a roadmap which serves as a guide for the achievement of the
market penetration targets of a particular RE resource. It indicates the milestones over the 20-year planning
period, the realization of which depends on the implementation of the following types of activities:
3.2.1 RE Industry Services
This is geared towards facilitating private sector investments in the energy sector. Assistance to the
RE Developers shall start from the registration process up to the implementation of the various stages of their
respective RE Service/Operating Contracts. Close monitoring of the contracts shall be undertaken to ensure
that appropriate interventions within DOE's control, and as authorized by law, are provided in a timely
manner to avoid delays in the implementation of their respective work programs. Aside from technical
assistance, DOE may also provide advisory services in the areas of market development, business matching, as
well as on the various policy and incentive mechanisms under the RE Law to ensure that the RE projects come
on stream as expected.
3.2.2 Resource Development
Efforts towards harnessing the huge RE resource potential of the country shall be improved. Among
others, these may include: (a) resource assessment, either nationwide or in a particular area/location; (b)
conduct of various studies such as those on the market, socio-economic and environmental impact or
pre-feasibility of specific RE projects on its own or in partnership with interested groups/ organizations;
and (c) optimization studies on the development and utilization of RE resources. To expand the market for
RE, studies on its non-power applications, specifically for those of biomass and geothermal energy shall also
be undertaken.
3.2.3 Research, Development and Demonstration (R, D & D)
Applied research and development (R & D) shall be undertaken to determine the viability of adapting
certain RE systems, technologies or processes in the Philippine setting, in areas where there is no or limited
local experience. As may be warranted, demonstration or pilot projects shall be implemented to showcase the
feasibility of the technology or process. For instance, a demonstration project on sea water pumped storage
shall be conceptualized under the Hydro Sector Sub-Program. A demonstration project on Concentrating
Solar Thermal Power technology shall also be pursued. R, D & D activities may be undertaken in
cooperation with R&D institutions and technical centers, both local and foreign, as well as interested
multilateral organizations, NGOs or private sector partners.
23
3.2.4 RE Technology Support
The improvement of the quality, performance and cost of local RE systems towards greater
consumer protection and their competitiveness with conventional systems shall be further pursued. Among
others, these may include: (a) the development of standards for locally manufactured/fabricated equipment
or component such as wind towers, PV inverters, etc.; and (b) the establishment of a registration or
rating program for engineering service providers. Capacity building activities shall also be conducted to
enhance the skills and knowledge of RE stakeholders. DOE shall work closely with partners from the private
Figure 6: Consolidated Renewable Energy Roadmap
24
sector (i.e., local RE manufacturers and engineering service providers), training institutions and the academe
in the development and implementation of the appropriate projects/activities.
The specific projects and activities in each sector shall vary depending on the challenges and gaps facing
the sector as well as the expressed needs of the stakeholder groups being served.
The cross-cutting activities are grouped into the Policy and Program Support Component. This
involves common activities which require a coordinated and integrated approach to implementation.
Policy support mainly involves the continuation of efforts towards the formulation, implementation and
monitoring of the mechanisms, rules and regulations prescribed by the RE Law. Program support, on the
other hand, covers common activities which need to be undertaken to ensure the smooth
implementation of the NREP. Each sectoral sub-program, however, shall also indicate specific areas where
policy and program support may be required.
3.3 Sectoral Sub-Programs
Each sectoral sub-program includes an overview of the sector, the roadmap and the various action
plans which address the specific needs of the said sector. As earlier mentioned, the DOE formulated the initial
draft of each sectoral sub-program based on its knowledge and understanding of the challenges and gaps faced
by the sector. These were then presented to the respective stakeholders for comments and suggestions. The
work program presented is a result of such consultations. The classification of each project or activity may
be adjusted depending on the progress of work (e.g., from Resource Development to R & D and
Demonstration).
3.3.1 Geothermal Energy Sector Sub-Program
Geothermal energy comes from the natural heat of the earth. This heat is stored in rock and water
within the earth and can be extracted by drilling wells at depths shallow enough to be feasible.
The country's geothermal resources are known to be of high quality since the Philippines lies in the
Pacific Ring of Fire. Geothermal wells are scattered all over the country. Recent studies have indicated
that the country has 2,027 MW proven reserves and 2,380 MW potential reserves which remain untapped.
Table 4. Targeted Geothermal Capacity Addition (Mw), By Grid
25
The total installation target of 1,495 MW is expected to be met by 2027, with large portion of it
being commissioned during the period 2016-2020. The distribution of the targeted capacity addition,
by grid, is presented in Table 4. As indicated in the table, the Luzon grid will host the majority,
estimated at 55% of the total capacity addition.
The DOE shall continue to actively promote the use of geothermal resources through the
Open and Competitive Selection Process of awarding Geothermal RE Operating/Service Contract, an
investment promotion campaign in which geothermal sites are offered and bid out to private investors
for their development. Other activity thrusts of Geothermal Sector Sub-program are the full utilization
or optimization of already known fields and the expansion of geothermal uses, to include small-scale
and non-power applications. Resource assessment and exploration in identified, underexplored, and
unexplored geothermal areas (high and low temperature/enthalpy) shall likewise be continued. The
sector’s work program is listed by the type of activity in Table 5.
Table 5. Geothermal Sector Work Program
26
3.3.2 Hydropower Energy Sector Sub-Program
Hydropower is the most dominant source of RE-based capacity in the country today. As of
2010, hydropower accounted for 21% of 16,359 MW total installed capacities in the country.
Philippines has vast hydro resources. Studies indicate that total untapped hydro resource
potential is estimated at 13,097 MW. It is estimated that 85.7% or the equivalent of 11,233 MW of the
hydro resource potential can be developed for large hydro in eighteen (18) sites all over the country.
Other sites, 888 in number, have mini-hydro potential capacities totaling 1,847 MW.
Hydropower Sector envisions an addition of 5,394.1 MW hydropower capacity (Table 6). This
installation target is expected to be met by 2023. Of the total capacity addition, nine (9) projects with a
total capacity of 27.8 MW have already been committed for installation. Six (6) of these projects are
located in Luzon while there are two in the Visayas and one in Mindanao.
Table 6. Targeted Hydropower Capacity Addition (Mw), By Grid
The overall thrust of the Hydro Sector Sub-program is the intensification of efforts to develop
the huge untapped hydro resource potential of the country. The provision of services to the hydro
sector participants shall be sustained over the long-term 2011-2030 to ensure that the targeted hydro
capacity addition is met. The sector's work program, by type of activity, is listed in Table 7.
27
Table 7. Hydropower Sector Work Program
3.3.3 Biomass Energy Sector Sub-Program
Biomass resources refer to natural or processed plants and plant materials, trees, crop residues,
wood and bark residues, and animal manure or any organic or biodegradable matter that can be used in
bioconversion process.
The country generates substantial volumes of waste residues which could be utilized as fuel.
Biomass resources also include biofuels. The Biofuels Law of 2006 mandates the use of two types of
biofuels, namely, biodiesel as blend with diesel fuel and bioethanol with gasoline. These two key liquid
fuels are produced from agricultural crops and other renewable feed stocks. Despite this substantial
potential, biomass utilization in the country is mostly for non-power applications, such as biofuels in
the transport sector, fuelwood in the household and commercial sectors and waste residues in
agro-industries. Biomass power capacity is only 30 MW as of the first semester of 2010.
Biomass Sector envisions an addition of 276.7 MW biomass power capacity (Table 8) to the
grid by the year 2015, based on RE Operating Contracts which have been awarded and pending
applications being evaluated by the DOE. Additional projects are expected to be identified once the
inventory and assessment of the biomass utilization studies have been completed within the year.
28
Table 8. Targeted Biomass Capacity Addition (Mw), By Grid
Table 9. Biomass Sector Work Program
The Biomass Sector Sub-program's activity thrusts are as follows: (i) intensive promotional
campaign to encourage investments in the biomass sector; (ii) effective and efficient delivery of
assistance/advisory services to the biomass sector participants; (iii) assessment of biomass utilization in
the country to identify additional projects; (iv) resource development on new and emerging biomass
technologies; (v) R, D & D of higher biofuel blends (i.e., flexible fuel vehicle technologies). The
sector's work program, by type of activity, is listed in Table 9.
29
3.3.4 Wind Energy Sector Sub-Program
The country is said to have a very good wind resource potential based on the wind resource
analysis and mapping study conducted by the National Renewable Energy Laboratory (NREL). Areas
identified to have high potential for wind energy utilization are Ilocos, Mountain Province, Cuyo Island,
Basco, Batanes, Catanduanes, Tagaytay City, Lubang, Cabra Islands off the Northwestern cost of
Mindoro, western portions of Batangas, Guimaras, Masbate, the northeastern coast of Negros
Occidental, and Palawan.
A 2003 World Wildlife Fund (WWF) study likewise identified potential sites with power density
of at least 500 W/m2 and transmission line cost of not over 25% of levelized cost of combined
generation and transmission costs. The results of the study show that the Philippines total potential is
about 7,412 MW covering 1,038 wind sites.
