Microgrid and Hybrid Power: The Answer to Indonesia’s Energy Problem?

Black & Veatch’s Sherri Jett discusses opportunities and challenges in Indonesia’s energy sector

By Christ Ponderosa
Thursday, April 12, 2018

Over the past couple of months the Ministry of Energy and Mineral Resources has dropped 90 regulations and 96 certifications, recommendations and permits in a deregulation effort in line with President Joko Widodo’s instruction to improve the investment climate.

The coal and mineral sector experienced the most deregulation – 32 regulations and 64 certifications and permits were dropped. Although the positive impacts of such deregulation efforts are yet to be observed, increased investment in the sector will help generate more employment and boost economic growth. Therefore, examining how deregulation contributes to the improvement of the investment climate is important.

AmCham Indonesia sat down with Black & Veatch Project Manager, Sherri Jett, to discuss the challenges and opportunities in the Indonesian energy sector in 2018.

Black & Veatch, founded in 1915 and headquartered in Kansas City, operates within the water, power, and oil and gas industries with over 110 offices and 7,000 active projects worldwide. The company employs over 10,000 professionals on six continents. In Asia alone, it draws from over 50 years of experience and employs over 1,000 power professionals who work on 50 active projects. In Indonesia, the company employs over 75 power professionals.

Jett discussed regulatory constraints such as local content rules and tariff caps, as well as how the archipelagic geography of the country poses challenges to infrastructure development crucial to attracting more investment in the energy sector. The prospect of integrating renewable energy into the existing grids, which can help ensure the reliability of electricity supply especially in rural areas, remains challenging.

Nevertheless, Jett believes that microgrid and hybrid power generation solutions have promising potential in addressing these challenges.

AmCham Indonesia: How involved is Black & Veatch in Indonesia’s energy sector? What are your core business capabilities and what are the major projects the company is working on?

Sherri Jett: Black & Veatch is proud of contributing to Indonesia’s power sector for almost 50 years. Since our first project in 1969, we have delivered more than 20,000 megawatts [MW] of locally adapted and reliable power generation, transmission solutions, and dozens of other oil and gas and water infrastructure projects in Indonesia.

We work as either an EPC [engineering, procurement and construction] contractor or a consultant engineer. As a trusted partner of PLN and many independent power producers [IPPs], developers, investors, suppliers and contractors in Indonesia, we are working on a significant proportion of Indonesia’s flagship power generation projects today as part of its 35GW program, including large-scale coal-fired and gas-fired projects, as well as supporting renewable and hybrid energy development.

However, we are different than a lot of other global engineering and construction companies. Not only have we been in Indonesia for decades and developed a strong localized operation, we are more focused on certain sectors and bring a depth of knowledge and experience; for example, we don’t target work in the traditional transport infrastructure sectors but are very focused on energy, water, and increasingly smart city development where it intersects with these core utility services.

This means we can help clients on projects of all scales and at a variety of project development stages. This often sees us advising banks at the very start of a project’s conception, or can see us working with companies in the mining sector addressing their captive power needs, particularly important in Indonesia where large, often remote, industrial users may have grid stability and fuel supply concerns. With the cost of battery storage as well as solar, wind and other renewable energy technologies decreasing, we’re seeing a great opportunity to build small-scale microgrid and hybrid energy solutions.

Outside of commercial and industrial deployments, as I discussed at the US-Indonesia Energy Day, microgrid and hybrid energy solutions could help electrify many of Indonesia’s rural locations.

What is your view of the Indonesian energy market?

This is an important time for Indonesian development. The power infrastructure that is being built will serve as the backbone of the economy for years to come. Improving access to reliable power is more than just switching on the lights: it’s as much about enabling Internet access and improving education standards as well as attracting more and higher value chain industries to invest.

There are a number of parts to the challenge. At the broadest level there is a significant amount of work required to improve the reliability of power generation capacity, transmission, and distribution. The 35GW program has made some good inroads here.

Expanding and stabilizing the grid for industry is an important consideration. Capacity and reliability of supply remain challenging in many parts of Indonesia and can have considerable financial impact on commercial and industrial users. Until that is better resolved, we will continue to see demand for more reliable supply from IPPs and industrial users wanting to deploy their own captive power generation.

Another significant challenge surrounds further renewable deployment and, critically, the integration of these generation sources. Then, of course, Indonesia’s archipelagic geography makes it particularly hard to electrify remote locations. Finally, add cost and finance into the mix and you can begin to appreciate the complexity of the challenge at hand.

However, I believe there is huge potential for microgrid and hybrid power generation solutions in Indonesia – helping stabilize the supply for customers, bringing electricity to rural locations and increasing sustainability. The potential for development is considerable because, as compared to diesel generation, which is often used in many remote locations, microgrids and hybrid power generation can reduce costs.

What are the opportunities and challenges the private sector faces in the energy market this year?

Most uncertainty surrounds the pace of adoption of renewable energy in Indonesia. How many, how quickly and on what scale will renewable energy projects be developed and financed? Will utility-scale solar and wind projects overcome the perception that only small amounts of intermittent renewable energy can be added into the mix? Limits on foreign investment will continue to challenge the industry and potentially delay development, as will constraints around local content requirements and tariff caps.

There is an increasing emphasis on improving the efficiency of existing plants, which creates opportunities for suppliers and contractors in the energy market this year. In a similar vein, many electricity users are exploring hybrid generation solutions where current captive power generation is mixed with renewable energy and energy storage technologies, functioning like microgrids.

How can the government better regulate the energy sector to create a more welcoming investment/business climate, especially for US energy companies?

This is a challenge for any government. The energy sector is going through unprecedented disruption. While creating positive political momentum, the debate around climate change and the recent Paris Accord is creating regulatory uncertainty as countries throughout the world decide how best to achieve new targets. Technological advances in renewable energy and the emergence of distributed generation are also causing disruption. Then, consider how Indonesia pursuing rapid economic development and sustainable long-term growth.

We encourage other US energy companies to seek more understanding of the local environment and to work with the US Commercial Services group to help overcome issues they may face. Our operations in Indonesia have grown the more we invest in our local capabilities and focus on where we can add more value to our Indonesian partners and clients. 

How can a stronger public-private partnership be fostered in the energy sector?

Infrastructure projects require large upfront investment where returns only begin to be realized many years after the project has been built and is in operation. This places huge importance on the planning stages, regardless of the financial structure and model in place.

Deeper assessment and understanding of technical and commercial project risk is the cornerstone for success; and allocating risk to the right parties to best manage that risk is critical. Specifically, public-private partnerships often do not share risk effectively or equitably among all partners. Closer collaboration between governments, private financiers, and developers is required, but the challenges facing all investment in energy infrastructure must be considered.

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