Economical and environmental impacts of decarbonisation of Indonesian power sector

Abstract

Renewable energy has been prioritised in decarbonising Indonesia's electricity system. Indonesia aims to attain an efficient energy system by applying renewable energy tariffs that are lower than the cost of fossil fuel-generated electricity. However, the effectiveness of this policy is questionable, as renewable energy investments under previous premium feed-in tariffs did not meet expectations. This study aims to estimate generation costs from renewable energy expansions under three scenarios, namely existing power plant planning, and 11% and 14% emission reductions in Indonesia's electricity sector. We develop an agent-based model (ABM) tool called PowerGen-ABM that employs multi-approaches: linear programming and input-output analysis. The optimisation result shows that the emission reduction targets would increase the average electricity generation costs in 2028 from 65.3 USD/ MWh in the existing plan of power plant expansions to 68.3 USD/ MWh. The increased costs are caused by insufficient dispatchable renewables in several regions such as North Maluku. Renewable energy production share in total electricity production and emission reduction achievement of the existing plan in 2025 will be 22.8% and 6.5% below the targets of 23% and 11%, respectively. In contrast, the emission reduction scenarios could achieve those targets due to higher renewables productions, especially with wind energy from 5,268 GWh in the existing plan into anywhere between 64,472 to 75,085 GWh. Several policy implications are discussed based on these findings.