Tidal Energy Policy in Indonesia

Economic and Policy Analysis for Offshore Renewables

Industrial CDT in Offshore Renewable Energy (IDCORE)

Group Assignment

Group Zephyr:

Jonathan Glasspool (s1407618)

Tom Summers (s1644606)
Prokopios Vlachogiannis (s2144233)

25th November 2021

[3949 words (not including any diagrams/figures, or references)]

Nomenclature
BTU British Thermal Unit

CAPEX Capital Expenditure

Cfd Contract for Difference

EMEC European Marine Energy Centre

FiT Feed-in Tariff

IPP Independent Power Producer

LCOE Levelized Cost of Energy

MWh Megawatt-Hour

OPEX Operational Expenditure

ORE Offshore Renewable Energy

PLN Perusahaan Listrik Negara (State Electricity Company)

PPA Power Purchase Agreement

PPU Private Power Utility

UKRI UK Research and Innovation

UN United Nations

i
Contents
Nomenclature ................................................................................................................................................ i

1 Introduction ............................................................................................................................................... 1

2 System Structure........................................................................................................................................ 5

2.1 Market Structure ...........................................................................................................................................5

2.2 Grid Structure ...............................................................................................................................................5

2.3 Government Institutions ...............................................................................................................................6

2.4 Existing Government Policies ......................................................................................................................6

3 Existing Innovation Landscape ................................................................................................................. 8

3.1 The need for Innovation ...............................................................................................................................8

3.2 Cost reduction through industry development ..............................................................................................8

3.3 Cost reduction through collaboration of different sectors ..........................................................................10

3.4 Global Tidal energy cost reduction policies ...............................................................................................11

4 Policy Recommendations ........................................................................................................................ 12

4.1 Support for Innovation................................................................................................................................12

4.2 Electricity Market Reform ..........................................................................................................................13

4.3 Support for Renewable Generators.............................................................................................................13

5 The Costs and Benefits of Tidal Energy .................................................................................................. 16

5.1 General comments on welfare benefits and costs of potential tidal projects in Indonesia .........................16

5.2 Costs Benefit Analysis of the Tidal Power Plant Larantuka Project ..........................................................18

6 Conclusion ............................................................................................................................................... 19

Bibliography ............................................................................................................................................... 20

Appendix A: Cost-Benefit Analysis of the Nautilus Tidal Energy Project ................................................ 24

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List of Figures
Figure 1: Populations and electrification rates across Indonesia (Firdaus, Houlsby and Adcock, 2017) ...................1
Figure 2: The development of the Indonesian electricity sector from 2013 to 2050 (Firdaus, Houlsby and Adcock,
2017) ...........................................................................................................................................................................2
Figure 3: Potential Sites for tidal stream energy generation (Firdaus, Houlsby and Adcock, 2017) .........................3
Figure 4: Map of 2015 Electricity Network in Indonesia (International Energy Agency, 2015) ...............................5
Figure 5 Cost reduction over technology employment (Smart and Noonan, 2018) ..................................................9
Figure 6 LCOE over installed capacity of tidal energy ..............................................................................................9
Figure 7 LCOE over cumulative generation.............................................................................................................10
Figure 8: Contract for Difference Mechanism (EMR Settlement, 2021) .................................................................14
Figure 9 Indonesian archipelago shipping routes (dashed dotted red lines), Indonesian Through Flow currents (solid
black lines) and China Sea Through Flow (dashed black lines). ..............................................................................17

List of Tables
Table 1 Government Institutions and Roles (Asian Development Bank, 2020) ........................................................6
Table 2 The costs and benefits associated with the Nautilus 150 MW Project ........................................................24
Table 3 The costs and benefits associated with the Larantuka Strait Tidal Power Project ......................................18

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1 Introduction
This report aims to highlight why tidal energy technology is a worthwhile investment for the Government of
Indonesia, and what policy mechanisms the government can use to encourage its uptake.

Energy policy in Indonesia, as set out by the National Development Planning Agency, reflects the government’s
commitment to the UN Sustainable Development Goals (UN, 2015), specifically Goal 7: affordable and clean
energy. The government hopes to increase both the electrification ratio, and the contribution of renewables to the
energy mix (National Development Planning Agency, 2019).

