Transition pathways for achieving bioenergy target

1cce69_036b99d2a59446278a8c3f8256446fa8-mv2_d_2816_2112_s_2The European Commission research programs in partnership with Udayana University and the Indonesia Climate Change Trust Fund recently conducted an international workshop in Bali to discuss a wide range of issues related to bioenergy.

The workshop on sustainability and bioenergy provided an opportunity to analyze the sustainable business and climate resilience of low-carbon transition pathways comprising bioenergy made from crop waste and residue.

The topic remains relevant with the government’s program to boost exports of its agriculture-based products from the processed food and beverage industries in Indonesia. The government plans to develop up to 400,000 hectares of new fruit plantations across the country in the next few years in an attempt to improve both the quantity and quality of local fruit production, to boost exports and survive amid competition against imported products. This plan promotes an energy-agriculture nexus particularly in bioenergy pathways in Indonesia, as fruit waste can also be used to produce biofuel.

Also, biomass is a further untapped area of Indonesia’s bioenergy portfolio with the potential to generate 49,500 megawatts of power. Rice husks, coconut husks and not to mention empty fruit bunches from crude palm oil ( CPO ) production offer intriguing opportunities for bioenergy in Indonesia.

State-owned plantations have only recently forayed into this area of biomass production from CPO waste and bioethanol production using liquid waste from sugar cane processing. Recent hikes in electricity tariffs for businesses as well as frequent electricity outages have led more agribusiness firms to seek out sustainable and self-reliant energy solutions that effectively utilize bio-based waste.

A wider deployment of bioenergy in agricultural value chains will help in improving agricultural productivity and food security. Bioenergy in rural areas not only serves consumptive uses, but also creates new business opportunities. To capitalize on these opportunities, enabling regulations and incentives are needed.

Bioenergy will account for 13 percent of the total energy using renewable sources, of 23 percent by 2025 and 31 percent by 2050 in Indonesia, but currently bioenergy reaches just 5.1 percent of the target. Presently, several countries impose renewable energy mandates on electricity generation for utilities. Indonesia has biofuel blending mandates that require a minimum portion of locally sourced biodiesel and ethanol to be mixed into diesel and gasoline.

Energy and Mineral Resources Ministry Regulation No. 32/2008 requires a gradual increase in the bio ratio of fuel used for transportation, industrial purposes and power generation. By 2025, at least 15 percent of ethanol in gasoline and 20 percent of bio fuel in diesel is required. However, it may not be enough. Indonesia needs a specific mandate like Mexico City, which requires all new and renovated swimming pools, as well as large commercial buildings, to cover 30 percent of their energy needs for water heating using solar power.

To achieve the target, feed-in tariffs are needed. In 2015, the government revised its feed-in tariff for biogas and biomass. The revision is expected to encourage palm oil companies to utilize palm oil waste for biofuel. Feed-in tariffs in Indonesia require state-controlled utilities, like state-owned electricity firm PLN, to purchase electricity from renewable energy producers at predictable prices, which vary from one area to another.

This is vital in the current setup of Indonesia’s energy market, where both the upstream and downstream are still heavily regulated and controlled by state-owned companies. It is also preferable to case-by-case negotiations on power purchase agreements, as it makes long-term planning easier for investors aiming to engage in multiple projects.

Fiscal incentives are also needed. A reduction of taxes by various mechanisms, such as tax credits, deductions and exemptions, can stimulate bioenergy. A ministerial decree on energy states that a licensed biofuel entity performing the obligations for mandatory biofuel consumption may be given fiscal and non-fiscal incentives. It is still weaker than in Brazil, which already gives tax credits to biodiesel producers under its Social Fuel Seal initiative.

Another common stimulus for specific bioenergy projects is grants to foster research and development and encourage deployment of the technologies. An Indonesian example is a Dutch program in partnership with local stakeholders of biogas for households, which has been running in several provinces in Indonesia with a total of 14,173 biogas reactors installed. It needs to be scaled-up.

Another approach is soft loans with below-market interest rates. State-owned lender Bank Negara Indonesia Tbk ( BNI ), which supports bioenergy development, should invite other banks to provide credit for bioenergy projects. There are also transfers and subsidies which can support the actors involved in bioenergy production. The Energy and Mineral Resources Ministry stated that in 2015 the fossil-fuel subsidy would be shifted to the development of more productive sectors, including palm oil-based biofuel, biodiesel and bioethanol. As complement, the government should also provide more subsidies for bioenergy technologies.

Among the policy instruments listed above, transfers and subsidies, fiscal incentives, grants and soft loans are presently more widely applied to promoting bioenergy in the agricultural sector in numerous countries.

Indonesia can learn from China as a prime example of a country that strongly promotes biogas production through various national plans and initiatives, such as the National Rural Biogas Construction Plan ( 2006-2010 ) and Development Plan for the Agricultural Bioenergy Industry ( 2007-2015 ).

This article was originally posted in the Jakarta Post, on

May 30, 2016

Ibnu Budiman

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