Wind Energy Sector envisions an addition of 2,345 MW wind power capacity, based on the RE
Service/Operating Contracts which have been awarded and those that are being evaluated by the DOE.
This installation target is expected to be met by 2022.
Table 10. Targeted Wind Capacity Addition (Mw), By Grid
The Wind Energy Sector Sub-Program (WESP) is envisioned to support the following policy
thrusts of the Philippine Energy Plan: (i) ensuring energy security; (ii) pursuing effective
implementation of energy sector reforms; and (iii) implementing social mobilization and cross-sector
monitoring mechanisms. The sub-sector set the following activities (shown in Figure 11) to fulfill its
goals.
30
Table 11. Wind Sector Work Program
3.3.5 Solar Energy Sector Sub-Program
Most of the solar energy applications in the country are found in the rural areas, due in part to
the rural electrification initiative of the national and local government units (LGUs).
Solar energy applications in the rural areas are mostly photovoltaic (PV) stand-alone systems
which range from 20-75 watt-peak (W-p) individual solar home systems to community-based lighting
applications (e.g.. streetlights, village centers, and schools). Technological developments have allowed
telecommunication companies to use PV as back-up power supply in their remote cell sites in urban
areas. Solar energy is most commonly used to supply thermal energy for water heaters.
Based on a study undertaken by the US-National Renewable Energy Laboratory (NREL) using
the Climatological Solar Radiation (CSR) Model, the Philippines has an average daily insulation of 5
kilowatt hour per square meter (kwh/m2).
The Solar Energy Sector aims an aspirational target of additional 1,528 MW of solar power
capacity, representing 3% of the country's 2010 total RE installed capacity of 5,438 MW. In setting this
aspirational target, it has been noted that there are projections that solar energy will provide 5% of the
global electricity consumption by 2030.
31
Table 12. Targeted Solar Capacity Addition (Mw), By Grid
The Solar Energy Sector Sub-Program (SESP) is envisioned to support the following policy
thrusts of the Philippine Energy Plan: (i) ensuring energy security; (ii) pursuing effective
implementation of energy sector reforms; and (iii) implementing social rnobilization and cross-sector
monitoring mechanisms. Below are the scheduled activities and programs with their corresponding
schedule of implementation.
Table 13. Solar Sector Sub-Program Projects & Schedule of Implementation
3.3.6 Ocean Energy Sector Sub-Program
32
While the country is endowed with vast ocean resource potential, there have been very limited
activities in this sector. This is primarily because of the high investment cost for its exploitation.
Considering its limited resources, the government maintains a watchful eye on developments in other
countries which may be applicable in the Philippines but at the same time it has kept itself open to
opportunities for involvement and the development of the ocean energy sector.
A study conducted by the Mindanao State University indicated that the country, being an
archipelago, has a theoretical capacity of 170,000 MW over a 1.000 sq. km ocean resource area.
However the ocean power projects are still in the exploration stage. Therefore, only a minimal 70.5
MW capacity addition is expected. The Ocean Energy Sector envisions the operation of the country's
first ocean energy facility by 2018.
Table 14. Targeted Ocean Capacity Addition (Mw), By Grid
Throughout the planning period, the DOE shall intensify efforts to assist and advise interested
investors in exploration and development of the untapped ocean energy resource potential. The DOE
shall keep a close watch on developments abroad to identify opportunities for technology transfer.
Technology support activities, through capacity building and mentoring of sector participants'
personnel as well as the establishment of standards and best practices, shall be sustained throughout
the planning period (2011-2030). Program support activities, such as technical cooperation with
relevant agencies, e.g., Philippine Navy, Marine Science Institute, shall likewise be continued. The
sector's work program is listed in Table 15.
33
Table 15. Ocean Sector Work Program
6.4 Investment Requirements
The targeted RE based capacity addition of 9,865.3 MW will mainly be financed and
undertaken by the private sector and will entail a total investment of PhP1.2 Trillion (equivalent to
around USD 26 billion). Table 16 presents the breakdown of the requirement by resource.
Of the said amount, an estimated PhP 17.2 billion, have already been committed by the private
sector for the development of 124.6 MW projects in the geothermal, hydropower and biomass energy
sectors. Another PhP 1.15 trillion shal1 be needed for the development of the indicative projects with
an aggregate capacity 9,740.7 MW.
34
Table 16. Investment Requirements For Re Projects By Resource
4. CLEAN DEVELOPMENT MECHANISM (CDM)
4.1. Designated National Authority (DNA)
Pursuant to Executive Order No. 192 dated 10 June 1987, the Department of Environment
and Natural Resources (DENR) acts as the primary government agency responsible for the
conservation, management, development, and proper use of the country’s environment and natural
resources.
As the Designated National Authority (DNA) for Clean Development Mechanism (CDM) in
the Philippines, the DENR, in line with its mandate, supports policies and measures that protect the
climate system against human-induced change, which are appropriate to the specific conditions of the
State, by facilitating and promoting CDM project activities.
35
4.2. CDM Steering Committee
An Undersecretary of the DENR, designated by the DENR Secretary, serves as the Chair of
the CDM Steering Committee, together with a named alternate. The Secretaries of the Department of
Energy and the Department of Science and Technology (DOST) have likewise designated an
Undersecretary and an alternate to represent their respective departments in the Steering Committee.
One representative each from the Philippine Chamber of Commerce and Industry and the Philippine
Network on Climate Change also serve as members in behalf of the private sector and
nongovernmental organizations, respectively.
Figure 7. DNA Organizational Structure
4.3. CDM Updates
As of September 2012, new (61) Letter of Application (LOA) for 4177 CDM project activities
have been signed and issued bringing to a total of 112 LOAs. These comprise 44 large scale waste
management project activity and 68 small scale waste management and energy-related project activities.
36
PART 2: Review Team Report
This part of the report presents the PRLCE Team’s conclusions and recommendations about low carbon energy policies and programs in the Philippines.
37
1. INSTITUTIONAL CONTEXT
1.1 Critique
The Philippines has well-established legal framework and government related institutions in
charge of promoting and in introducing renewable energy (RE). Specifically, the legal framework for
promoting RE is supplied by the “Renewable Energy Act” (RE Act) of 2008.
By virtue of the RE Act of 2008, the Renewable Energy Management Bureau in the
Department of Energy (DOE-REMB) was created to be the dedicated unit for RE promotion and
development in the Philippines. Relevant governmental offices are involved in the promotion of RE,
including the attached agencies of DOE, namely, National Power Corporation (NPC), a state-owned
company, and National Electrification Administration (NEA) among others. Relatedly, the Energy
Policy and Planning Bureau of DOE (DOE-EPPB) plays a pivotal role in coordinating policies of
DOE-REMB and relevant governmental offices mentioned above.
The Energy Regulatory Commission (ERC) enforces the rules and regulations governing the
operations and activities of the Wholesale Electricity Spot Market (WESM) in order to ensure supply
expansion and rational pricing of electricity
The National Renewable Energy Board (NREB)2 is also created by virtue of RE Act of 2008
and dedicated to advisory and monitoring function. NREB involves not only governmental but also
private stakeholders, thus making itself as an independent and neutral body within the Government.
(further discussion can be found on “Regulation and Infrastructure” part)
It is also noteworthy that RE industries in the Philippines are well-organized for representing
their stakes, especially in policy making.
Under these circumstances, incentives for RE development, such as Feed-in Tariff (FIT), tax
incentives and government bank loans, have already been established. Meanwhile, formulation of the
Renewables Portfolio Standard (RPS) is ongoing which will be introduced soon.
1.2 Recommendations
Recommendation 1
Regulatory procedures for RE development should be less time-consuming.
While introduction and development of RE inevitably entails various permission or
authorization by the central and local governments, such regulatory procedures are not streamlined and
therefore very time-consuming. Hence, in order not to discourage RE developers, the government
2 Philippine Department of Energy website (http://www.doe.gov.ph/ER/Renenergy.htm
38
should review its regulatory procedures to shorten the time usually spent in processing the documents
required from RE developers.
Recommendation 2
It may be worthwhile to reinforce the policy formulation function of REMB for RE, in collaboration with EPPB
which is the policy formulation group of the DOE, to increase feedback from policy implementation to policy formulation
at the implementation of RE development proceeds.
As REMB is a relatively new bureau within the DOE, EPPB is assisting REMB in policy
formation. Not in far future, REMB is expected to be a full-fledged bureau in the Department and
become responsible for all aspects of RE policy.
Recommendation 3
It may also be worthwhile to reconsider the composition of NREB to make governmental and private members in
equal number, thus giving the independent chairperson a casting vote, which will give more voice to the private sector and
enhance the neutrality of NREB.
The Government occupies 8 seats within the 15 members of NREB and always secures the
majority of the Board. The remaining 7 slots seats were occupied by members from the private sector
including the chairperson. Even with the consent of the chairperson, the private sector cannot
overcome the opposition of the Government in a possible situation where the interests of the
Government and the private sector are contradictory. Therefore, it may be advantageous to consider
making the governmental and private members in equal number at the composition of NREB to give
the independent chairperson a casting vote. The change in the composition of the members will likely
enhance the independence and neutrality of NREB.