Indonesia has vast natural resources and is a net exporter of coal and natural gas. It has, however, been a net
importer of oil since 2004, and a fall in the value of the Indonesian Rupiah during the COVID-19 pandemic caused
the cost of oil imports to rise, compounding economic difficulties (Asian Development Bank, 2020).

The National Energy Council (2014) current medium-term objectives therefore includes strengthened resilience
through resource diversification and maximised use of domestic resources, including renewable energy, as well as
increasing electrification rates across the country. Electrification rates, as shown in Figure 1, do not, however,
reflect the intermittency of the electricity supply (Asian Development Bank, 2020), and so the values suggest a
greater availability of electricity than is actually the case.

Figure 1: Populations and electrification rates across Indonesia (Firdaus, Houlsby and Adcock, 2017)

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The long-term objectives of the Ministry of Energy and Mineral Resources (2021) are as follows:

• No new coal plants from 2023

• 40.6 GW of additional electricity generation capacity by 2030, 51.6 % of which will come from renewables

• 133.3 GW of renewable energy capacity installed by 2050, as shown in Figure 2 below

• Net zero carbon by 2060

Figure 2: The development of the Indonesian electricity sector from 2013 to 2050 (Firdaus, Houlsby and Adcock, 2017)

Current energy policy aims to meet these medium- and long-term targets by implementing solar PV, wind, hydro,
geothermal and biomass generation (Ministry of Energy and Mineral Resources, 2021). By 2019, however, the
share of Indonesia’s energy supplied by renewables had risen to just 9.2% (Asian Development Bank, 2020), which
is evidence that the energy sector is not on track to meet government targets and urgent investment is needed to
enable targets to be met. The Ministry of Energy should look beyond the more established renewable technologies,
and look to capitalise on the vast tidal resource which exists in Indonesia; the potential for tidal energy extraction
is estimated to be in the region of 60 GW (Masli, 2018), compared to just 9.5 GW estimated wind resource (Asia
Wind Energy Association, 2021).
2
Despite the abundance of straits with shallow depths and high flow velocities (Masli, 2018), there are no tidal power
installations in Indonesia. The potential tidal resource is not yet fully understood, as a detailed resource assessment
for the region has not been undertaken (A. M. Firdaus, Houlsby and Adcock, 2017).

It is, however, believed that Indonesia will be a major player in tidal power generation as the technology matures,
thanks to its unique geography; Indonesia is comprised of an archipelago of over 17,000 islands, stretching a length
of over 5,000 km, with narrow straits between islands separating the Pacific from the Indian Ocean (Purba et al.,
2015). While there are challenges associated with distributing electricity across such a vast archipelago, these
islands have been identified as potentially suitable locations for tidal stream generation projects, as shown in Figure
3 (A. M. Firdaus, Houlsby and Adcock, 2017).

Figure 3: Potential Sites for tidal stream energy generation (Firdaus, Houlsby and Adcock, 2017)

These potential tidal stream generators, as well as tidal barrages, which could potentially be developed at sites such
as Mapp in Papua Province and Bagan Siapiapi in Riau province (A. M. Firdaus, Houlsby and Adcock, 2017), have
potential to contribute significantly towards Indonesia’s energy goals. Tidal power offers a predictable, domestic
supply of clean energy (A. M. Firdaus, Houlsby and Adcock, 2017), which could replace the role of imported oil in
applications such as diesel-powered generators which supply electricity to remote island communities (Masli,
2018). This, in turn, would reduce the economic impact of rising oil prices, which are expected to remain high for
years to come (Nasdaq, 2021).

3
Tidal generation could be a crucial component of the additional 20.9 GW of renewable electricity that the Ministry
of Energy and Mineral Resources (2021) aim to install by 2030. The scale of the potential tidal energy resource in
Indonesia means that tidal technologies must be considered, alongside more mature technologies such as solar PV
and wind, if this ambitious goal, as well as the even bolder target of net zero carbon emissions by 2060, is to be
achieved.

The government are not just aiming to reduce reliance on fossil fuels, but also to increase the availability and
consumption of electricity, especially in rural areas (Ministry of Energy and Mineral Resources, 2021), where
electricity supply, if available, is currently expensive due to the challenge of remote grid connections, or due to the
fuel costs for running diesel generators (Indah and Rarasati, 2020). Tidal power plants, connected to micro-grids,
could greatly increase the availability of electricity in such remote regions.

