Indonesia has set the objective for 23 percent share of renewables in their primary energy mix and 45 gigawatt of renewable installed capacity by 2025 based on the national energy plan. In reality, Indonesia is currently far from reaching the set target as renewables deployment has been slowing down in the past few years. Renewable implementation in the country still faces many barriers. One of them is that the renewable plant is still considered as expensive source of electricity. However, there is a lack of available information on why renewable energy is expensive in Indonesia and if there is a way to bring the cost of renewables down like already happened in other countries around the world. This study aims to understand what is the cost of generating electricity from renewables and fossil fuels in Indonesia using an levelised cost of electricity (LCOE) tool developed by IESR based on an Agora Energiewende model.
Through better understanding of the LCOE, IESR hopes to develop a constructive fact-based dialogue that can help policy makers and developers alike to make an objective judgment on the energy plan and investment.
The key findings from the studies are:
- Policy analysis and considerations on renewable energies and fossil fuels should consider the differences in their cost structure.
Renewables and future energy infrastructure are capital intensive, therefore any policy concerning the cost of capital and technology cost has a higher impact on these projects compared to its fossil counterpart.
- Cost range of large-scale solar PV is already on par with those of new coal power plants.
With a suitable regulatory framework, e.g. bringing financing cost down to levels in other markets, large scale solar LCOE may go down further from 6-12 dollar cents per kilowatt-hour to 3.5 – 8 dollar cents per kilowatt-hour.
- The global trend will change the playing field as LCOE from renewable is getting cheaper.
The renewable (wind and solar) has experienced a massive deployment globally which has contributed to lowering the cost of equipment. Because equipment cost makes up a high share of capital cost, the LCOE of renewables is also expected to come down along with this phenomenon. On the other hand, the fossil fuel plant has experienced an increase in investment cost due to stricter emission and environmental standards.