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Research Report

Transforming the Power Sector in Developing Countries: Indonesia’s Diversification Challenge

Robert F. Ichord
Copyright Date: Sep. 1, 2017
Published by: Atlantic Council
Pages: 28
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Table of Contents

  1. (pp. 3-3)

    Indonesia’s position in the global energy market has been changing over the past decade as its domestic oil and gas production has continued to slide while primary energy consumption has risen by 4 to 6 percent, and the role of coal has grown both domestically and as an export. Indonesia’s energy sector represented the eighth-highest level of global energy sector carbon emissions in 2016.² When emissions from the burning of forests and peat are included, Indonesia jumps to fifth among global emitters. Moreover, with the fourthlargest population in the world, over 630 million, and low per capita income of $3,895...

  2. (pp. 4-7)

    Indonesia faces the dual challenge of meeting rapidly rising domestic energy demand while simultaneously working to diversify its energy mix and move its portfolio away from what has traditionally been a heavy reliance on fossil fuels.

    Indonesia’s primary energy consumption grew by an average annual rate of over 4 percent between 2010 and 2016.⁶ According to BP’s 2017 Statistical Review of World Energy, oil was Indonesia’s largest source of primary energy in 2016, accounting for 41 percent, just ahead of coal (36 percent), gas (19 percent), hydro (2 percent), and other renewables (1 percent).⁷

    Figure 1 shows the 2010-2016 growth...

  3. (pp. 8-18)

    Priority: Indonesia needs to strengthen its regulatory framework for the power sector by creating an independent, professional energy utility regulator and permitting private build, own, and operate investments in power generation.

    The Jokowi government has given strong policy priority to the electricity sector with its 35 GW capacity addition program (described in the generation mix section below) and made efforts to streamline the procedures for investment projects. Although the state’s dominance in the sector will continue, the program is a departure from the past, as the private sector, both foreign and domestic, is also expected to play a much greater...

  4. (pp. 19-19)

    President Jokowi came into office with an ambitious plan to spur economic growth and investment, especially in energy and infrastructure, and signaled his intention to diversify Indonesia’s fuel mix and achieve significant increases in renewable energy.

    However, despite these positive signs, there are powerful internal and external forces in favor of continuing to build coal plants and export coal. The weak coal export market, as well as growing internal demand for coal in the power sector, has put pressure on the government to use coal domestically.

    The use of gas is expanding and policy priority is focused on developing both...