The government have begun to recognise that tidal-stream energy could be a valuable contributor to Indonesia’s
energy mix, and have committed initial investment to two projects via the state electricity company, PLN.

The first project to receive government support was the Nautilus tidal-stream array in the Lombok Strait. In 2015,
SBS International, in partnership with Scottish developers SIMEC Atlantis, secured an engineering, procurement
and construction contract with PLN. This contract initially included Front-End Engineering Design work for the
project (SBS Intl Ltd, 2017).

The second project is the 40 MW Tidal Power Plant Larantuka. By October 2019, feasibility and connectivity
studies had been successfully completed, and a memorandum of understanding between PLN and Tidal Bridge B.V.
was signed, allowing the project to progress to the development stage (Tidal Bridge B.V., 2019).

In order for projects such as these to progress beyond the initial design phase, however, additional investment and
support is required from the government. This report will outline the existing policies and innovation landscape
and then recommend policies which could better support valuable tidal energy projects.

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2 System Structure
2.1 Market Structure
The electricity of Indonesia is predominantly generated, distributed and supplied by state-owned, vertically
integrated electrical utility company (PLN), who account for 72.6% of the country’s total installed generation
capacity. Despite its relative reliance on low-cost generation technologies, PLN does not meet its costs with the sale
of electricity alone, and is therefore reliant on government subsidy. The government set the tariff which they must
sell the electricity at and make up the remainder of the cost of provision with government funds.

Recognising the need for Independent Power Producers (IPPs) and Private Power Utilities (PPUs), the access to the
transmission lines for these groups was relaxed in 2014, and the energy provided by IPPs now make up 27% of the
total electricity generation. IPPs must sell their electricity directly to PLN, who act as a single buyer, through long-
term Power Purchase Agreements (PPAs). There are some regions PPUs can use the power for their own industrial
needs in a process known as captive power, or to sell directly to the consumer (Pricewaterhouse Coopers, 2016).

2.2 Grid Structure

The nature of Indonesia’s archipelagic make-up means that there is not one single coherent grid covering the entire
country, although increasing interconnection between the islands is seen as a key part of the strategy of providing
cleaner, more efficient energy generation in the future. An overview of the structure of the grid as of 2015 is shown
in Figure 4.

Figure 4: Map of 2015 Electricity Network in Indonesia (International Energy Agency, 2015)

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The remoteness of some of the islands, leads to challenges in electrifying homes, either through connection and
extension of the existing grid or the creation of new microgrids. The government are aiming to electrify 100% of
homes, and were forecast to reach 98.86% by the end of 2019, however it is the most challenging homes to electrify
that remain, and a key barrier is in how to finance this. At present, diesel, solar and small-scale hydropower are the
key technologies being considered to provide low-cost and reliable power for these edge cases (Asian Development
Bank, 2020).

2.3 Government Institutions

The key government institutions responsible for governing the Indonesian Energy Sector and their roles are
summarized in Table 1.

Table 1 Government Institutions and Roles (Asian Development Bank, 2020)

Institution Role in Energy Sector

Ministry of Energy and Mineral Resources Responsible for energy policy making and decision
making.
National Energy Council Brings together government ministries and
stakeholders to create the future energy plan
BAPPENAS The national planning ministry who prepare the
medium-term development plan, considering future
supply and demand needs and guiding government
budgeting

The Ministry of Finance Responsible for setting and administering budgets,

subsides and taxes for energy products.
People’s Representative Council An elected group who approve the budgets set by the
Ministry of Finance.
The Ministry of Environment and Forestry Responsible for approving access to land for generation
and transmission projects

2.4 Existing Government Policies

Historically, the government has prioritised cost and energy independence when managing the country’s energy
mix. This philosophy has led to a reliance on fossil fuels. As the country has developed and its population grown,
so too have its energy needs, leading the country shifting from being a net exporter to a net importer of oil as
discussed previously. This, along with the acceptance of anthropological climate change, which is set to have severe
consequences to the country, has driven a shift in the country’s strategy.