2. RENEWABLE ENERGY GOALS, TARGETS AND STRATEGY
2.1. Critique
2.1.1 Goals and Targets
Transformational goals in energy security, sustainability and socio-economic development have
been established via the RE Act of 2008 (Republic Act 9513) and the Biofuels Act of 2006 (Republic
Act 9367). The Electric Power Industry Reform (EPIRA) Act of 2001 (Republic Act No. 9136) has
assisted in the provision of renewable electricity supply to missionary areas. The Climate Change Act of
2009 (Republic Act 9729) which initiated the establishment of the Climate Change Commission also
provides impetus to the RE agenda in its role in mitigating the causes and effects of climate change.
The goals of the RE Act of 2008 and the Biofuels Act of 2006 are shown in Table 2.1.
39
Table 2.1. Legislative goals of the RE Act of 2008 and the Biofuels Act 2006.
Renewable Energy Act of 2008 Biofuels Act 2006
Accelerate the development of renewable resources.
Develop and utilize indigenous renewable and sustainably-sourced clean energy sources to reduce dependence on imported oil.
Provide fiscal and other incentives for the efficient and cost-effective commercial development of RE systems.
Mitigate toxic and greenhouse gas emissions.
Support economic growth and development with energy generation systems that minimize impacts on health and the environment.
Increase rural employment and income
Establish the infrastructure to facilitate the previous goals.
Ensure the availability of alternative and renewable clean energy without any detriment to the natural ecosystem, biodiversity and food reserves of the country.
In order to achieve effective implementation, goals need to have a balanced cross-sector focus.
The goals outlined in Table 2.1 emphasize accelerated implementation with infrastructure support in
association with mitigating environmental effects and improving socio-economic conditions. This
broad focus provides a robust platform on which to develop credible strategies.
Effective implementation plans are critical to achieving legislative goals. The goals expressed in
the legislation are well supported by the Philippine Energy Plan 2012-2030 (PEP 2012-2030); the
National Renewable Energy Plans and Program (NREP) 2011-2030; the National Biofuels Program
(NBP); the National Energy Efficiency and Conservation Program (NEECP); the 2012-2016
Missionary Electrification Development Plan (MEDP), the Clean Development Mechanism (CDM)
and other sector specific plans. The goals for the PEP 2012-2030; the NREP 2011-2030; and the
NEECP are shown in Table 2.2.
Table 2.2 Planning goals of the PEP, the NEECP, the NREP and MEDP.
Philippines Energy Plan National Energy Efficiency and
Conservation Program
Ensure energy security
Reduce the impact of the increase in prices of petroleum products and electricity through the implementation of energy efficiency and conservation measures.
40
Pursue effective implementation of energy sector reforms
Promote cost avoidance/savings for fuel and electricity without sacrificing productivity.
Implement social mobilization and cross-sector monitoring mechanisms.
Help protect the environment.
Generate cumulative energy savings for the planning period 2007–14 of 9.08 million bfoe, which equates to a deferred megawatt capacity of 211 MW and greenhouse gas (GHG) emissions of 2917 kt (Gg) of CO2 by 2030.
National Renewable Energy Plans and Program
Missionary Electrification Development Plan
Institutionalize a comprehensive approach to accelerate the applications of RE technologies in a sustainable manner.
Ensure the quality, reliability, security, and affordability of the supply of electric power.
Implement action plans to encourage investment.
Minimize of nationwide Universal Charge for Missionary Electrification
Develop a sustainable energy system Improve supply reliability.
2.1.2 Strategies
The plans contain comprehensive strategies as a means to achieve the ambitious goals. The
PEP contains 16 strategies relevant to RE, the NREP contains three strategies and the NEECP
contains four strategies as shown in Table 2.3. These strategies together address issues concerning
infrastructure provision, governance, information dissemination, administration and the financial
climate.
Table 2.3. Strategies of the PEP, the NEECP, and the NREP.
Philippine Energy Plan National Renewable Energy Plans and
Program
Accelerate the exploration and development of oil, gas and coal resources
Policy and Program support is to be provided by a “One Stop Shop”.
Intensify development and utilization of renewable and environment-friendly alternative energy resources/technologies
Information services will provide key resource, price and market information to enable developers to assess project viability.
Establish cross-sector monitoring mechanism in cooperation with other national government agencies, academe, local government units, non-government organizations and other local and international organizations.
A Monitoring and Evaluation Unit will monitor progress on achieving the goals of the RE Act and the NREP.
41
Attain nationwide electrification
Put in place long-term reliable power supply National Energy Efficiency and Conservation Program
Improve transmission and distribution systems
Information, education and communication campaigns.
Secure vital energy infrastructure and facilities
Voluntary agreements.
Maintain a competitive energy investment climate
Energy labelling and efficiency standards for household appliances.
Pursue effective implementation of energy sector reforms
The Energy Management Program.
Monitor the implementation of, and if necessary, recommend amendments to existing energy laws
Promote an efficient, competitive, transparent and reliable energy sector
Advocate the passage of new and necessary laws
Implement social mobilization and cross-sector monitoring mechanisms
Expand reach through Information, Education and Communication
Enhance energy efficiency and conservation
Promote good governance
The NREP 2011-2030 specifies an increased renewable generation of 181% by 2030. Other
examples of the ambitious targets are the Household Electrification Program that targets 90% of
households being electrified by 2017 and the National Biofuel Program that targets 20% blends of
both bioethanol and biodiesel in 2030 with E85 also available by 2030.
Key elements in achieving the targets are the development of human resource capability;
availability of finance, accurate and readily available resource assessment information, efficient and
transparent allocation of resource development rights, comprehensive information dissemination, and
robust monitoring. The establishment of the NREB and the National Biofuels Board are important
vehicles to mobilize expertise for the purpose of facilitating the implementation and monitoring of the
plans. The CDM of the United Nations Framework Convention on Climate Change (UNFCCC) which
is administered by the Department for the Environment and Natural Resources (DENR) is also a key
element in promoting low carbon technologies by, inter alia, facilitating and promoting sustainable use
of natural resources and alleviating poverty. As of June 2012 58 CDM projects had been registered
resulting in emission reductions of 2.3 Mt-CO2eq/y.
42
2.2. Recommendations
Recommendation 4
The NREP; the National Biofuels Program; the NEECP and other energy related plans and programs should be
harmonized and the updated copies be posted in a single website location. The plans should each quote the aims of the
relevant legislation that they are seeking to fulfill.
Developers will be assisted by a consolidated website location where they can understand the
full landscape of government policy.
Recommendation 5
Implement a review in processing of documents to reduce the costs to developers in obtaining consents, permits and
licenses.
Currently over 40 formal permissions may be required before construction of a renewable
resource based project can commence. These include statutory consents and other permits from
government departments, barangays, sitios, local residents’ councils, and financial institutions. Actions
to reduce the number of permissions and substantially reduce the timeframe to obtain consents could
include legislative reform, improved process facilitation (One Stop Shop), and increased DOE staff
resourcing.
Recommendation 6
Implement broad scope multi-regional techno-economic modeling of the Philippines energy and agricultural economies
to provide more certainty on future targets and investment strategies.
The setting of effective RE targets requires a sound platform of scientific information from
which the potential of RE generation can be estimated. The existing modeling work will be enhanced
with a structured plan to extend the scope of models of primary energy resource and land use. For
instance a model of the potential use of energy resources should include competing sectors in
electricity generation, alternative fuels production, and industrial processing. Model outputs should
include long term electricity prices, biofuel prices, vehicle fleet profiles and environmental and health
related externalities at a multi-regional level. A range of scenarios can then be developed and
progressively modified as further information on resource use becomes available.
Recommendation 7
Set and monitor the penetration of national RE goals into barangay3 plans and where relevant sitio4 plans.
3 Barangay - a village, district or ward, the smallest political subdivision in the Philippines. 4 Sitio – a territorial enclave that forms part of a barangay
43
The level of regional and local government awareness of central government low-carbon
energy policy will be an important factor in establishing vision for a sustainable low-carbon future at a
local level. This recommendation is a prerequisite for rapid and low-conflict development of resources.
Recommendation 8
Provide more technical standards along with an Information Education and Communication campaign to enhance
adoption of sustainable technologies.
The provision of technical standards will provide a base of sound technical guidance to those
entering the renewables sector and thereby enhance human resource capability.
3. REGULATION AND INFRASTRUCTURE 3.1 Critique 3.1.1 Regulation
As previously mentioned, the RE Act of 2008 which was signed into law last December 16,
2008, affirms the government’s commitment to accelerate the exploration and development of RE
resources. It also mandates the development of a “strategic program” to increase RE usage. Further to
its benefits, the RE Act will try to address possible bureaucratic constraints in developing RE by
streamlining the registration process and promoting transparency and open competition. Future policy
requirements to commercialize RE, such as the formulation of a feed in tariff (FIT) and bidding for its
allocation, are submitted to ERC and were approved with revisions.
