Coal and Energy Access
Indonesia’s Ministry of Energy and Mineral Resources estimates that around six million households are still without access to electricity, and large investments are needed to supply reliable power across the country.
Coal is a central focus in this quest, and the Indonesian government expects it to continue to play a significant role in the decades to come. However, coal has harmful environmental and health impacts, while cleaner, renewable energy alternatives are becoming increasingly cost-competitive.
Figure 1: Share of Fuel Consumption of PT PLN Power Plant, 2015
Source: Ministry of Energy and Mineral Resources, Handbook of Energy & Economic Statistics of Indonesia 2016.
Growing energy demand also implies a large expansion in coal power. This is also reflected in the government’s near-term plans to expand power production by 35 gigawatts (GW), with more than 20 GW of this amount to come from coal as electricity demand rises to over 450 TWh in 2025.
By contrast, renewable energy has not seen significant growth in Indonesia (Figure 2). This is despite costs of renewables being competitive with—or even lower than—those for coal, especially when taking into account the costs of air pollution and greenhouse gas emissions.
Figure 2: Evolution of renewable installed capacity 2006–2016
Source: PT PLN (Persero). (2016). Laporan Statistik 2016. Retrieved from http://www.pln.co.id/stakeholder/laporan-statistik.
What are financial supports and why do we use this term instead of subsidies?
In Indonesia, a “subsidy” is an allowance provided directly to the people of Indonesia, often where the price of a commodity — for example, gasoline or diesel — is kept low. Indonesia’s fiscal accounting/recording does not recognize/consider supports to companies as subsidies. In international literature, these types of supports are also considered subsidies. Any government action that lowers the cost of energy production, raises the price received by energy producers, or lowers the price paid by energy consumers is deemed an energy subsidy.
In its work, GSI has applied the international definition of subsidy to attempt to identify situations where industry is receiving, or has access to, financial supports for coal and renewable energy. In order avoid confusion in the Indonesian context; we sometimes refer to these policies and situations as financial supports.
What are financial supports and why do we use this term instead of subsidies?
In Indonesia, a “subsidy” is an allowance provided directly to the people of Indonesia, often where the price of a commodity — for example, gasoline or diesel — is kept low. Indonesia’s fiscal accounting/recording does not recognize/consider supports to companies as subsidies. In international literature, these types of supports are also considered subsidies. Any government action that lowers the cost of energy production, raises the price received by energy producers, or lowers the price paid by energy consumers is deemed an energy subsidy.
In its work, GSI has applied the international definition of subsidy to attempt to identify situations where industry is receiving, or has access to, financial supports for coal and renewable energy. In order avoid confusion in the Indonesian context; we sometimes refer to these policies and situations as financial supports.
What is the direct cost of coal to the Indonesian government?
IDR 8.5 trillion (USD 644 million) is a lot of money that the Indonesian government pays or fails to receive every year—and ultimately it is Indonesians who cover these costs. Let’s put it in perspective:
That would pay one month’s wage for roughly 3.3 million Indonesians (Avg. IDR 2,552,962/month based on August 2016 observation. Source: Bank of Indonesia (n.d.). The Special Data Dissemination Standard. http://www.bi.go.id/sdds/.)
It would cover the health insurance premiums for over 10 per cent of the population (roughly 27.7 million Indonesians) for a year (based on basic health insurance premiums under the national system).
And it would pay a single term of tuition for the Universitas Gadjah Mada Law Program for over 485,000 students (based on UGM Admission and Tuition Fees).
Or it’s roughly IDR 33,000 (USD 2.5) for every Indonesian every year (based on a population estimate of 257 million).
Figure 3. What redistributed coal subsidies could mean in terms of education, health, and the economy
What are the health costs of coal?
In addition to the direct costs of the subsidies to the Indonesian government, coal also means large health, economic, and environmental costs to all Indonesians.
Figure 4. Effects of coal-related air pollution
The World Health Organisation has described coal power generation as the major public health challenge of the 21st century due to the emissions that are associated with respiratory illness, acid rain, and the contamination of water and food (Health and Environment Alliance [HEAL], 2013).
What are the alternatives?
Coal is not the only option for Indonesia. Auction results from around the world are showing that the cost of solar power is now very low, and very competitive with coal. Results from renewable energy auctions in 2016 show solar prices as low as 3-7 USD cents per kilowatt hour (roughly 400 – 1000 IDR) in many countries around the world (IRENA, Renewable Energy Auctions, 2016).
The main goal of Indonesia’s energy policy should be to increase the overall amount of energy while increasing the share of renewable energy and reducing the share of coal.
Indonesia volunteered for a peer review of its fossil fuel subsidies within the G20. We encourage Indonesia to include coal subsidies as part of the review and get feedback from peer countries on how it can reform its support to the electricity sector, enhance the use of renewables and increase energy access.
Can you tell me more about subsidies?
You can learn more about Indonesia’s coal and renewable energy subsidies from this detailed report.
Additional information about subsidies in Indonesia is available at the following links:
- GSI resources on subsidies in Indonesia:
- International Experiences With LPG Subsidy Reform
- Indonesia's Financially Sustainable Electricity Sector
- How to Respond When Prices Go Up: Objectives and options for fuel price adjustments in Indonesia
- Gender and Fossil Fuel Subsidy Reform: An audit of data on energy subsidies, energy use and gender in Indonesia
- Oil Change International, “Private Gain, Public Risk: Guarantees & Credit Enhancement for Coal-Fired Power Plants in Indonesia work in Indonesia”
- Overseas Development Institute, “G20 subsidies to oil, gas and coal production: Indonesia”