Unlocking the potential of a microgrid system in Indonesia

The microgrid is quite promising in Indonesia. Frost and Sullivan projected the microgrid market to record a CAGR growth of 23.04% from 2018 to 2025. In 2021, the market size of the microgrid system in Indonesia is expected to climb to the level of USD 72.3 million. One of the investors named Engie, SA signed a joint venture partnership with Electric Vine Industries to develop, maintain, and operate microgrids in Papua. The investment has been projected to spend money by USD 240 million to help 3,000 villages in Papua from 2017 to 2022. Despite Papua, ENGIE also cooperates with Sugar Group and invested more than USD 1 billion to develop renewable energy projects in Sumatra and Eastern Indonesia during 2018 - 2023. This will generate revenue in the microgrid up to USD 108.4 million in 2023.

<The trend of revenue in the microgrid market in Indonesia (in USD million)>

Source: Frost and Sullivan

The crunchy market of microgrid system in Indonesia has been encouraged by the government policy. The Government of Indonesia has targeted the electrification ratio by 99.9% in 2021. Until the end of 2020, the electrification ratio reached 99.20%. The number experienced significant progress compared to six years ago. In 2014, the electrification ratio was 84.35%. However, the distribution of the electrification ratio is not evenly distributed in Indonesia. Several provinces in Indonesia record electrification ratios in the range of 90% - 95%.

To achieve the target, the government through PT PLN (Persero) is committed to expanding the transmission and distribution network. The state-owned company has been promoting a microgrid system for the areas that are still isolated and remote. The electric power distribution automation system, known as a microgrid, is designed for grid flexibility, data processing, and different interconnections. The development of the microgrid system in Indonesia will support the need for a robust and reliable power supply as the country faces unique geographic restraints. Besides, the country has proven to be prone to natural disasters.

Head of the Communication Bureau, Public Information Services and Cooperation of the Ministry of Energy and Mineral Resources, Agung Pribadi, said that the government is developing a microgrid-based electricity system to target maritime economic clusters. This technology will provide a small-scale, hybrid-based electricity system from Renewable Energy. The application of the microgrid electricity system is also expected to help achieve the 23% new renewable energy mix target by 2023.

"The microgrid system can be Indonesia's solution to achieve the electrification ratio target, especially in areas that are difficult to reach by transmission and distribution of electricity," said Agung.

According to Agung, several reasons become the main consideration in developing microgrids for electricity systems. The first is the geographical condition of Indonesia which consists of a group of islands. It takes a lot of investment in the transmission and distribution sector to connect electricity throughout Indonesia. On the other hand, the economic costs are not proportional to the benefits obtained by PLN. Thus, Indonesia needs an inexpensive electricity system. The second is to save costs. Despite cost-saving due to inexpensive investment, the microgrid electricity system allows electricity to be more efficient.

"The third is to increase the welfare of local communities because a remote area can rely on existing sources and make their electricity so that it boosts the economy," explained Agung.

One of the regulations that support the development of the microgrid system in Indonesia is the regulation of the Ministry of Energy and Mineral Resources Number 38 of 2016. It regulates the acceleration of electrification in the undeveloped, remote, border, and small populated villages through the implementation of small-scale electricity supply businesses.

The regulation says that the development of power plants to power the area is directed by the private sector, regionally owned enterprises, and cooperatives. Therefore, it has an opportunity to increase the microgrid market in Indonesia. It is because regions can develop a microgrid system by cooperating with private parties, both foreign and domestic without having to invest in large amounts. "This is a legal umbrella to accelerate the development of microgrids in Indonesia," said Agung.

Another factor supporting microgrid growth in Indonesia is a government regulation that prohibits foreign ownership in power generation projects of less than 1MW. On the other hand, investment development for power generation projects less than 1MW has been slow. Therefore, microgrid is expected to be an electricity solution in Indonesia.

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