While the DOE as mandated by the Law,
led the formulation of RE plans and programs in
consultation with its stakeholders, the NREB serves
as its guiding arm when deemed necessary. As discussed earlier, the NREB is composed of
representatives from the energy sector as well as its stakeholders. The Board served as an advisory
body and has no corporate powers. Generally, its main function is to review, evaluate and recommend
DOE the mandated RPS and minimum RE generation capacities in off-grid areas as deemed
appropriate. Specifically, the NREB also 1) Recommends tariff level for Fit; 2) Recommends and
implements the NREP and 3) Enforces and supervises the “Renewable Energy Trust Fund” (for
application in research and development of renewable energy).6
The enactment of Republic Act No. 9136, otherwise known as the EPIRA of 2001 abolished
the then Energy Regulatory Board (ERB) and created in its place the Energy Regulatory Commission
(ERC) which is a purely independent regulatory body performing the combined quasi-judicial,
6 http://www.doe.gov.ph/nrep/index.asp;
44
quasi-legislative and administrative functions in the electric industry. In addition, since the Philippine
oil industry was fully deregulated, ERB’s focus of responsibility centered on the electric industry.
Worth noting also was the Act specifies preferential treatment on RE projects. In addition, in
collaboration with NREB, ERC will review the tariffs based on NREB’s report on the state of RE
development and the impact of FIT (full discussion will be found on the “Power Supply System-Smart Grid, FIT,
Private Participation” part of the report).
While DOE has accomplished majority of its goals since the passage of RE Act of 2008, the
Review Team found some room for further improvement. The tedious process of permitting and
processing of necessary documents were one of the biggest challenges hampering the implementation
of RE projects. While this constraint could not be a technical matter, most RE developers’ projects
however, were experiencing a lot of delays in view of this issue.
3.1.2 Infrastructure
Due to its geographical structure, the economy has a
complex energy system. Major power grids are separated
according to its three major islands, Luzon, Visayas and
Mindanao. In the Luzon grid, more than half of its capacity is
coal-fired; Visayas is home to the economy’s vast geothermal
resources; while more than 50% of the Mindanao grid’s energy
requirement is sourced from hydro. To fully connect the entire
economy to the national grid is a natural hurdle, adding to the
fact that the most remote and disperse and more difficult to
electrify rural areas require intensive resources, time and efforts.
Hence smaller islands are interconnected to the major island
grids to provide service to remote areas. Where it is not
economical to connect a small island to a major grid, separate local systems are being established
around small generating plants.
The government through DOE and other private and government agencies spearheads the
development of various innovative service delivery mechanisms towards achieving greater access to
electricity services. One of its efforts is the “Expanded Rural Electrification Program” (ER Program)
which aims to at least provide the marginalized and other off-grid areas some access to electricity,
through decentralize energy system such as battery charging stations (BCS) or individual Solar Home
System, micro-hydro systems and wind turbine energy systems.
PEP 2012-2030 presentation by Dir. JT Tamang during the PRLCE in the Philippines (19-23 November 2012)
45
The National Electrification Administration
(NEA), an attached agency of the DOE, is the
economy’s prime mover in rural electrification and
the DOE’s arm in the implementation of the
decentralized energy systems. As part of its initiatives
for RE program, NEA implements the Barangay
Line Enhancement (BLEP) which consists of
re-energization of previously energy barangays
through off-grid technologies (such as solar home
system and stand alone genset) currently supervises 96 electric cooperatives by providing quality
financial, institutional and technical services to franchise areas not covered by the Manila Electric
Company, the economy’s biggest privately-owned utility. NEA faced a lot of challenges in
implementing BLEP and as mentioned earlier, in view of the economy’s geographical system,
implementation of BLEP encounters delay and adversities in view of the economy’s cross and difficult
terrain.
The restructuring of the energy sector calls for the separation of the different components of
the power sector namely, generation, transmission, distribution and supply.
The NPC remains as an economy-wide government-owned and controlled corporation which
performs the missionary7 electrification function through the Small Power Utilities Group (SPUG).
SPUG is responsible for providing power generation and its associated power delivery systems in areas
not connected to the transmission system. NPC assists DOE in the preparation of MEDP and the
continual assessment of areas for commercial viability as well as in championing RE application in
missionary areas.
Meanwhile, the transmission component
which is now privatized is owned by the National Grid
Corporation of the Philippines (NGCP). The NGCP
likewise has comprehensive plans for the grid
connection for new RE power plants, however mostly are those areas within the grid. While there are
some plans for off-grid areas, the RE developer should take the lead in constructing the transmission
connections. The NGCP has a “wait and see first” policy before a major interconnection is
7 Provision of basic electricity service in Unviable Areas with the ultimate aim of bringing the operations in these
areas to viability levels (RA 9136-IRR, p. 66)
Cross country/difficult terrains
46
undertaken, which means that unless the transmission in a particular area is ready, NGCP will not carry
on with the interconnection to the grid.
The government has also comprehensive loan packages available for various projects needing
financial assistance from both the private and public financing institutions. The Land Bank of the
Philippines (LBP) and Development Bank of the Philippines (DBP), both government financing
institutions (GFIs), as well as the Banco de Oro (BDO) a private bank, offer attractive loan packages
for RE-related projects as well as Overseas Development Assistance (ODA) to augment funding
requirement of RE-related projects. Albeit the loan facilities offered by these banks however, project
developers still find difficulty in securing financing due to high riskiness and high upfront cost of RE
projects.
3.2 Recommendations
Recommendation 9
The Team found it necessary for a Ministerial level action which will establish a Ministerial decision (action plans) to
address the issue on tedious processing of document which will also consequently achieve the government’s goal of good
governance;(this recommendation is on top of the recommendation given in “Goals and Strategies” part which generally
aimed at reducing cost incurred by RE developers in processing the required documents)
During the peer review, RE developers cited the challenges they are facing which were mostly
on the tedious processing of document and other permitting requirement. Hence, should there be
Ministerial talks and action plans among the agencies involved; they could come up with effective
solutions to this issue.
Recommendation 10
In addition to the issue on the tedious processing of document, it is recommended to develop a database of
requirements, (e.g. Checklist, best practices, etc,) where the entire relevant government agency as well as RE developers can
look for reference to avoid duplication of requirement and hence, facilitate processing;
Consequently with the action plans for the processing of document, it would be best to
maintain a data base of the entire requirement, that will counter check for requirement duplication as
well as gives detail on the procedure of processing thus saving processing time.
Recommendation 11
Develop a comprehensive Information Campaign Plan (regulatory and statutory requirements) that would include
those in the local government and the general public;
Unawareness of important information would normally cause conflict. A comprehensive
information campaign plans for both regulatory and statutory bodies would possibly lessen difficulties
47
facing the processing of document once the concerned is knowledgeable on the relevance of the
project.
Recommendation 12
Monitoring and evaluation of project-related activities should continue even after the project has been implemented;
Constant monitoring of a project being implemented even small ones would provide project
developers and investors something to consider for future investment. Recording all the best practices
as well as challenges experienced would somehow provide project implementors groundwork for
future projects.
Recommendation 13
Maximize the application of GFI’s comprehensive loan packages, especially on capacity enhancement;
Given that RE projects have high investment cost, the least a developer could do is to
maximize the facilities offered by financing institutions, especially the capacity enhancement they
would provide for the project developers. In addition, learning from each other by continuous dialogue
and sharing of information between the financing organization and developer would probably mutually
benefit them.
Recommendation 14
Need to review RE Law to give more attention to off-grid RE issues; The DOE, RE developers and NGCP
should continue its coordination and dialogues to address transmission/grid issues;
There would be a need to further review the RE Law and the Implementing Rules Regulations
to give more attention to off-grid issues. Many developers are interested to invest in putting up RE
projects sans the various challenges facing in off grid areas, such as transmission and interconnections.
Given the geographical structure of the economy and with the NGCP’s “wait and see policy”, it will be
difficult to identify whose part of jurisdiction needs to be addressed, the developers or the government.
Hence, it would be best if a constant dialogue will be undertaken to come up with the better solution
to which entity would address the problem, and then specify them accordingly in the rules and
regulations.
4. BIOFUELS AND BIOMASS ENERGY
4.1 Critique
The Philippines’ biofuels feedstock is currently produced from its indigenous resources, such as
but not limited to sugar cane and coconut. As mandated by Biofuels Act of 2006 diesel and gasoline
sold to the public nationwide should be blended with 2% coco methyl ester (CME also known as
48
biodiesel which initially was 1% blend) and 10% ethanol
(initially at 5%), respectively (a.k.a. B2 and E10).
The economy likewise produces substantial volumes
of waste residues or biomass which could be utilized as
fuel both for power generation and non-power (from
bagasse) and biogas production (from waste matter).
