Southeast Asian Power Market Report – Indonesia

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In 2012, K&A published an in-depth power industry report of Southeast Asia. Our market report covers everything from generation and transmission to grid modernization and emissions within these markets. Our reports are filled with up-to-date information and analysis that facilitate decision-making. We perform in-depth research that combines primary and secondary sources, working together to form a clear and concise overview of the market and highlight the most relevant local power industry trends. We also write specialized technical and commercial content for our energy industry clients, such as technical writing, thought leadership, and public relations articles.

Fill the form below to access our comprehensive Indonesian Power Industry Report for in-depth market insights. Our 2024 Southeast Asia Power Market Report is now available. Please contact us via email at info@krishnaninc.com to learn more.

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Indonesia Power Market Overview

Indonesia has abundant natural resources suitable as power generating feedstock. This is especially the case for coal, natural gas, geothermal and hydro based energy.
Despite this relative abundance Indonesia's existing generating capacity is largely coal and oil fired and, at around 44 GW, results in a per capita MW capacity which is amongst the lowest in the region.
Indonesian growth rate of demand for electricity remains high at an estimated 9.5% per annum up to 2029
Electrification ratio is still low at 74% in 2013
Numerous islands limit the scalability of power projects

Indonesia’s Power System

Indonesia - Installed Capacity (MW)

In 2012, 41.5% of Indonesia’s 200,291 GWh was consumed by households. Industry and commercial users consumed a combined 52.4%. Source: PLN

Indonesia Power Industry Challenges

Indonesia is one of the most densely inhabited countries in Southeast Asia and the fourth most populated country in the world. Maintaining an efficient nation-wide energy system is an enormous challenge for a country with such a dense population spread over a large archipelago of more than 17,000 islands. Indonesia’s energy sector has struggled to keep up with the rapid pace of economic growth. Some of the key reasons for this include:

A mismatch between primary energy resources versus population density
An estimated 80% of population is located in Java-Bali although majority sources of primary energy are in other islands
Lack of supporting infrastructure, gas pipelines and coal transportation and distribution
Dependency on oil as primary energy for electricity generation – which is expensive and limited
Limited financial budget to develop electricity sector which is plagued by a low electrification ratio

Indonesia's total primary energy consumption grew by over 50% between 2001- 2010. According to the International Monetary Fund (IMF) Indonesia’s economy has strongly emerged from global financial crises with the average growth rate of about 6% in past five years. With the total population of 248 million growing towards industrialization and urbanization, Indonesian demand for electricity is projected to rise at 7-9% annually in near-future amongst the highest in the region. In the past decade, coal consumption has tripled and surpassed natural gas as the second most consumed fuel in 2004.

Chronic underinvestment in systems improvements and new generation capacity, coupled with highly subsidized fuel and electricity rates, has left Indonesia’s power sector in a paradox. As Indonesia looks to meet the energy needs of an expanding economy, and provide energy services to currently unserved populations, it is vital that steps are taken to reduce carbon emissions without placing undue financial burdens on the sector. In 2012, Indonesia was the world's largest exporter of coal by weight and the eighth largest exporter of natural gas. Increasingly, the government seeks to reorient domestic production away from exports to meet demand at home.

Fuel Generation Options in Indonesia

Natural Gas	Coal
Indonesia is among the world’s five biggest natural gas producers 160 trillion cubic feet of proven natural gas reserves Emerged as a major exporter of pipeline and liquefied natural gas (LNG) more than half of which is relayed to Japan Domestic consumption of natural gas has more than doubled Declining oil production and reliance on natural gas for transportation Production problems forced the country to buy spot cargoes of LNG to meet export obligations International oil companies dominate the upstream gas sector State-owned utility Perusahaan Gas Negara (PGN) carries out natural gas transmission and distribution activities Conventional Indonesian gas reserves and blocks are located far from its major demand markets posing a challenge Government deprioritizing power sector for natural gas usage - petroleum and fertilizers receiving higher priority Government considering imposing a moratorium on gas exports Ongoing studies to assess the nation’s shale oil and gas potential Future new power generation will be largely dependent on coal instead of gas	20 billion tons of recoverable coal reserves—mostly bituminous or sub-bituminous and located primarily in Sumatra and East and South Kalimantan Electricity sector is the largest source of domestic consumption; power plants accounted for two-thirds of total coal consumption Indonesia overtook Australia to become the world’s largest exporter of coal Government encourages coal-fired power generation by allocating 20% of domestic coal production for Indonesian power plants Abundant domestic supply is reducing the use of expensive diesel and fuel oil PLN’s plan to install at least 30 GW of new coal-fired capacity by 2020 have been plagued by delays
Oil	Geothermal
Indonesia had 8 billion barrels of oil reserves Oil production declined from a high of nearly 1.7 million barrels per day (bbl/d) in 1991 to under 1.0 million bbl/d in 2012 Chevron (45% of Indonesian crude production) is the largest oil producer Aging infrastructure and fields suggest that Indonesia will struggle to meet production targets Upstream investment environment to be risky and licensing rounds from the past three years have been disappointing	Indonesia has one of the world’s largest geothermal resource potentials - estimated at 27.5 GW Less than 5% of this potential has been developed so far or about 1.2 GW Goals to install 10 GW of geothermal capacity by 2025 Resource will account for about 6% of the country’s energy consumption
Solar	Biomass
Presidential decree mandates the increase of renewable energy production to 17% by 2025 Indonesia offers significant solar power resources (4.8 kilowatt-hours per square meter per day [kWh/m2/day]) Country is yet to develop a strong market due to lack of government incentives	Indonesia’s potential for biomass power is substantial but is currently undeveloped Estimated 50 GW of production is possible; only 443 MW have been commercially developed By 2025 the country has targeted 810 MW of biomass power - far less than the potential contribution Rice residues, sugar, rubber, and palm oil all provide biomass electricity and co-generation in agro-businesses
Hydro	Nuclear
Indonesia’s mountainous island topography makes it ideal for large and small hydropower facilities Only 5 MW of the 75 GW of PLN estimates of power potential for hydro have been developed PLN last year identified 96 potential hydroelectric power sites that could offer at least 12.8 GW	2006 presidential decree calls for four nuclear power plants to be built in Indonesia by 2025 Country already has three experimental nuclear reactors and at least two uranium mines Despite the Fukushima accident in March 2011, the quake-prone country seems determined to build new “modern” (possibly thorium) reactors Indonesian government has $8 billion earmarked for the reactors that could be built in Central Java and Bangka Island off the north coast of southern Sumatra

