Coal vs. renewables: Least-cost optimization of the Indonesian power sector

Abstract

Indonesia, Southeast Asia's largest economy, ranks globally among the top countries in terms of the envisioned expansion of coal-fired power plants. Despite strongly falling costs for key renewable energies in recent decades, most outstandingly solar PV and wind power, their role in Indonesia's power sector planning is negligible. To assess the potential role of renewable energies in Indonesia's power sector, we develop a cost optimization power sector model. Based on four different scenarios assuming a comparatively slow and a comparatively rapid decrease in the costs for renewable energies, each with and without carbon pricing, we assess capacity expansion, electricity generation, resulting CO2 emissions, and total system costs until 2040. We compare our results to Indonesia's utility latest power expansion business plans RUPTL, as well as to the country's energy master plan RUEN. We find that official power sector development plans would lead to comparably higher electricity generation costs, due to overcapacity and negligence of future least-cost technologies, especially solar PV. Carbon pricing as low as 5 USD per ton of CO2 would make coal an economically unviable alternative and foster the integration of biomass and geothermal power plants. In the context of rapidly decreasing costs for renewables, solar PV would be cost competitive with coal even in the absence of carbon pricing by the middle of the 2020–2030 decade. Wind power remains largely uncompetitive across the whole time horizon, due to the lack of substantial wind resources. Our results highlight that Indonesia's power sector planning could be substantially improved, from both a cost and a climate protection perspective.