However, this substantial potential, biomass utilization in
the economy is mostly for non-power applications, such
as biofuels in the transport sector, fuelwood in the
household and commercial sectors and waste residues in agro-industries. (Figure 4.1) Meanwhile, the
share of biomass to the economy’s power generation mix is very minimal with a total capacity of only
30 MW. Current technologies employed in biomass sources are transesterification 8 (biodiesel),
fermentation/distillation (bioethanol) combustion, combined heat and power (CHP), gasification,
anaerobic digestion (biodigesters) and waste-to-energy conversion (methane capture from landfills)
The economy has also clear goals in
its Biofuels Development Program. It may be
worthy to note that the government trough
DOE has future plans for 2nd and 3rd
generation biofuels technologies which can
improve yield and efficiency. The feedstock
supply and biofuels demand projections were
based on a comprehensive land use
assessment. The economy has plans for
broadening the coverage of the Biofuels
Program and look for other possible
feedstocks such as techno-economic studies on algae as potential biodiesel feedstocks and the use of
cellulosic technologies for the production of bioethanol. The plan also include capability enhancement
on land use, feedstock supply, standards, pricing, infrastructure, investment, incentive, etc.
8 A chemical reaction (transesterification and esterification) which produces biofuel, biodiesel through biofuels
process. This involves vegetable or animal fats and oils being reacted with short-chain alcohols (typically methanol or ethanol.
Biofuels resources
Biomass power plant
Figure 4 .1: Primary Energy Mix, 2010-2011
49
4.2 Recommendations
Recommendation 15
Government biofuels stockpiles should be set in order to prevent shortage;
Clearly, biofuels production depends on bio resources, which are available on a seasonal basis,
hence the economy should have comprehensive feedstocks plans to prevent shortage.
Recommendation 16
More R&D should be undertaken to support the domestic uptake of biofuels;
Comprehensive resource assessment is needed to support effective planning and
implementation of the NBP;
Recommendation 17
Upgrading of the existing biomass power plant (i.e sugar industry) should be supported;
Biomass can be considered as one of the reliable energy sources for electricity generation, thus
the economy could learn more from its existing biomass power plant, hence the government should
support its upgrading.
Recommendation 18
Small and medium size biogas technology for rural areas should be implemented since it can be an alternative
sustainable energy source;
Recommendation 19
Renewable Heat Incentives (RHI) should be introduced support RE as an alternative source of heat, including
cogeneration.
5. GEOTHERMAL, SOLAR AND WIND ENERGY
5.1 Critique
5.1.1 Geothermal
Since 1964, the Philippines has
developed geothermal energy as one of the
major energy sources. The first pilot plant
was installed in 1967. In 2011, the installed
capacity of geothermal generation stood at 1
902.69 MWe and the share of geothermal
generation in the economy’s power
generation mix is at 41%. At present,
geothermal is the largest power source of the economy (Figure 5.1).
Tongonan 1 Geothermal Power Plant, Leyte
50
The NREP 2011-2030 shows the
targets of each RE source of the
Philippines. Specifically, the programme
targeted a 1 495 MW additional
installation of geothermal energy towards
2030.
As mentioned in previous
chapters, the RE Act of 2008 promotes
the development, utilization and
commercialization of RE resources.
Geothermal is the banner resource in the
campaign for the Act. Likewise, the Act provides for the legal, institutional and financial infrastructures
for developing and deploying geothermal energy. Further, under the Act, the government is tasked in
developing the guidelines for Renewable Portfolio Standard, Net Metering, Feed-in Tariff Rates for
geothermal and Renewable Energy Financial Programme.
Meanwhile, most of the potential high enthalpy sites have been developed for power
generation, however there are also potential to develop for low enthalpy geothermal sites.
Non-electricity applications of geothermal energy have a great potential to use low enthalpy
geothermal site and examples of it are district heating, greenhouse temperature control and balneology.
The National Power Corporation (NPC), a state-owned power corporation used to own the MakBan geothermal facilities, however after its privatization the plant is now owned by the Aboitiz Power Corporation. The Makban plant complex in Laguna and Batangas consists of Plants A and B with two 63-MW units each, Plant C with two 55-MW units, Plants D & E with two 20-MW units each, and a binary plant with five 3-MW and one 0.73-MW units
The Resource Assessment of Selected Low Enthalpy Geothermal, a 4-year project, has been conducted
to identify the factors which are needed in the development of low enthalpy geothermal resources for
power generation which will also serve as template for future similar projects. The geo-scientific data
from this assessment will serve as reference for further exploration and development in the future. The
future development of the low enthalpy geothermal offers a variety of non-power uses such as spa and
PRLCE Review Team during its field visit to 458-MW MakBan geothermal facilities in Luzon
Figure 5.1 Power Generation Mix, 200-2011
51
balneology for tourism, crop drying and other agricultural uses, air conditioning and refrigeration for
industrial uses and possibly for power generation.
Technological challenges in the use of low enthalpy geothermal includes low enthalpy systems,
enhanced geothermal systems and acid fluids.
5.1.2 Solar and Wind
In the late 1980’s, Solar PV
systems were introduced for the rural
electrification programme of the
Government of the Philippines. As the
name of the programme indicates, the
early stage of introducing the solar energy
in the Philippines involves the
electrification of rural areas. More than 30
years have passed since the introduction of the solar energy but solar PV still plays an important role to
supply electricity in off grid areas. The first grid connected solar PV firm at 1 MW capacity was
completed in 2008
Even though there were 2 major studies on
potential sites of wind energy (Conducted in 1999
by the National Renewable Energy Laboratory and
in 2003 by the World Wildlife Fund), there are not
so many wind power farms in the economy. The
first Wind farm in Northern Luzon at 33MW
capacity was installed in 2005 (initially at 25MW).
In 2011, the share of solar and wind power
generation is less than 1% of the total power supply
in the Philippines (see Figure 5.1).
Target for additional capacities towards 2030 of Solar and Wind energy in the NREP 2011-2030
are 350MW and 2,345MW, respectively. The RE Act 2008 however, does not mention anything about
solar energy development in the off-grid areas even though small isolated solar PV systems have
historically been installed in rural areas.
In July 2012, the Feed-in -Tariff rates are fixed. The FIT rate of solar is PhP9.68 (USD 24.2c)
and that of wind is PhP8.53 (USD 23.3c). However, the FIT Eligibility Criteria as well as the Guideline
of Renewable Portfolio Standards (RPS) has not been completed while the rules enabling Net Metering
1MW Photovoltaic Power Plant, Barangay Indahag, Cagayan de Oro City
FIRST WIND FARM IN SOUTHEAST ASIA: A 25-MW wind turbine power plant of the Northwind Development Corp. in BarangayBaruyan, Bangui, Ilocos Norte
52
system for RE was endorsed by NREB to ERC and review is currently on-going. Most RE developers
considered FIT rate for Solar low and in addition, there is no incentive for off-grid areas indicated in
RE Act.
As way forward in the development of Solar and Wind energy, the assessment of the potential
sites for solar power is under preparation while the conduct of wind resource assessment (on-shore
and off-shore) for wind power is continuing.
5.2 Recommendations
5.2.1 Geothermal)
Recommendation 20
Enhance the promotion of non-power applications of geothermal energy.
The Philippines has a long history and experience in the development of geothermal energy but
the central role of the geothermal energy in the Philippines is for electricity generation. It is worthy to
explore the potential of geothermal energy to be developed for non-power applications.
Recommendation 21
Develop incentives to encourage the use of low enthalpy geothermal energy in rural areas (e.g. FIT for low enthalpy
geothermal).
Most of the high enthalpy or high temperature sites of the economy have already been
developed. However, there are also low enthalpy geothermal sites potential for infrastructure
development, specifically in rural areas. Introducing incentives for low enthalpy geothermal will be
crucial in accelerating its development.
Recommendation 22
Accelerate the use of low enthalpy geothermal energy in rural areas (e.g. off grid areas) by developing value-added
geothermal facilities which produce both heat and power for industry, commercial and household sector use, especially in
remote areas.
Even though almost all of the possible high enthalpy/temperature geothermal sites in the
Philippines have been developed, the potential for further development of geothermal in the economy
is still high. Especially in rural areas where there is small electricity or heat distribution system or
possibly no electricity at all, there is a high potential to use low enthalpy geothermal energy not only as
a power source but for heating purposes for industries and commercial use as well as households.
5.2.2 Solar and Wind
Recommendation 23
Set the target for the development of solar and wind for off-grid areas and roof-top solar PV, as well as start creating
official statistics for solar and wind;
53
The targets of the additional capacity of solar and wind power generation in the NREP
2011-2030 are 284.05MW and 2,345MW respectively, but the target indicated for solar is only for the
grid connected solar power generation. There is no target set for off-grid solar power generation. In
addition, even in urban areas, there is no available official statistics and target for roof-top solar PV.
The lack of statistical information for solar and wind energy, specifically for off-grid areas should be
addressed as soon as possible.
Recommendation 24
Accelerate the process of finaliing the RPS guideline;
While the RE Act 2008 has set the legislative infrastructure in the deployment of solar and
wind power generation, the RPS will serve as the motivation for accelerating the deployment of solar
and wind energy.
