Indonesia promotes hydropower to create the demand for industrial development

The Indonesian government’s strategy for hydropower development aims at boosting industrial growth, reducing carbon emissions and achieving energy independence, writes Honourable Bambang P. Soemantri Brodjonegoro, Minister of National Development Planning.

Electricity infrastructure plays a pivotal role in development. It provides and conveys energy for increasing prosperity and encouraging economic activities. Indonesia’s National Long-Term Development Plan 2005-2025 mandates the fulfilment of reliable and efficient electricity supply according to needs and increased access to equitable energy services.

The National Energy Policy (NEP) 2014-2050 underlines the principles of fairness, sustainability and environmental protection in achieving national energy independence and security. The government targets at least 23 per cent in 2025 – and 31 per cent in 2050 – the portion of new and renewable energy in our national energy mix.    

As part of the G20, Indonesia has ratified international agreements in the field of environmental protection, especially in reducing CO2 emissions. Under the Paris Agreement, Indonesia has committed to reduce GHG emissions by 29 per cent in 2030 from “business as usual”. Therefore, a reduction in the use of fossil fuel energy by increasing and promoting the use of new and renewable energy is critical.

Until 2017, the total installed capacity of national power plants reached around 60.8 GW. PLN, the Indonesian state-owned electricity company, generated around 41.7 GW (68.6 per cent), and independent power producers and other providers generated around 19.1 GW (31.4 per cent). Based on the type of energy source, hydropower plants (including mini hydro and micro hydro) produced around 5.45 GW (8.8 per cent). The biggest hydropower potential is located in Papua Island (22.4 GW), Kalimantan Island (21.6 GW), Sumatera Island (15.6 GW) and Sulawesi Island (10.2 GW), while Java-Bali is 4.2 GW and Nusa Tenggara-Maluku is 1.1 GW.

If we consider the requirements of our industrial zones or specific economic zones, electricity demand will be drastically increased. For example, domestic demand in Kayan-North Kalimantan is only 60 MW but when the industrial zone is developed, demand will increase to 1,000 MW. This demand could be covered by the hydropower plant on the Kayan River which has potential to deliver up to 6,000 MW.

In the Draft of the National Mid-Term Development Plan 2020-2024, the strategy for hydropower development is to be changed to not just follow demand, but to create demand. Timika in Papua, Konawe in Sulawesi and Kayan in North Kalimantan regions are examples of potential locations for increasing demand. In these areas mining activities and industrial smelting could be supported by hydropower projects with a large capacity. The goal is to increase the competitiveness of industry by creating low cost electricity.

It is expected that the private sector can participate in projects as independent power producers through Public Private Partnership (PPP) schemes. PPP schemes themselves continue to undergo transformation in their implementation in Indonesia, marked by the issuance of Presidential Regulation No. 38 regarding cooperation between government with business entities in providing infrastructure.

The Government of Indonesia has formulated several policies for incentivising the private sector in the development of renewable energy. Namely: developers can obtain a 5 per cent reduction in the income tax rate for their investment each year for a period of six years; accelerated depreciation of fixed assets can be completed within ten years; the income tax on dividends for foreign investors is at 10 per cent; and import duty exemptions for equipment and machinery that cannot be produced in Indonesia.

It is expected that these various policies could accelerate the development of hydropower sustainably and create a big impact in our economic development. The critical point in developing hydropower is making sure that the project is ready and attractive for investment. Thus, the comprehensive assessment of social, technical, economic and environmental aspects should be promoted.

We look forward to cooperating more productively with the International Hydropower Association (IHA) to accelerate the development of hydropower in Indonesia.

This piece originally appeared in the 2019 Hydropower Status report published on 12 May.

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