Coal to remain as dominant energy source even after energy transition
The government’s promise to reduce the country’s dependence on coal rings false as plans are in place to implement coal derivatives as new sources for Indonesia’s energy. With three out of the five sources of “new energy” being coal derivatives, many are accusing the government’s energy transition initiative of having been subverted by coal-producer interests.
Both article 9 of the new and renewable energy (NRE) bill and the long-term electricity procurement plan (RUPTL) consider coal slurry, coal bed methane and coal gasification as “new energy” sources. This means that some part of the 23-percent new-and-renewable energy target in the country’s primary energy mix would still be coal-based.
These allegations are made worse by the government’s efforts to implement renewable energy, which have been half-hearted. Not only has a ceiling price been imposed on the purchasing price of electricity from renewable sources1 , the rooftop solar-panels export incentives have also been removed. (Read: Removal of export incentives reduces interest in residential solar panels)
Financial burdens were cited as the reason behind the difficulties behind stronger renewable energy implementation and incentives. Indonesian state-owned electricity company PLN has been struggling with an oversupply of electricity, which makes it too costly for it to absorb the electricity generated from renewable sources, whether from renewable-energy independent power producers (IPP) or net-metering, which is the installation of rooftop solar panels in the consumer’s building, electricity exports.
On the other hand, the development of coal downstream products, such as for coal gasification, is also cost intensive. Article 128A of Government Regulation in Lieu of Law Number 2/2022 concerning Job Creation (Perppu Cipta Kerja) reduces the royalties for the utilization of coal for developing coal downstream industry to zero percent, which effectively eliminates a revenue channel for the government.
This lopsided treatment between coal and renewable-energy implementation has given rise to a concerted push to split the NRE bill,2 thus making a new energy bill and a renewable energy bill. As things stand, the NRE bill focuses too much on new energy development, especially for coal derivatives and nuclear.
On the face of it, the NRE bill and the RUPTL treat renewable energy and new energy as equals. However, the government has a natural lean toward new energy due to its longer history. Indonesia has been developing its nuclear energy program for a long time and it passed the integrated nuclear infrastructure review mission (INIR) back in 2014,3 whereas coal has always been the primary source of the nation’s electricity. By comparison, renewable energy is a relatively new topic for the Indonesian government and does not have an existing presence on the country’s energy market.
On the other hand, renewable-energy development also has diversification value. Aside from net-zero emissions commitments, the fluctuating nature of fossil-fuel prices was made apparent last year following the Russia-Ukraine conflict, where crude oil amounted to over US$100 per barrel. If Indonesia were to develop its renewable energy sources, it would stabilize energy prices during the price fluctuation of fossil fuels.
The NRE draft bill regulates different energy types in separate sections, Section 5 for new energy and Section 6 for renewable energy. Section 5 stipulates six types of new energy and consists of 21 articles, from Article 9 to Article 29; however, Articles 10 to 15 specifically discuss nuclear energy. Meanwhile, Section 6 stipulates more than nine types of renewable energy and only consists of 18 articles, from Article 30 to Article 47, but no specific renewable energy type is discussed in detail.4
For antinuclear activists, the NRE bill gives too much focus on nuclear as a new-energy source as if its primary purpose is nuclear energy development. The bill’s coverage of nuclear energy is extensive. It has six articles dedicated to nuclear in addition to parts of articles that discuss nuclear along with other energy types under various topics.
When the bill is passed into law as it is, it will give a stronger foothold in Indonesia’s energy regulatory framework. During the time of the Presidential Regulation (PP) No. 79/2014 on national energy policy, nuclear power was considered as the last resort in securing the country’s energy demand due to its high risk and radiation impacts. However, in the latest draft of the long-awaited new and renewable energy (NRE) bill, nuclear has an importance equal to, if not greater than, other energy sources.
A source who participated in the discussion on the New Energy and Renewable Energy Bill said that the emergence of article 9 which stated coal methane, liquefied coal and gasified coal as a new energy source was due to the lobbying efforts by businessmen so that downstream projects were accommodated in the bill. Even though this bill was an initiative of the House, lobbying was also intensively carried out to a number of high-ranking officials at the Energy and Mineral Resources Ministry.
Business players who are said to be intensively lobbying include companies that own coal contracts of work (PKP2B), especially the first generation agreements. These companies include PT Kaltim Prima Coal, PT Adaro Indonesia, Kideco Jaya Agung, and PT Berau Coal. Contracts owned by some of these companies have expired since 2021 and 2022. But there are also those whose contracts will expire in 2023 and 2025.
As one of the conditions for extending the contract into special mining permit (IUPK), the government asked them to work on a downstream project. PT KPC and PT Arutmin Indonesia are said to be collaborating with Air Products to work on a coal to methanol gasification project. The same goes for Adaro Indonesia, which wants to convert coal into methanol. Meanwhile, Berau Coal and PT Kideco Jaya Agung plan to develop coal gasification to produce Dimethyl Ether (DME).
A source at a state-owned enterprise said the permit extension with the gasification project was just a gimmick. Until now, the coal gasification projects said to be worked by the companies have no buyers (off-takers). "The project is still in the form of a study, but some whose contracts have expired have received license extensions," he said. It is reported that these large companies have approached Pertamina to work together to become off-takers for the methanol they will produce later.
A player in the coal sector said that these companies also used to lobby the government so that companies working on downstream projects were exempted from paying royalties to the state. This zero percent incentive for holders of mining business permits (IUP) or special mining business permits (IUPK) was then accommodated in the Job Creation Law and the Job Creation Regulation in Lieu of Law which were recently passed by the House into law.
A source at the Energy and Mineral Resources (ESDM) Ministry said that the inclusion of a clause regarding coal gasification in the NRE Bill was partly proposed by the government. This is because one of the coal gasification projects in Tanjung Enim, South Sumatra, has been designated by the government as a national strategic project. This project involves PT Bukit Asam, Air Products & Chemicals Inc, and PT Pertamina. The source at the ministry added that the project to substitute LPG for DME is also included in the ESDM Ministry’s 2026-2030 energy transition roadmap toward carbon neutral.
Even though the coal gasification project in Tanjung Enim has succeeded in acquiring almost 99 percent of the land, a source said that an agreement between the three companies has actually not been reached. The main obstacle remains the selling price of coal which will be processed into DME. Amid the high coal prices last year, the sales price of coal for this project is not profitable for Bukit Asam.
Meanwhile, Air Products reportedly only wants to buy coal under US$20 per ton. In the eyes of Air Products, their obligation is limited to providing production services to convert coal into DME, not buying Bukit Asam coal.
For Pertamina, if coal as a raw material is valued at market prices, the cost of DME production will also increase. As a result, the price that Pertamina has to pay to buy and distribute DME as a substitute for LPG is even more expensive.
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