Recommendation 25
The government should increase its efforts in the assessment of potential sites for wind power while assessment of
potential sites for solar energy utilization should be underway;
The Philippines has been conducting assessment of potential sites for wind power however,
similar assessment of potential sites for solar power has yet to start. These assessments will be very
helpful in predicting the possibility of the development of new sites and in further improvement for
existing sites as well to possibly avoid potential risks usually involved in the development
Recommendation 26
Reduce the peak demand in urban areas and improve access to electricity in rural areas by accelerating the
development of roof-top solar PV. (Introduce incentives for accelerating its development.)
It is difficult to see how the roof-top solar has contributed or will contribute to meet the
demand of energy because there is no official statistics of roof-top solar PV. There is potential to
deploy roof-top solar PV both in rural and urban areas, hence incentives for pushing the deployment
of roof-top solar PV are needed.
Recommendation 27
To secure the stable deployment of solar and wind power, accelerate the development of the net metering system, which
can be part of the smart grid programme;
The Philippines is preparing for introducing the net metering system but the rules for
implementing the system has not yet been finalized. The net metering system is vital for the
development of a smart grid system, especially in the development of solar system in urban areas, the
system would be a very important incentive.
54
Recommendation 28
Leading organizations in solar and wind energy development or deployment face several challenges such as the lack of
capable human resources. Securing a sufficient number of staff is critical in achieving targets for 2030.
The development plans for RE are well prepared and the targets set are not so ambitious but
one of the biggest challenges is in securing the human resources, especially in the Government.
6. HYDRO POWER ENERGY
6.1 Critique
The economy has matured experience in
large scale hydropower technology and
hydro is one of the earliest RE sources
developed in the Philippines. Electricity
generation from hydro sources as well as
hydro for non-power applications (e.g
millings) in rural communities have started
in the early 1900s.
As has been discussed in previous
chapters, the economy has detailed plans for
RE development which includes plans for the development of hydro power. Its targets and programs
were indicated in the economy’s NREP 2010-2030, specifically in the Hydropower Roadmap
2011-2030.
Power generation mix indicated that hydropower is the economy’s 4th largest electricity resource in
2011 (See Figure 5.1). One of the economy’s
major islands, the Mindanao is the major
source of hydropower in the Philippines,
however as discussed in Infrastructure chapter,
the island is not connected to any of the
economy’s major islands.
However, it is worthy to note that
hydropower resources of the economy has
the biggest number of projects awarded and
potential capacity assessed at the
implementation of RE Act. From the 288
Ambuklao and Binga Hydropower Plant Project
PRLCE Review team during the field visit to 188 kW Villa Escudero Hydro Plant (San Pablo, Quezon Province)
The 188 KW mini-hydro (75 KW, 38 KW and 75 KW units) is a run-off river type which provides Villa Escuderoresort’s own electricity requirement and its plantation.
55
service contracts awarded (Grid use only) 160 are for hydropower with a total potential capacity of 2
588 MW. (Table 6.1) and there are about 123 hydropower project applications still pending awarding of
contract.
Table 6.1 Service Contracts awarded as of October 2012
Resource No. of projects Potential capacity (MW)
Hydropower 160 2588.06
Ocean energy 3 5.00
Geothermal 33 785.00
Wind 38 1569.00
Solar 27 387.715
Biomass 27 186.30
total 288 5521.075
Source : Mr. R. Sargento’s presentation during PRLCE (19-23 November 2012)
6.2 Recommendations
Recommendation 29
Promotion of multi-scale hydro power supply system’s especially in the remote areas;
Hydropower is a mature technology in Philippines and the economy has a lot of experience in
hydropower projects. Government should promote the small hydro power project especially in the
remote areas, which could help decrease the substation and transmission losses.
Recommendation 30
Detailed assessment and publication of water resource distribution;
For the environmental protection consideration, the government should make a detailed
guideline or code to assess the environment impact before building new hydropower project. Water
resource distribution is a vital guide for consultants to develop new projects, hence the government or
the economy’s research institute should make a map for the distribution of water resource in
Philippines.
Recommendation 31
Increase technological research on small hydro power systems;
While mature technology for the large scale hydropower projects already exists, for the small
one, the Philippines should make further research on the feasibility of the technology, the economic
potential as well as its application for both power and non-power.
56
Recommendation 32
Accelerate the process of contract approval through better coordination among relevant agencies and institutions;
In addition to previous recommendation regarding the tedious processing of document, it is
worthy to consider strengthen coordination among relevant agencies and institutions to accelerate
processing hence, increasing the promotion of hydropower projects and in achieving the RE targets.
Recommendation 33
Increase training of technical personnel.
Professional consultants especially on hydropower projects are very limited in the Philippines.
The research institutes of the economy could assist increasing human capability by holding regular
training. This could also serve as a venue to promote hydropower projects especially in the remote
areas and smaller hydropower capacities.
7. POWER SUPPLY SYSTEM: FIT, SMART GRID AND PRIVATE PARTICIPATION
7.1 Critique
A global demand for energy for both oil and gas, looks set to rise for at least the next decade,
even if there is an ambitious agreement tackling the causes of global climate change in the international
negotiations in Copenhagen. The growing populations and economies of developing economies are the
main cause of this increase. More people will want to drive cars, and there will be increased demand for
electricity for both household and industrial use.
There is growing interest in RE around the world. Since most renewable sources are
intermittent in nature, it is a challenging task to integrate RE resources into the power grid
infrastructure. In this grid integration, communication systems are crucial technologies, which enable
the accommodation of distributed RE generation and play an extremely important role in monitoring,
operating, and protecting both RE generators and power systems.
The system of power supply is one of the main mechanisms in accordance towards national
energy security. There are many kinds of support programmes promoting electricity
supply from renewable sources, with various names, all over the world. A feed-in tariff (FiT),
standard offer contract advanced renewable tariff or RE payments is a policy mechanism designed to
accelerate investment in RE technologies. It achieves this by offering long-term contracts to RE
producers, typically based on the cost of generation of each technology.
Besides, the instrumentation controls devices is part of the tools to ensure operation of
monitoring in a way to provide power to all steady, transient and emergency modes of operation. In
57
addition, to ensure normal operation, limits and conditions of safe operation, equipment availability
and optimisation of working parameters.
The Philippines ERC has approved the economy’s FiT for RE. The ERC accepted the NREB’s
methodology in calculating its proposed FiT, which takes into account the construction and
operational costs of each RE technologies, the generation output or capacity factors of the RE power
plants and a reasonable return on investment for plant developers.
In 2011, DOE approved a 760 MW installation target for RE projects that will qualify for FiT;
250 MW each for hydro and biomass, 200 MW for wind power, 50 MW for solar energy and 10 MW
for ocean technology. Table 7.1 shows the ERC approved FiT that will apply to RE power generation
projects. However, the ERC deferred the FiT for ocean thermal projects for further study and data
gathering. In addition, the hydropower reservoir and geothermal supplies were not subjected to the
FIT due to market competitiveness. The duration of the tariff is 20 years.
Table 7.1 ERC approved Feed-in-Tariff Rates (P/kWh)
RE Source Feed-in Tariff Rates
Solar P 9.68 (USD 0.242)*
Wind P 8.53 (USD 0.213)
Biomass P 6.63 (USD 0.166)
Run-of-the-river Hydropower P 5.90 (USD 0.147)
Source: Dir. M. Marasigan’s presentation during PRLCE in the Philippines (19-23 November2012)
*at P40/USD
An ambitious plan for power generation mix (50-50 by 2030); The Philippines is blessed with vast
renewable sources of energy, viz. geothermal, mini-hydro, biomass, solar and wind. The potential RE
from geothermal is enormous as Philippines is located on the Pacific Ring of fire. The potential of
mini-hydro projects especially the run-of-the-river type is also huge, as the energy available from the
streams of rivers in the economy has been proven to provide considerable contribution to the supply
of electricity in the rural areas.
Biomass, solar and wind energy is another type of RE resource that is abundant and readily
available. The NREP has been formulated to ensure energy security by targeting 50% of national
power supply from RE generation by 2030. The focus of the government policies is to supplement the
total energy mix by increasing the contribution of RE thereby reducing the economy’s dependence on
depletable fossil fuel. Over-dependence on certain fuel types is not a viable long-term option.
58
The Philippines’ RE Policy is comprised of three main RE promotion framework for a better
fuel mix to ensure sustainability, technological innovations through R&D and energy Efficiency &
Conservation initiatives. These promotion frameworks are believed could stimulate the RE
development towards 50:50 energy mix.
Electricity demand in the Philippines is increasing at the rate of 9% per annum9. This is the
result of an increased rate of industrialization, urbanization and agricultural activities and through these
the economy is also expected to face energy and peaking shortages. These shortages can be
supplemented by RE sources. The economy has supportive policy to ensure the quality, reliability,
security, and affordability of the improvement of supply reliability
As stated previously, NREB is formed as an advisory body and has no corporate powers under
the RE Act of 2008, however, NREB is a good forum to link regulators, policy makers, FIs, industry
players and other beneficiaries
On top of top of electrification programme and unbundling of the power sector, the economy
has a plan for introduction of `smart grid' technology. If the plan are successfully implemented it will
increase the operational as well technological efficiency of the power distribution network to meet the
growing energy demand of Philippines in line with its fast growing GDP.
