NRE Investment for Smart City Development in Indonesia

All electronic devices including the Internet of Things need electricity power. The more available and continuous electricity is, the better all IoT and electronic devices work. Therefore, the availability and continuity of electricity are vital in developing smart cities.

The challenge comes from the depletion of conventional energy sources for power plants like oil, natural gas, and coal. On the other hand, the exploration of natural resources as well as the emission produced by combustion brings a negative impact on the earth. For that reason, countries agree to shift to new renewable energy (NRE) sources.

The Need for IoT dan Electrical Energy

The world population growth that reaches 0.9 percent per year is predicted to deliver 8.5 billion inhabitants of the earth in 2030 and 9.7 billion in 2050 (UNDESA, 2022). Indonesia experiences a population growth of 1.17 percent in 2022, on that account, it is estimated that 331 million people will live in Indonesia by 2050 (Kusnandar, 2019).

Most of the world’s population in 2050 (68–70 percent) will live in cities (“Cities,” 2022). In Indonesia, 63.4 percent of the population is estimated to live in urban areas by 2030 (Rizaty, 2021). Currently, there are 20 cities in Indonesia inhabited by over 1 million people (2022) and 5 of them are inhabited by over 2 million people (“List,” 2022).

The large and growing population in Indonesia demands high provision and development of the Internet of Things (IoT) to carry out daily life. IoT and all its supporting devices require more availability and continuity of electrical energy for its operations.

The Need for NRE

In addition to the need for energy, the need for environmental conservation is a strong factor in the development of NRE around the world. Indonesia seeks to achieve carbon neutrality, or net-zero emission, by 2060. Carbon neutrality is a condition where carbon emissions are reabsorbed so they do not evaporate into the atmosphere.

To achieve this carbon-neutral condition, the National Electricity Company of Indonesia (PLN) estimates 600 GW should be produced by NRE plants. Currently (2022) the production of NRE is only around 66 GW (Sucahyo, 2022).

However, Indonesia has an abundant gift of NRE. Aside from solar which is available throughout the year, lots of geothermal energy is stored in Indonesia. Indonesia is the world’s second-largest producer of geothermal resources after the United States of America (“Indonesia’s,” 2021).

According to the Minister of Energy and Mineral Resources of the Republic of Indonesia Arifin Tasrif in November 2021, Indonesia’s NRE potential reaches 648.3 GW, including uranium. In fact, it is only 2% of the potential has been processed (“Launching,” 2021).

The problem occurs in network limitations, intermittent solar and wind, and limited interest of investors. High costs, high risks, and technological limitations affect the interests of investors.

The Ministry of Energy and Mineral Resources reveals that Indonesia needs US$1.177 billion of investment to achieve carbon-neutral conditions. That investment consists of US$ 1.042 billion for investment in NRE generation and USD 135 billion for transmission (“This,” 2022).

To achieve the renewable energy target in 2025, Indonesia needs 423 trillion rupiahs or around 28 billion US dollars (Umah, 2020). Part of this financing requires the role of the private sector with the PPP scheme (public and private partnership).

Investment Opportunities

Several NRE investment opportunities are open in Batam, West Sumatra, Kalimantan, Sulawesi, and East Nusa Tenggara. BP Batam (Batam Administrator) believes that some industries in Batam potentially become consumers of the NRE. Afterwards, the energy may be distributed to Bintan Island which is a Free Trade Zone (FTZ) and a Special Economic Zone (SEZ). Singapore, which is close by, is also an opportunity for NRE sales from Batam. For the construction of floating solar power plants, there are 7 reservoirs available in Batam to be used (Sirait, 2022).

The huge potential of NRE in West Sumatra has not been fully exploited yet. For instance, hydro and geothermal, which is the biggest potential in West Sumatra. The achievement of the geothermal NRE rate in West Sumatra is around 28.19% which is higher than the national achievement of only 11.5% (Hendra, 2022).

In East Nusa Tenggara, NRE can be obtained from ocean waves, it is in East Flores (Meilanova, 2018). The potential for NRE in the Larantuka Strait, East Flores, is estimated to reach 30 MW (“Minister,” 2018). Whilst in Wae Sano, West Manggarai, the NRE is produced from geothermal (“Geothermal,” 2021). The potential of geothermal in West Manggarai is around 910 MW.

The potential of NRE in East Kalimantan is estimated at 23,841 MW. It consists of 5,615 MW of hydropower, 13,479 MW of solar power, 964 MW of biomass, 3,562 MW of water (hydro), and 9 MW of waste (Prasetyo, 2022).

Islands of Indonesia come with abundant hydropower potential including Sumba Island, Flores Island, Timor Island, Bali Island, Papua Island, Sulawesi Island, and Java Island. It is identified that the potential for mini-scale hydropower (PLTM) and micro (PLTMH) in the territory of Indonesia reaches 500 MW (“Opportunity,” 2022).

The Ministry of Investment/BKPM compiled the NRE power plant opportunities in Indonesia as follows:

Policies

The government has made several policies to attract investment in Indonesia. Job Creation Law №11 of 2020 was issued to increase the ease of doing business. This ease of doing business is carried out by streamlining the process of permits and licensing, implementing an online system, and delivering time certainty in the process.

In August 2021, an online licensing system called the Online Single Submission Risk-Based Approach (OSS-RBA) was launched. This system cuts down many steps and procedures by changing it to a risk-based approach. For instance, a low-risk business is allowed to start the business after doing online registration (obtaining the license). The reporting process is also simplified and submitted online. This OSS system makes the same procedures and mechanisms for licensing across Indonesia.

Another policy that has been made is the setting of investment priorities. Priority investment is rated from the aspect of exports, import substitution, labor-intensive, capital-intensive, high technology, and digital-based investment. Every priority investment is granted tax and non-tax facilities.

Specifically for investment in NRE, the President issued Presidential Regulation Number 98 of 2021 which imposes a carbon tax and provides incentives for carbon efficiency efforts. Afterwards, PLN gives a larger portion to NRE in the addition of power generation capacity targeted in 2030 at 51.6% or equal to 20.9 GW.

In September 2022, the President issued Presidential Regulation №112 concerning tariffs for the purchase of NRE electricity. This regulation, among others, provides an opportunity to sell NRE electricity to PLN at a high price to offset production costs.

Following Presidential Regulation 112/2022, the government provides compensation for the increase in costs incurred by PLN. Ministries and local governments have been requested to immediately prepare fiscal and non-fiscal incentives no later than September 2023 (Wahyudi, 2022).

These policies are expected to bring impact to increase the NRE investment in Indonesia. The NRE should dominate the electrical energy supply in the future. Along with saving the earth, the increased NRE supply also makes sure the development of smart cities in Indonesia runs as planned.

Author: Bergman Siahaan, MPP

Reference:

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