Draft Law to Promote Clean Energy Gathering Steam

Jakarta Globe, Muhamad Al Azhari | August 27, 2010

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Jakarta. The new director general for renewable energy at the Energy Ministry is planning to push a draft law that specifically promotes and regulates the development of renewable energy.

If adopted, the law would offer more incentives to renewable energy investors, and would attempt to establish renewable energy industrial zones where factories are built closer to renewable energy sources.

“More than 95 percent of our energy source still come from fossil fuels and only around 5 percent comes from renewable sources,” Luluk Sumiarso, the newly appointed director general, told the Jakarta Globe Wednesday.

“That means we are wasting an enormous amount of the resources that God gave us. But the biggest challenge in developing green energy will be to change the way of thinking.”

Indonesia is hoping to increase green and sustainable energy use in anticipation of fossil fuel shortages expected in the next few decades.

Geothermal, solar, hydro and wind energy, as well as biofuels, are all considered good alternatives, but government legislation on the issue is limited, consisting mostly of new incentive policies proposed by the Finance Ministry earlier this year.

Luluk declined to reveal specific policies included in the draft law, but said it includes “mandatory” measures intended to help the country reduce greenhouse gas emissions.

Because of a lack of legislation and motivation, Luluk said Indonesia had only managed to realize a tiny fraction of its energy potential.

According to a document from the Energy Ministry, Indonesia is capable of producing up to 75,670 megawatts of electricity from hydroelectric sources. But current installed capacity is only 4,200 megawatts.

Other sources, such as geothermal, are estimated to have a production capacity of 28.53 gigawatts, but only 1,186 megawatts are currently produced.

Assuming no oil field expansions, and taking into account potential output from the Cepu oil and gas block in Java, the ministry calculates that Indonesia only has 7.99 billion barrels of oil deposits remaining, an amount expected to run out within 23 years.

As for natural gas, current deposits are estimated at around 159.64 trillion standard cubic feet, and are predicted to run out within 55 years.

Coal should be exhausted within 83 years, after current deposits of 20.98 billion tons have been used.

With the directorates of energy conservation, geothermal, biofuels and miscellaneous renewable energy under his command, and around 100 staffers, Luluk is tasked with attracting private investors to sign on to long-term, risky renewable energy projects.

He’s also carrying the mission of President Susilo Bambang Yudhoyono, who said in 2009 that Indonesia can reduce greenhouse emissions by 26 percent by 2020 on its own, or by 41 percent with the help of developed countries.

“There are some fiscal policies that need to be revised. For example, hybrid cars are taxed heavily in our country — that’s strange because in some developed countries those cars are subsidized.

Also, solar water heaters are considered luxury goods here. If we think in a green way, they must be given away for free,” Luluk said. He also emphasized the importance of a subsidy allowing independent power producers to sell energy at higher prices.

Current regulations mandate that state electricity provider Perusahaan Listrik Negara must buy geothermal energy from independent producers whenever the price is at or below 9.7 cents per kilowatt hour.

Above that price, PLN is not required to buy, and is unlikely to.

“Regulations stipulate that PLN must buy if the price offered is at or below 9.7 cents per kWh. But I want the government to subsidize purchases above that price, so that investors don’t turn away from geothermal projects because they think they cannot sell output to PLN,” Luluk said.

Another goal of the new law, Luluk said, is to create industrial zones close to sources of renewable energy.

“Instead of building grids to connect factories to electricity from the power plant, why not bring the factories close to the sources of energy,” he said.

He pointed to Yogyakarta’s Mount Merabu, which has huge geothermal potential, as a good location for an industrial park. In May, the Finance Ministry announced incentives to boost investment in renewable energy.

The ministerial decree includes a 5 percent tax cut over six years for renewable energy producers as well as exemptions from value-added tax and import duties on equipment.

Another provision allows investors to use accelerated depreciation and amortization on assets to reduce taxable income.

Energy Minister Darwin Saleh has established a directorate general in charge of renewable energy. It is to be headed Luluk Sumiarso, the former director general for electricity, and oil and gas.

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