Currently the government subsidises the cost of oil, as well as electricity (Ministry of Energy and Mineral
Resources, 2019). The latter is subsidised as the government sets the consumer tariff, and then contributes the

6
difference between this and the cost of supply to PLN. These subsidies do not encourage investment in renewable
energy generation and disproportionately benefit those on higher incomes (Asian Development Bank, 2020).

Attracting foreign investment in the energy system has been a challenge for the government. Private investors have
been put off by a changing policy landscape leading to regulatory uncertainty, as well as currency fluctuations
adding risk to any potential investment (Mitigation Momentum, 2014).

The government has utilised Feed-in Tariffs to support small- to medium-sized renewable energy generation. The
rate provided depends on the technology category and is adjusted based on the location to account for societal
benefits. A scheme on a less developed island, for example, would receive higher FiT funding, which reflects the
higher costs that PLN would face delivering electricity to those locations.

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3 Existing Innovation Landscape
3.1 The need for Innovation
For Tidal Energy to be a viable option for Indonesia, there is need for innovation to overcome financial and technical
challenges facing the sector. Globally, work is being done to reduce the cost, but there are also specific challenges
in Indonesia.

First of all, the Indonesian electricity grid is mainly focused in Bali and Java islands where most of the population
is located, leaving less populated islands with electricity availability as low as 50%. For these islands, sub-megawatt
installations would need to substitute diesel generation, instead of larger scale projects (A. Firdaus, Houlsby and
Adcock, 2017). These projects need cost reduction to be a viable solution. Secondly, most tidal resource assessments
and turbine designs have been carried out for regions where semi-diurnal tides are dominant. However, that is not
the case for Indonesia, where diurnal constituents also play a major role (A. Firdaus, Houlsby and Adcock, 2017).

3.2 Cost reduction through industry development

The current LCOE of tidal energy is 300£/MWh, while small capacity projects have additional inherent
diseconomies of scale, such as grid connection and export to shore, making their implementation in sites of interest
even more financially challenging. However, projections presented in Figure 5 show that the LCOE of tidal energy
will reduce to 80£/MWh (Smart and Noonan, 2018), while isolated areas in Indonesia, such as the Papua islands
have costs up to 320 £/MWh (Hirsch, 2015). Also larger projects could offer energy alternatives to the most
populated islands of the country to achieve its renewable energy goals.

This crucial price reduction will be achieved by growth in the industry worldwide. Significant cost reduction is
expected to be achieved, thus, through: initial accelerated reductions, learning by doing and innovation and cost of
capital (Smart and Noonan, 2018), that will allow better understanding on implementation and cost issues. These
estimations are sensitive to the learning rate. Smart and Noonan (2018) have made a conservative estimation of
learning rates: 13% for CAPEX and 11% for OPEX. Although these rates do not create an attractive LCOE for
private investors in the short term, other expected innovations offer the possibility of a future step change.

A total learning rate for both OPEX and CAPEX of 12% would lead at an LCOE of 128£/MWh for installed capacity
of 1GW. However, a less conservative estimation of 18% learning rate would result at 80£/MWh, as presented in
Figure 6.

8
Economies of volume will play a major role in cost reduction of tidal projects in general, while for the larger projects
in Indonesia, economies of scale will help reduce some of the inherent costs of scale. Furthermore, innovation to
the tidal energy sector using experience gained from the offshore oil, gas and wind sectors can be expected. Finally,
as tidal projects will become more common and prove their reliability, cost of capital will decrease as financial
institutions will consider tidal projects less risky.

Figure 5 Cost reduction over technology employment (Smart and Noonan, 2018)

330
Learning Rate 12%
Learning Rate 18%
280
LCOE (£/MWh)

230

180

130

80
0 200 400 600 800 1000
Installed capacity (MW)

Figure 6 LCOE over installed capacity of tidal energy

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To calculate the total global investment for tidal energy to reach a market competitive LCOE of 50£/MWh, a 20
year project lifetime is used and a rate of capacity increase of 30%/year, with an average capacity factor of 35%
(The University of Edinburgh, 2020). The results for a learning rate of 12% and 18% respectively are presented in
Figure 7.

The total investment for a learning rate of 12% is £2684 billion, while for a learning rate of 18% the total cost is at
a more reasonable level of £99 billion, demonstrating the need for innovations, and, if possible, a step change.

