- We see an upside risk to our generation growth forecasts for Indonesia’s biomass sector, as the market looks toward co-firing technologies and increasing the use of renewable energy.
- We believe that coal and biomass co-firing holds long-term potential due to increasing environmental pressures and cost advantages, particularly as Indonesia remains heavily dependent on coal for power generation.
We see an upside risk to our growth forecasts for Indonesia’s biomass sector, given some traction in the use of co-firing technologies within the market. In mid-October 2020, state-owned utility Perusahaan Listrik Negara (PLN) has signed a memorandum of understanding with Mitsubishi Power and the Bandung Institute of Technology to develop a policy roadmap to promote biomass co-firing across Indonesia’s thermal power plants. The combination of industry and academic players is a positive step toward establishing an economically viable adoption in the market, particularly as the government looks to increase the use of renewable energy in its power mix. A PLN subsidiary, PT Pembangkitan Jawa Bali (PJB) is looking to complete its pilot test of cofiring 15 coal-powered plants with biomass by the end of 2020, with sawdust and woodchips as feedstock at present. If successful, we could see a push for wider adoption across the market. We currently remain relatively conservative in our forecasts, and expect biomass generation to grow by an annual average of 1.9% over the coming decade, to reach approximately 1.24TWh.
We believe that coal and biomass co-firing holds long-term potential amid increasing concerns about air pollution and climate change. As environmental opposition increases both in Indonesia and across the globe, there has been significant attention to biomass as it offers a viable alternative to reduce carbon emissions from traditional power generation sources – coal in particular – without a substantial increase in costs or large capital investments into a new power plant. Biomass absorbs carbon dioxide during its growth, and is hence seen as carbon neutral with zero net emission. At present, most biomass co-firing technologies are driven by combustion technologies in coal-powered plants, most of which contain pulverised coal boilers or fluidized bed combustion boilers. Successful experiments have been conducted with most types of coal (eg, anthracite, bituminous, lignite etc) and with every major category of biomass (eg, crop, woody residues etc) enhancing the viability of this technology. Many companies, such as those in Japan, are also developing technologies to further boost the co-firing ratio of coal and biomass and efficiency. As such, co-firing is expected to reduce greenhouse gas emissions at a low cost as there is no need to modify existing coal boilers.
This occurs particularly against the backdrop of Indonesia’s power generation dynamic, which will remain heavily dependent on coal. The abundant domestic coal supply and the relatively low cost of the feedstock mean it is the fuel of choice to meet surging power demand in the country. While President Jokowi allegedly signaled to his Cabinet intentions to start reducing coal amid rising air pollution in Jakarta last year, this is in contrast to his own administration’s energy policies announced earlier in the year, and there has been no specific targets, incentives or new policy directions laid out to support his claim since. In contrast, the energy government remains strongly committed to coal-fired power generation, justifying its need for economic development. This was reaffirmed in April 2020, when they openly refused further emission cuts, as it remains key to support economic growth in the country. Officials have later admitted that they expect emissions from the energy sector to increase and account for 60% of total emissions in the country by 2030. We expect Indonesia’s power mix to remain dominated by coal over the course of our 10-year forecast period to 2029, increasing its share of generation to 64.6%.
Indonesia also has abundant biomass potential which it could leverage upon. Indonesia has a large forestry industry, and remains one of the world’s largest wood product exporters (eg wood panels, pulp and paper). In 2019, this totaled to be approximately USD11.6bn, and ongoing policy reforms for the industry is expected to boost the sector even further going forward. Indonesia is also a key palm oil producer, and generates substantial amounts of palm kernel shells that is already being used and exported as biomass feedstock abroad, such as to Japan and South Korea. As such, these industries can also offer cheap and easy access to biomass feedstock within the country. According to PJB, the price of wood waste products is significantly lower than the cost of coal per ton, and will hence continue to offer similar operating margins. Leveraging on these waste products will also provide an additional source of revenue to these existing industry players, and create a circular economy within the market.
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