Techno-Economic and Institutional Assessment of Wind Energy in Indonesia

Abstract

Indonesia is facing a challenge in fulfilling its future energy demand given the combination of a consistently high economic growth and a fast-growing population. The country also needs to increase the integration of renewable energy into the electricity system. Wind energy, one of the renewable energy alternatives, is severely underutilized in Indonesia. Accordingly, the Indonesian government aims to increase the installed wind farm capacity by twelvefold within the next five years. This research aims to fill a knowledge gap in the literature by determining economic potential of onshore and offshore wind energy in Indonesia and formulating recommendations for institutional changes to proliferate wind energy development. A techno-economic analysis is performed by means of a GIS-based modelling to determine the technical and economic potential. Based on the analysis, onshore and offshore wind technical potential amounts to 17.6 – 30.9 GW and 470.6 – 595.6 GW, respectively. Meanwhile, the LCOE of wind energy can be as low as 6.1 (onshore) and 13.4 (offshore) USD ct/kWh. However, only up to 8.0% and 1.4% of the onshore and offshore wind technical potential, respectively, is economically feasible under the current regulations. An institutional analysis is then conducted to identify the institutional barriers hampering wind energy development. The analysis focuses on the institutional environment (L2) and governance (L3) layer of Williamson’s four layers of institutions framework. Barriers related to electricity pricing (L2) include regulatory uncertainty and a low purchase price of RE-based electricity. Furthermore, the barrier in infrastructure planning (L2) is the low amount of additional wind farm capacity being planned and the inconsistency in planning. Issues on property rights allocation (L2), i.e. ownership transfer and foreign ownership restrictions on wind energy projects, have been addressed in recently enacted laws. Lastly, barriers in contracting (L3) encompass prolonged negotiations between PLN and IPPs, poor law and contract enforcement, insufficient coordination and leadership in the multi-layered governance, and limited availability of project funding. Three institutional recommendations are derived based on the identified barriers. First, the Government shall create an electricity pricing masterplan, which entails a phased implementation of economic policy instruments. Second, project funding should be provided by sustaining the Government’s subsidy to PLN and promoting local participation and ownership in the projects. Third, an independent regulator dedicated to the electricity sector should be formed to ensure sufficient stakeholder involvement and monitor the actors’ activities in this sector. Future research can perform a similar study at the regional level, particularly at provinces with promising economic wind energy potential. Furthermore, future studies can involve a comprehensive design of institutions and a roadmap for wind energy development in Indonesia.