Amongst all the renewable energy (RE) technologies, geothermal power and small hydropower attracted private sector investments in Indonesia during 2010 and is likely to hold investors’ attention during 2011.
According to Frost & Sullivan’s Asia Pacific Program Manager for the Energy & Power Systems Practice, Suchitra Sriram, Indonesia seems to have realized the urgent need to adopt RE technologies to meet its electricity demand of about 7.0% p.a.
She adds, “The Indonesian government is therefore offering tax incentives for RE project developers. They have also signed a major Memorandum of Understanding with General Electric Company for the joint development of RE projects in Indonesia. As a result, the RE market growth is expected to be slightly better during 2011.”
Still, Indonesia lags behind its Southeast Asian counterparts in the widespread acceptance and deployment of various RE technologies except geothermal power. Though the country has abundant RE resources and the government has incorporated renewable energy targets into the National Energy Management Blueprint 2005-2025, sluggish implementation has restricted market penetration of fastest growing technologies such as wind, solar PV power and bioenergy in the country during 2010.
Indonesia is highly dependent on thermal power plants. Low-cost fuels are vastly available and have a huge generation capacity can bridge its growing electricity demand-supply gap. The Indonesian government aims to reach a capacity of 9500MW in the geothermal market by 2025.
In terms of industry specifics, geothermal power generation continues to attract investments in Indonesia, but the market growth rate is expected to be moderate between 8.0 and 10.0% due to the slow pace of development.
Suchitra adds, “According to the second 10,000 MW crash program introduced by the government of Indonesia, geothermal power generation has been accorded high priority. But its success remains to be seen as some of the projects have not been able to get environmental clearances and faces opposition from environmental groups as reservoirs have been identified in forest areas.”
In Southeast Asia, Indonesia’s market attractiveness for RE technologies is expected to be low especially for wind and solar PV power in 2011 as there are no regulatory framework and policies such as ‘feed-in-tariff’ to attract private sector participation in the industry.
“Moreover, the impact of declining prices of these technologies has not been felt in Indonesia because of weak demand. This is largely attributed to the highly subsidized electricity that is supplied to end users in urban areas. Hence, wind and solar PV power continue to generate interest only for rural and remote area electrification in areas that are not connected by the utility grid,” says Suchitra.
Growth of the small hydropower market is likely to remain stable at 8.0% during 2011 as they are largely installed to provide electricity in rural and remote areas, and in islands where grid extension is economically and technically unviable.
“Despite immense potential to develop biomass power, several industry challenges such as lack of credit, logistics issues in transporting fuel, limited incentives, and low awareness are expected to restrict market penetration of this technology. The market growth rate for biomass is projected at less than 10.0% during 2011,” Suchitra concludes.