Indonesia Regulatory Policy

SWOT Analysis- Indonesia Power Market

Strengths	Weaknesses
Indonesia is an energy resource rich country Growing working age population, strong urbanization, and consumer demand Economic growth of 6% is sustainable in the medium-term Two thirds of GDP is generated by domestic consumption Indonesia represents Southeast Asia’s largest potential market (200+ million consumers) Vast majority of Indonesia’s 200 million Muslims practice a moderate form of the faith, reject violence, and favor a secular government Relative economic & policy stability for past 8 years Strong demand for power, small reserve margins Region is well-endowed with energy resources – coal, natural gas, and geothermal Coal expected to be the dominant fuel in the future Fast track plan for power Industry - 500 projects throughout the country as well as six development corridors aimed at creating economic clusters in various industrial sectors A $96 billion injection to boost the country’s ailing power infrastructure	Corruption, excessive bureaucracy, and inadequate physical infrastructure Indonesia’s democratic system is still young with weak institutions Logistical shortcomings make it difficult moving goods into and out of the country as well as internally Legal environment is uncertain and the court system cannot be relied upon Policing is weak, enforcement is even weaker Greater policy indecision today than was the case during the Suharto years Special interest groups & political compulsions can impact environment for foreign investors Indonesia heavily depends on developed nations and China for exports Drop in commodity prices (coal, palm oil) can impact exchange rate adversely Lack of skilled resources in the Power industry, especially in rural areas State-owned companies are troubled and heavily subsidized by the government Long execution time for power projects Power projects can be smaller in size due to presence of islands Fiscal policy on gas & administered subsidized pricing for power impacting new foreign investment in power
Opportunities	Threats
Investors consider natural resources, banks, infrastructure, and consumer goods industries to offer some of the biggest opportunities in Asia The high economic growth in the region – thanks mainly to remarkably stable domestic consumer demand Power demand projected to grow at an average 9% - aggressive power development plans Indonesia will be one of the faster growing power markets with installed base increasing from 44 GW in 2013 to 62 GW by 2020 (govt. forecast at 85 GW) Coal based power projects will be dominant in the future Indonesia has very large geothermal resources Scope of renewable energy is promising and this creates a big market for alternative energy technology and equipment suppliers Huge loans are sanctioned by the World Bank to boost Geothermal & electrification projects in Indonesia in last decade Transmission & Distribution system upgrades essential Unserved capacity & blackouts remain significant	Corruption, bureaucratic inertia, and inconsistent and unclear regulations are three of the biggest threats foreign investors face in Indonesia Rules can change on very short notice – ex: energy trading, competitive power markets, coal mining subsidies, etc... Labor unions can be unreasonable in their demands and the legal structure does not offer employers much protection Land Acquisition for power projects is a significant hurdle. Few people have land rights documents in an archipelago of 17000 islands with hundreds of tribes and ethnic groups and conflicting claims can turn violent Isolated grids - Consisting of eight domestic interconnected systems and 600 isolated grids all operated by PLN High transmission losses and electricity theft Indonesia has a very low tariff rate for electricity as government provides subsidized energy Populist programs & electoral politics delaying comprehensive natural gas policy, competitive electricity markets

Indonesia Power Market Forecast

The long-term target by Indonesia is to achieve 85,000 MW by 2020. According to the base case scenario of the RUPTL Plan (2011-2020), the overall domestic power demand is forecasted to increase by 8.5% annually during this period. Therefore, within these 8 years (2013-2020), Indonesia must construct an additional ~41,000 MW to total existing capacity.

New additional coal fired capacity requirement is targeted at ~54,000 MW by 2020. New oil and gas fired capacity is targeted at 15,000 MW by 2020. As per the current plan, by 2020, coal-based generation will increase to 64% of installed capacity, natural gas will account for 17%, hydropower 6% and geo-thermal about 12%.

Krishnan & Associates projects only ~62,000 MW will be online by 2020 with an estimated slippage of 22,962 MW. An additional 13,000 MW of coal fired generation is anticipated during this period.

Indonesia’s Challenges to Achieving the Targets

Power Tariff Revision
Land Acquisition
Delay in Fast-track Programs
Attracting IPPs a Challenge
Ministry of Forestry Permitting
Exchange Rate Depreciation Impacting New Project