Asian investors are changing their attitude to renewables as costs come down and environmental pressures mount
By Fergus Jensen and Wilda Asmarini
JAKARTA, Nov 20 (Reuters) - A well-connected Indonesian marine renewable energy company and OpenHydro, a unit of French state-owned naval defence company DCNS, aim to be the first to plug into the vast untapped tidal energy potential of the world's biggest archipelago.
Renewables have so far played little part in Indonesia's power sector, despite the country sitting on the world's biggest geothermal reserves and being bathed in sunshine, crowded out by an abundance of cheap coal and bureaucratic bottlenecks.
But declining costs of renewable electricity and a new push by President Joko Widodo to develop renewables in the remote eastern parts of the archipelago are changing the picture.
With narrow straits straddling the Indian and Pacific oceans, Indonesia has significant tidal power potential, and PT Arus Indonesia Raya (AIR) and OpenHydro plan to build the country's first such project.
"This project is important for Indonesia and the world so we can stop burning coal," AIR president director Panji Adhikumoro Soeharto told Reuters.
OpenHydro, a company specialising in the design and manufacture of marine turbines to generate renewable energy from tidal streams, already has projects in Japan, Britain, France and Canada.
The AIR and OpenHydro model would appeal to renewable energy investors because it is relatively inexpensive and low in maintenance compared with other renewables, said Soeharto, grandchild of former Indonesian president Suharto.
"We're doing the investment ourselves, with banks," he said. He did not say how much had been invested so far.
According to the partners, Indonesia has the potential for up to 60 gigawatts of tidal power, more than Indonesia's total electricity capacity of just over 50 gigawatts last year.
Land and permitting issues that often hold up power infrastructure projects should be no obstacle for AIR, Soeharto said, referring to plans to build a factory in Indonesia and utilise 70 percent local content in their turbines.
The turbines, which sit on the seabed, can cost up to $7 million each in Europe, a cost PT AIR plans to slash to as little as $4 million, Soeharto said.
"The only thing we can't produce is the magnets - French technology. Maybe in future we'll study this."
Over the next three years, the two companies plan to develop up to 20 2-megawatt turbines in a pilot tidal array in the Bali strait, which will supply power directly to state energy company Pertamina, Soeharto said.
According to a release on the DCNS website, the Indonesian project is targeted to reach 300MW of installed capacity by 2023.
Indonesia wants renewable energy to make up around a quarter of its total by 2025 from around 5 percent now, though critics have questioned its seriousness in meeting its climate goals, and its overall plans to ramp up power production have got off to a slow start.
Yet attitudes toward renewable energy among Asian investors are changing as costs come down and environmental pressures mount, a Singapore-based hedge fund manager told Reuters.
Over the past two years the cost of producing solar and onshore wind power had begun to reach a level where it was competitive with fossil fuels, below 10 cents per kilowatt hour, he said.
"It is beginning to happen."
India and China, Indonesia's two biggest coal buyers, are accelerating the global transformation from coal to cleaner energy sources. Some of Indonesia's biggest coal miners, such as state-owned Bukit Asam and Adaro, are also diversifying into renewables.
"Renewable energy is a must. It's no longer an option. We don't have any choice," recently appointed deputy energy minister Arcandra Tahar said at a forum in Jakarta last week.
While incentives will be needed to kickstart renewable developments in Indonesia, on a per-kilowatt-hour basis they may already be cheaper than the diesel that many remote islands currently rely on for power, Tahar said.
By assisting state electricity company Perusahaan Listrik Negara (PLN) to develop renewable energy, Indonesia could phase out diesel use and reduce its costly fuel subsidy bill, Tahar said, adding that his office was making this a priority over the next three years.
"Our focus now is on providing incentives and regulating prices that are acceptible to all sides," Dadan Kusdiana, secretary at the Renewable Energy Directorate, told Reuters.
A spokesman for PLN said it was "wide open" to developing hybrid power systems in remote areas, combining renewables with traditional generators to guarantee electricity is available 24 hours a day.
"We have to be oriented so that we reduce the cost of electricity," PLN spokesman Made Suprateka told Reuters.
(Reporting by Fergus Jensen and Wilda Asmarini; Editing by Will Waterman)
Our Standards: The Thomson Reuters Trust Principles.