Indonesia lags behind its neighbors in terms of access to energy for its citizens. Currently, an estimated 65% of the total population in Indonesia has access to electricity or modern forms of energy, and the electrification ratio is considerably less in rural regions, as low as 30% in some provinces. Forty six percent of the population living in rural and remote parts including small islands have no access to modern cooking fuels, and are therefore dependent on traditional forest-based biomass with corresponding negative impacts on forests, indoor air quality, and prospects for improved livelihoods.
The Government of Indonesia recognizes the strong linkages between improved energy access and poverty alleviation through inclusive economic growth. With the support of international development partners, the government experienced early success in implementing its electrification programs. Starting with an initial electrification baseline of 2%, the government was able to sustain an electrification rate of 1 million households per year such that by 1999, electrification rates had reached 65%. Since 2000, the government has pursued several rural electrification initiatives through the Ministry of Energy and Mineral Resources (MEMR) and the state-owned national electricity corporation, PT Perusahaan Listrik Negara (PLN), with the support of local governments and nongovernment organizations (NGOs). Notable among the government's small-scale renewable energy programs is the one domestic biogas program (BIRU-I). This program - focused on small-scale livestock owners in areas where wood fuel is becoming scarce - was initiated in 2009 in four provinces in Java and has since been extended to two more provinces outside Java. The program will have successfully installed over 8,000 domestic biogas digesters by the end of 2012. The government has indicated that it is interested in scaling up this effort to install 26,000 digesters under its BIRU-II program during 2012 2015.
Various development partners and NGOs have been involved in scaling up energy access in Indonesia with mixed success. The United Nations Environment Program launched its solar lighting partnership program in 2010, and several vendors offering small wind, solar
lanterns, and improved cook stoves have set up operations in the country. A study conducted by the Netherlands NGO Humanist Institute for Cooperation (HIVOS) demonstrates that through proper utilization of indigenous resources, it is technically feasible to meet more than 90% of the energy demands of the remote island of Sumba in Nusa Tenggara Timur (NTT) region in Eastern Indonesia through renewable energy. However, the relatively high cost of providing energy access in rural areas, inadequate institutional capacity, lack of coordination among implementing agencies, and an absence of the private sector have constrained progress in these areas.
Several developments have coalesced to improve the prospects for expanding rural energy access in Indonesia. In terms of a policy framework, with the country's recent membership in the Group of 20 countries, expanding access to energy has been reinstated as a national priority. As part of the 2011-2015 Master plan for Indonesia's economic development (MP3EI), the government has prioritized connectivity among the remote parts of the country as a way of promoting greater economic opportunities for the rural areas and poorer segments of society. The provision of energy access is also addressed by a range of policies such as Law 30/2009 that makes access to energy a right, Law 30/2007 that obligates the government to provide energy access in remote areas and in post disaster contexts, and Presidential Decree 5/2006 that mandates that renewable resources should provide 17% of the total national energy mix by 2020. Further, in terms of pricing, a ministerial regulation (MEMR 31/2009) directs PLN to pay a higher tariff to purchase power from small producers (up to 10 MW). The government has also set a target of attaining an electrification ratio of 90% by 2020. MEMR also recently established a general directorate for new and renewable energy that also oversees biogas, and small scale renewable energy generation.
In terms of resource endowment, Indonesia has an abundance of renewable energy sources including solar, hydropower and geothermal. The government's renewed commitment to enhancing rural energy access also dovetails with significant cost reductions in renewable energy technologies, and improvements in financing and institutional models that have helped make renewable energy for off-grid and on-grid application more sustainable. In contrast fossil fuels have become more expensive, are linked to both local air pollution and global greenhouse gas emissions, and are no longer attractive options to provide electricity to rural and remote areas. Encouraging the adoption of economically sustainable RE alternatives simultaneously address energy poverty and climate change. Depending on the RE resources that are developed, positive social impacts could include welfare improvements for women and children, increased local enterprises and diversification of livelihoods, and a lowering of indoor air pollution-related illnesses (from use of traditional biomass).
In 2011, as part of a regional initiative, ADB undertook a scoping study to assess the potential for increasing energy access using off-grid renewable energy, identify innovative technologies, examine different institutional models and outline possible financing approaches. . The scoping analysis concluded that MEMR, owing to its mandate to oversee all energy-related programs in the country, is ideally positioned to direct and coordinate the implementation of the energy access programs. Any realistic effort to promote energy access in Indonesia will have to integrate the strengths and resources of MEMR and the local governments. It is also important to create a more conducive enabling environment for local and regional banks, and independent power producers (IPPs) to bring in additional resources and expertise. Finally, the study noted that local governments in the focus areas have gained considerable financing and implementation responsibility as part of the government's decentralization efforts, and would need to be integrated into the implementation of specific programs. In March 2012, the MEMR requested ADB to provide a TA to support its efforts to promote energy access through increased use of renewable energy, with a special focus on remote areas and small islands in Eastern Indonesia.
Based on discussions with MEMR, the area chosen for the CDTA is the Nusa Tenggara Timur (NTT) region of Indonesia (with a focus on Sumba Island). The TA will build on early resource surveys and economic analyses conducted in these locations. The provincial government of NTT and the district governments of Sumba (comprised of four districts) are pursuing energy access programs jointly with MEMR and the regional office of PLN, and have designated Sumba as an Iconic Island that will have universal energy access from RE sources. In addition, a few small-scale IPPs are active in the region. Commercial banks that operate on the island have also indicated an interest in participating in energy access programs.
Therefore, a focus on this location allows the ADB TA to build on prior work and provides an ideal implementation context with several interested stakeholders. MEMR has constituted a task force to scale up renewable energy generation in Sumba and all of the stakeholders mentioned above are members of the task force. The proposed TA will align its scope and work plan closely with that of the task force to support the implementation of its objectives.