7.2 Recommendations
7.2.1 Feed-in-Tariff
Recommendation 34
Develop FiT for sub-categories of RE technologies depending on technology maturity, regional application and
socio-economic conditions (e.g. solar PV for household, solar farm, commercial rooftop utilisation, etc.);
Solar PV project is a simpler technology which can be applied for all types of economy. It
initially started as a stand-alone generation system applicable mostly to islands and remote places where
access to national power grid would be too costly to provide. However, photovoltaic solutions are now
being integrated rapidly with national power transmission network. Against the backdrop, a
grid-connected photovoltaic inverter which ensures stable conversion of DC power for AC power
transmission network and minimizes potential impact on national power grid are in great demand.
It is also a challenge in developing huge capacity of solar power plant known as solar farm.
There could be difficulty in getting the suitable project site or may be bound by land price issues. In
addition, interconnection issues may occur if the site is not located within the power connection points.
Inefficient power supply would happen due to longer transmission line and will most likely make the
9 http://wn.com/philippinesenergy;
59
project financially unviable due to high investment cost for interconnection and which would also
diminish the revenue of sold generated power to utilities.
It may be worthwhile to have a simple programme which the public could participate in by
utilizing their residential roof top as a project site. This could indirectly resolve the land matters for
solar PV system beside interconnection issues. This program will also ensure more Filipinos will
benefit directly from the RE Trust Fund and avoiding monopoly from big power producers. The
program will also provide significant impact in terms of raising public awareness in the need for clean
energy generation in the Philippines.
The category under the solar PV can be classified into four classes which will differentiate FiT
rate.1) Individual with below 4kWp capacity, the tariff for this category will get the highest FiT rate to
encourage more middle income house owner to participate in the program. This is the only RE
technology that allows households and small consumers to produce and sell their own electricity,
thereby achieving energy security and spurring entrepreneurship among consumers. 2) Individual with
above 4kWp up to and including 12kWp, the target applicants are household owners with huge roof top
area like a bungalow. The tariff should be lesser than the first one.
Two others categories may be introduced under the solar PV, which can be classified as
non-individual, such as; below 500kWp and above 500kWp up to and including 5MWp. The potential areas
that can be utilized are roof tops of the factory or warehouse. For bigger system, a common solar farm
requirement is applied. The tariffs are different between these categories which will be determined by
the CAPEX and OPEX of the projects, respectively.
Such programs have been implemented throughout the world such as in Japan (Japan Sunshine
Rooftop Programme), Germany (German Rooftop Programme) and other countries in Europe. In
addition, this program can enhance business opportunities to local service providers in the field of
solar PV.
Recommendation 35
Introduce additional incentives based on technology selection and local content;
Proven technologies: Enhancing energy performance and sustaining the energy generation can be
one of the key criteria in securing the energy supply. A right technology selection may give value added
in solving the economy’s problems e.g. using indigenous sources like municipal solid waste (MSW) as
fuel; not only generating electricity but a solution to dispose the waste. In the case of solar project, by
using the system as part of their building structure or materials may encourage the specific small
developer (homeowners) to participate in contributing MW power and it not just rely on the big system
such as solar farm which inquire a huge land area and a huge cost of investment.
60
Local content: This is to encourage the local expert e.g. scientists, industry players, financiers and
relevant beneficiaries to take part in sharing their knowledge and grasp the opportunities to make a
dynamic local economy growth. More job creation means reducing unemployment and government
liability of social issues. A stimulus programmes in universities on R&D might help their invented or
innovated technologies for commercialization.
7.2.2 Smart Grid
Recommendation 36
Accelerate implementation of smart grid beyond the solar sector;
Smart grid envisages providing choices to each and every customer by deciding the timing and
amount of power consumption based upon the price of the power at a particular moment of time.
Apart from providing choices to the consumer and motivating them to participate in the operations of
the grid, it is energy efficient and accommodating all generation and storage options. Smart grid also
envisages various properties for the grid like self-healing and adaptive. The suite of Smart Grid
products and technologies help in maximizing system uptime, while also helping the utility to restore
power to homes and businesses more quickly in the event of an outage.
Smart grid is sophisticated, digitally enhanced power systems where the use of modern
communications and control technologies allows much greater robustness, efficiency and flexibility
than today's power systems. A smart grid impacts all the components of a power system especially the
distribution level. One subset of smart grids is smart metering / advanced metering infrastructure
(AMI) etc. In a smart grid, all the various nodes need to be interconnected to share data as and where
needed.
Recommendation 37
Detailed planning of transmission line installation based on associated RE resource assessment
Production of energy in centralized power plants and transmitted via transmission lines to the
customers most likely incur high power losses. Distributed generation (DG) especially RE resources
and energy storage systems through distributed system are very cost saving and sometimes inevitable.
If these small DGs will be connected to power system and participate in energy market directly, both
the distribution and energy market would have many problems with control such a high amount of
information and small supplies of DGs.
There are two kinds of energy generation and distribution systems, centralized and
decentralized. The concept of a centralized system is harnessing energy at a centralized centre and then
redistributing the same to the surrounding wider area. Power transmission losses, high investment on
61
laying transmission lines and repair and maintenance are some of the challenges of the centralized
power generating systems.
Decentralized energy systems emerge from small-scale systems catering to the needs of small
groups of people. This is especially applicable in remote rural areas where the cost of conventional
energy systems would be higher and difficult to supply. Nonconventional solar, wind and biomass
energy can be harnessed locally and distributed through both centralized and decentralized systems.
7.2.3 Private Participation
Recommendation 38
Awareness programme to local government and public (not limited to government initiative also require participation
from NGOs and private sectors).
In multi-sector relations, the private sector plays importance roles in further promoting
effective RE measures. Bilateral contact with government and consumers which has significant
potential in improving RE development should also be maximized. There is also potential in using the
private sector’s multilateral and bilateral activity to increase development and deployment of
technologies using alternative energy sources. This will help in reducing future demand pressure on
global technologies supplies thereby reducing technology prices and consequently leads to public
acceptance.
Recommendation 39
Formulate a ‘win-win” approach to encourage more private sector investments and participation in RE development.
Financial is one of the most common barriers in developing RE project, hence private sector
participation can be enhanced through financing incentives e.g. RE Technology Financing Scheme
whereby the industry players will benefit from 2% interest rate absorption that will be covered by the
government and 60% government guarantee to minimize the investor risk.
Recommendation 40
There is also a need to intensify human capital development in RE industry to serve the RE industry needs via
comprehensive training courses.
This is to ensure that RE installations in Philippines is done by trained and competent workers.
To address the issue, a RE Training Institute should be formed to provide a specific knowledge,
installation procedures and standard compliance knowhow.
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8. GREENHOUSE GAS MANAGEMENT
8.1. Critique
The mitigation of greenhouse gas (GHG) emissions is one of the critical issues in seeking
sustainable economic growth and so is the Philippines. The great concern with the global warming by
the Philippines is apparent from the recently enacted laws which aim to promote RE and the
ratification of the Kyoto Protocol in 2003. The Philippines enacted the Biofuels Act of 2006, the RE
Act in 2008 and Climate Change Act of 2009. These acts accords with “Develop a Sustainable Energy
System” framework stipulated in the Energy Reform Agenda (ERA) of the government (Figure 8.1).
The importance of the
Biofuels Act of 2006 and RE Act of
2008 for the GHG management is
realized in view of the transport sector
and the total energy sector’s
contribution to the economy’s GHG
emissions of 32% and 36% respectively,
in 2010. This excludes GHG emissions
from land use change and agriculture
and forestry.
The Biofuels Act of 2006
mandates the use of biodiesel and bioethanol blend gasoline (i.e., gasohol) for all vehicles. The blend
policy of B2 and E10 has presently been implemented in the economy and furthermore, it targets to
increase the present blend rates of B2 and E10 to B20 and E20/E85 by 2030, although E85 is not
considered as a mandate so far. Under the biofuels policy, only locally produced bioethanol is utilized
for gasoline blends unless there are some shortage of the local supply of bioethanol. Therefore, given
the expected future economic growth of the Philippines (i.e., 4-6%) and a higher blend target, the
demand for bioethanol will be predicted to increase more than the economic growth rate. Given these
mere facts, the land use for feedstock supply and the energy consumption of bioethanol production are
the two critical factors for the life cycle GHG emissions, that is, overall GHG emissions resulted from
the production and through the consumption of biofuels.
Consequently, it is essential to increase the energy efficiency in producing bioethanol as well as
to improve agricultural technology to induce a higher productivity of feedstock through the
environmentally sound use of the existing and in expanding cultivated land.
