By Andreas de Vries and Dr Salman Ghouri *
JAKARTA – Indonesia was until recently one of the few energy self-sufficient countries in the world. Reduced crude oil and natural gas production has changed this situation, however, calling into question the fossil fuel focus of the country’s ambitious 35 Gigawatt electricity plan. Should renewables be given more priority?
Fossil fuels have been the lifeline of the global economy for over 150 years. In fact, they have became a way of life, being a raw material for thousands of products and accounting for over 86% in the global energy mix.
Ironically, fossil fuel resources are unevenly distributed around the world. 72% of global coal reserves are located in just five countries, the USA, Russia, China, India and Australia. Similarly, five countries hold 61% of global oil reserves – Saudi Arabia, Venezuela, Iran, Iraq and Canada. A further five – Iran, Russia, Qatar, Turkmenistan and the USA – account for 64% of global natural gas reserves.
This explains why the quest to access fossil fuel has been of key strategic importance for policy makers ever since the Industrial Revolution mechanized industry: while every economy is fossil fuel dependent, most countries are fossil fuel imports dependent.
Indonesia was, until recently, one of the few energy self-sufficient countries in the world. Reduced crude oil and natural gas production has changed this situation, however, creating further challenges for the country’s 35 Gigawatt electricity plan. According to this plan, namely, 30% of the capacity increase is to come from gas power generation, with a further 60% to come from coal, the environmental and health implications of which are by now well-known. Just 10% of the 35 Gigawatt electricity plan is reserved for renewables.
The question is whether this fossil fuel focus remains the right strategic choice for 21st century energy security policy.
The Strategic Implications of a Fossil Future
20 additional Gigawatts of coal power will certainly add to Indonesia’s already substantial air pollution problem, an issue not to be underestimated. The United Nations currently campaigns its member nations to make climate change a security issue, since rapid environmental changes put pressure on the supply chain of water, food and other living essentials, and thus destabilize countries economically and politically.
Indonesia’s focus on gas powered electricity generation, at a time when the local supply/demand balance is tightening, will almost certainly lead to a need to import foreign gas. As other countries have found, such a dependence on foreign gas will leave the country exposed to shocks due to natural disasters and willful intent.
A fossil fuel based energy ecosystem has a further important strategic implication. Since the major sources of fossil fuels are concentrated in specific regions of the globe there is an inherent weakness in the fossil fuel based energy ecosystem: fossil fuel production and transportation, and to a lesser but still significant extent processing, are highly centralized. This makes the fossil fuel based energy ecosystem vulnerable to disruption even in fossil fuel rich countries.
Strategically, therefore, there is a strong case to be made for energy policy to look beyond the fossil fuels coal and gas.
The Strategic Benefits of Renewables
Unlike fossil fuels, renewable energy resources are not concentrated or limited within certain national boundaries. Renewable energy can be harvested wherever there is sunshine or wind (or waves). This abundance of renewable energy means it has the potential of addressing the issue of security of supply comprehensively, removing any international dependencies.
A renewables based energy ecosystem also tends to be much more distributed, making it inherently more robust and reliable. In the renewables based energy ecosystem centralized generation (and associated transport) takes a much smaller share in the mix than in the fossil fuel based energy ecosystem. Using solar and wind, electricity can in many cases be generated locally, i.e. where it is needed. In a renewables based energy ecosystem this localized electricity generation stations can be coupled together to form microgrids, while microgrids can be coupled together into the macrogrid. In the renewables based energy ecosystem the ability to balance out differences in regional electricity supply and demand can thus be maintained, while the ability to “de-couple” in order to prevent local issues (e.g. a severed power line) from affecting the macrogrid is added.
For this reason the US military is highly interested in renewable energy. “Islanding”, the act of making a military installation capable of operating as intended even during blackouts, has long been part of standard military procedure. A reliance on diesel fuel generators made this challenging to manage, traditionally. A renewables based energy ecosystem at installation level, a so-called microgrid which couples local solar and wind power generation with electricity storage, is much simpler – and cheaper – to operate and thus better suited for ensuring a sufficient and reliable electricity supply under all circumstances.
Obstacles Are Being Removed
Historically, the high cost of renewable energy made it essentially impossible to capture and exploit their strategic benefits. Over recent years these cost have fallen substantially, however, due to various technological advancements. According to investment bank Lazard, the cost of renewable energy has decreased dramatically since 2009, in the case of utility-scale solar by 85% and in the case of wind by 66%. Consequently, in certain environments renewable energy is already cheaper than electricity from conventional coal or gas plants.
The remaining key obstacle to a transformational shift towards a renewable energy ecosystem is energy storage technology, a critical element of a renewable energy ecosystem as in this system timing differences in the generation and usage of electricity will need to be balanced out. Again according Lazard, energy storage technologies have become increasingly attractive over recent years, and are expected to continue becoming more attractive during coming years, but costs are not yet at the level that makes them competitive compared to fossil fuel based electricity solutions.
21st Century Energy Security Policy: Energy Independence is in the Balance
The capture of the strategic benefits in renewable energy therefore remains challenged in three ways.
Firstly, energy storage technologies need to improve in order for the renewable energy ecosystem to become a viable alternative for its fossil fuels based counterpart. This means a 21st century energy security policy should drive forward research and development in the battery technology area.
Secondly, the established renewables based electricity generation capacity remains well below what is needed to meet electricity demand. In order to address this challenge a 21st century energy security policy should facilitate continued investment in renewables based electricity generation capacity. This means addressing regulatory hurdles to renewable energy investment and innovation that have resulted from ~150 years of lawmaking with a fossil fuel based energy ecosystem in mind. It also means establishing a real level playing field through feed-in-tariffs for the different power generation solutions that properly factor in externalities – something Indonesia’s current feed-in-tariff regulation fails to do.
Thirdly, a transition from a fossil fuel based energy ecosystem to a renewable energy ecosystem will come with unique integration challenges that will need to be managed. Similarly, in the renewable energy ecosystem the integration of localized generation into microgrids, and of microgrids into the macrogrid, will require management. Both types of integration need to be facilitated by development of new and improved grid management systems, meaning that a 21st century energy security policy should also drive forward research and development in this particular area.
These recommendations do not mean to say that a 21st century energy security policy drops any reference to fossil fuels all together. This would be foolish as at present the global economy remains dependent on fossil fuels. Rather, they are a call for a balanced energy security policy, which integrates into the basics of traditional energy security policy these three renewable energy focused elements.
In the absence of such integration, namely, a nation will be destined to remain dependent: in a fossil fuel based energy ecosystem on foreign fossil fuels, and in a renewable energy ecosystem on foreign energy critical technology. (*)
Andreas de Vries is a Strategy Consultant in the energy industry. Based in Bekasi, he has advised government officials and business executives around the world on energy strategy formulation and execution.
Andreas de Vries
Dr Salman Ghouri is an energy advisor to government officials, business executives and the investment community, with expertise in global / regional long-term forecasting, macroeconomic analysis and market assessments. He is based in Dallas, USA.
Dr Salman Ghouri