Figure 8.1 Energy Reform Agenda (SRA)
Source: Presentation of Dir. M. Marasigan during the PRLCE in the Philippines (19-23 November 2013)
63
The NREP under the RE Act of 2008 plans to install the additional RE capacity of 9 950MW
for the period 2011-2030 to reach the capacity level of 15 319 MW by 2030, about triple to the current
level of 5 369.0MW (see Figure 8.1).
Although RE significantly reduces the
GHG emissions as the substitute of fossil
fuels, it still generates GHG emissions. The
emission level depends on energy types
thus, the impact of RE on the GHG
emissions reduction depends on how much
power will be supplied by what energy type.
For the GHG emissions management,
predicting GHG emissions from newly
installed capacity needs to rely on the life
cycle GHG emissions of energy types like
the case of bioethanol. The Intergovernmental Panel on Climate Change (IPCC) provides the life cycle
emission factors (i.e., CO2eq/kWh) of solar PV, commercial solar, wind, geothermal, biomass, hydro
and ocean. The emission factors are indicated in the range of the values so that the choice of the value
should be carefully done, that is, based on the prospecting technology of each energy type to be
installed.
Some of RE projects on bioethanol production and RE such as solar, wind, geothermal,
biomass and hydro have been launched by CDM. There are 58 registered CDM projects as of October
2012 and among them, about 80% of the projects are related to RE. Promoting CDM enhances the
faster deployment of RE as well as in earning the potential revenues by Certified Emission Reduction
(CER). CER revenues are used for the socio-economic development programs in the host community;
however, the suitable allocation of CER revenues is important to sustainable development of the
economy as a whole.
Climate Change Act of 2009 takes into account the adaptation and mitigation policies for
climate disasters such as typhoons, flood etc. in the energy sector. The adaptation and mitigation
policies under the Act are considered to be sort of an insurance policy to keep power supply unaffected
by climate change.
A series of landmark laws is necessary for promoting RE which leads to the mitigation of
GHG emissions. Specifically, policies being implemented or to be implemented under the RE Act of
2008, Feed-in Tariff (FIT) and RPS are geared towards this, although RE developers are still waiting
Source: Presentation of Dir. M. Marasigan during the PRLCE in the Philippines (19-23 November 2013)
Figure 8.2 National Renewable Energy Program 2011-2030
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for the first kWh for RE entitled to FIT. As regards, RPS, the shares of each RE type are obliged to
increase by one percent for the next ten years, but the specific implementation of RPS is still obscure.
In related to this point, the laws and policies need to be properly implemented as being planned. The
delay of executing policies would make the GHG emissions more difficult to manage.
8.2. Recommendations
Given the fact that the transport sector and the energy sector together contribute about 70% of
GHG emissions in the Philippines, recommendations are separately given to the transport sector and
the energy sector.
8.2.1 Transport Sector
Recommendation 41
Life cycle GHG emissions should be analyzed by utilizing the actual data to predict more accurate GHG emissions.
The replacement of conventional gasoline by biofuels blended expects to reduce GHG
emissions. However, GHG emissions prior to the final consumption of biofuels, namely, feedstock
cultivation process, bioethanol production process and manufacturing production factors such as
fertilizer etc. would offset GHG emissions reduced by the replacement in vehicles. So, overall GHG
emissions from cradle to grave base should be analysis to grasp more accurate condition of GHG
management.
Recommendation 42
To target a higher blending rate with only locally produced bioethanol, in relation to GHG emissions, (i) relevant
land use patterns such as land expansion should be examined, (ii) R&D for agricultural technology (e.g., more harvest
per ha, less fertilizer application etc.) should be enhanced, and (iii) investment plans and processes should be implemented
as soon as possible.
For better management of GHG emission, additional efforts to reduce the emissions should be
made as long as bioethanol relies on the local production in place. The necessity of increasing
feedstock supply due to the growing expected demand for bioethanol requires the expansion of
cultivated land. GHG emission from land use stems from carbon stock in soil which depends on soil
type, crop type, climate condition and soil management and thus, well-suited land use should be
engaged. The necessity of R&D for agricultural technology arises because technological innovation
leads to the reduction of both land expansion areas and the amount of fertilizer application.
To keep GHG management in the right track under the NREP, it is important to provide the
circumstances in which developers will have proper incentives for RE investment without delay.
65
8.2.2 Energy Sector
Recommendation 43
For additionally installed RE capacity, life cycle GHG emissions factors of each energy type should be used to
estimate the emissions
Like the GHG management of biofuels, it is important to realize the impact of additionally
installed wind, solar, geothermal, hydro and biomass on the GHG emissions. The prediction of GHG
emissions from each energy type should be based on the life cycle emissions to evaluate the net impact
of RE planned to be installed.
Recommendation 44
The optimal management of the revenue earned from CERs should be examined to promote RE or reduce GHG
emissions afterward
Although CERs of CDM projects given to the host economy are dependent upon the
agreement between the host economy and the investors in Annex I countries under the Kyoto
Protocol, there are 43 CDM projects being related to wind, solar, geothermal, hydro and biomass in the
Philippines, which expect to generate about 3.7 million CERs. This would generate a fair amount of
revenue so that the allocation of the revenue should be utilized not only for socio-economic
development but also for advancing the implementation of RE.
Recommendation 45
Accelerate the registration procedures for applications for FIT qualification and also the joint use of FIT and RPS
for RE promotion should be optimized and clarified.
The GHG management is directly linked to the installation of RE capacity. In other words, the
smooth procedures in the RE capacity building are essential to reducing GHG emissions. Nonetheless,
the registration procedures for FIT application are slow to date and developers are waiting for the
entitlement to FIT. This slow procedure may affect the incentives for RE investment.
Meanwhile, RPS will be implemented with the FIT system. FIT and RPS provide the different risks
and incentives for developers. Hence, the policy scheme for the joint use should be optimized for RE
promotion.
lxvi
APPENDIX A: PEER REVIEW TEAM MEMBERS
Mr. Takato OJIMI Peer Review Team Leader, President, Asia Pacific Energy Research Centre, Japan (APERC);
Dr. Kazutomo IRIE, General Manager, Asia Pacific Energy Research Centre, Japan (APERC);
Ms. Elvira Torres-GELINDON, Senior Researcher, Asia Pacific Energy Research Centre, Japan (APERC);
Dr. Li KUISHAN, Green Building Consulting, Research and Development Center East China Architectural Design & Research Institute Co. Ltd, CHINA
Mr. Masaomi KOYAMA, Senior Program Officer for Technology Cooperation, The International Renewable Energy Agency (IRENA)
Dr. Akihiro WATABE, Professor of Economics, Kanagawa University, Yokohama, JAPAN;
Mr. Haniff Bin NGADI, Senior Assistant Engineer, Sustainable Energy Development Authority (SEDA), MALAYSIA;
Dr. Jonathan LEAVER, Associate Professor, Department of Engineering, Unitec Institute of Technology, Auckland, NEW ZEALAND;
Dr. Chatchawan CHAICHANA Faculty of Engineering, Chiang Mai University, THAILAND
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APPENDIX B: ORGANISATIONS AND OFFICIALS CONSULTED
Department of Energy (DOE) Secretary Carlos Jericho L. Petilla Undersecretary Ramon Allan V. Oca Renewable Energy Management Bureau (DOE-REMB) Dir. M. C. Marasigan OIC Asst. Dir. M. P. Cerezo Ms. Ruby B. De Guzman Mr. Ariel D. Fronda Mr. Fortunato S. Sibayan Mr. Ronnie N. Sargento Mr. Andresito F. Ulgado Mr. Roger A. Del Rosario Mr. Jaime A. Planas Mr. Art. F. Torralba Ms. Angeles Bhon V. Rosal Mr. Jamie Joseph Q. Castillo Ms. Maria Adeline L. Pagauitan Ms. Ma. Cheliza D. Ambas Energy Utilization Management Bureau (DOE-EUMB) Mr. Ricardo C. Yambao Energy Policy and Planning Bureau (DOE-EPPB) Dir. Jesus T. Tamang Ms. Rosanna Y. Tejuco Ms. Pamela Grace C. Muhi Ms. Diana Christine l. Gabito Ms. Charmaine R. Taliping National Renewable Energy Board (NREB) Atty. Pete Maniego National Electrification Administration (NEA) Mr. Jose Seguban, Jr. National Power Corporation (NAPOCOR) Mr. Urbano Mendiola Wind Developers Association of the Philippines (WEDAP) Ms. Rosario Venturina Biomass Alliance of the Philippines Ms. Edna Tatel Philippine Solar Power Alliance (PSPA) Mr. Dante Briones
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Philippine Association of Small Scale Hydro Power (PASS Hydro) Ms. Annette M. Rafael Mr. Sly Natividad National Geothermal Association of the Philippines (NGAP) Mr. Francis Edward Bayon Development Bank of the Philippines (DBP) Mr. Rustico Noli Cruz Land Bank of the Philippines (LBP) Mr. Gene David Banco de Oro (BDO) Mr. Eduardo Francisco