350

300

250
Learning Rate
LCOE (£/MWH)

200 18%
Learning Rate
12%
150

100

50

0
100000 1000000 10000000 100000000 1E+09 1E+10 1E+11
CUMULATIVE GENERATION (MWH)
Figure 7 LCOE over cumulative generation

3.3 Cost reduction through collaboration of different sectors

Additional cost reductions can be expected through more precise resource assessment techniques provided from
collaborations of academia and industry. There is great research interest on the influence of tidal asymmetry on
potential applications, for example in cases such as Orkney (Neill, Hashemi and Lewis, 2014) and Singapore
(Mcgregor and Desouza, 1996), with both mathematical model expansion or 3D computational model approaches
being examined.

Moreover, innovation in combining electricity production with fuel production for residential or transport use, can
be beneficial. For example, the use of energy storage coupled with tidal energy projects has been proposed in
research projects globally, such as the use of vanadium flow batteries and hydrogen production through electrolysis
in the Eday Island project in Orkney, Scotland by the European Marine Energy Centre (EMEC) (ITM Power, 2018).

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3.4 Global Tidal energy cost reduction policies
Tidal stream energy is currently not cost-competitive and relies on government support. Its development is thus
highly policy-dependent, and the uncertainty of policy positions both in Indonesia and globally leads to an uncertain
market and future revenue gains, discouraging investment in the sector. It is, thus, necessary that the government
resolves grid connection issues and promotes the creation of the tidal energy market around which private investors
can develop (Vivid Economics, 2019).

Despite the necessity of cost reduction through innovation, there are no national policies to encourage research on
solutions tailored to the Indonesian needs. In contrast, despite the lack of a single global policy for ocean energy
research, many nations include this in their national policies, as for example the UKRI supporting research on tidal
applications specifically (Crown Estate, 2009). Investment Tax Credit schemes can also be implemented creating
motives for investment, especially in more remote areas of Indonesia. Such schemes are already used for renewable
energy projects around the globe (Behrendt, 2015).

Finally, there are not specific policies concerning the decommissioning of tidal energy turbines, creating more cost
uncertainty discouraging investments (Vivid Economics, 2019).

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4 Policy Recommendations
As discussed, the current policy landscape encourages the use of fossil fuels and does little to encourage foreign
investment or enable competition in the sector, and the tidal energy sector is reliant on support for development.
Depending on the level of ambition, various policies could be implemented to enhance the efficiency of the
electricity system and accelerate the transition to sustainable energy production, and the development and
deployment of tidal energy devices.

4.1 Support for Innovation

Throughout the 1970s Indonesia was a leader in oil production and related energy technologies, but the country no
longer maintains their leadership, and resultantly now has too few energy-industry graduates (McKinsey, 2020).
This is particularly true in the offshore renewable sector, so it important to attract foreign experts and transfer
capabilities to local companies and staff.

The development of tidal power technologies is not limited to Indonesia, so learnings developed around the world
will benefit Indonesia. Nevertheless, there is the potential for social benefits from domestic technology
developments, as well as the opportunity to focus on technologies that are of specific interest to Indonesia. For
example, those that will provide for the most remote parts of the grid or efficiently operate in the tidal profile
experienced amongst the islands. To ensure these needs are met would require technology push mechanisms, and it
is recommended a new body be set up to oversee these mechanisms. There is a precedent for such bodies providing
innovation support in the sector, such as in Scotland where Wave Energy Scotland (2021) which supports pre-
commercial devices. The following recommendations are made to help create and foster a tidal energy industry in
Indonesia:

• Create a government body to facilitate the development of tidal power and identify specific technical
challenges that need to be overcome to enable deployment.

• Offer prizes to companies which overcome technological barriers to the deployment of tidal devices in
Indonesia.

• Provide grants to technology developers that set up research and development hubs, prioritising companies
with plans to employ local engineers.

• Monitor the learning of these technology developers to ensure grants provide the required learning rates,
both locally and globally.

• Bring top foreign lecturers into universities to develop programmes to teach incoming tidal energy
professionals and develop the required skills locally.
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4.2 Electricity Market Reform
Learning from countries such as the UK (Department of Energy & Climate Change, 2012), which have successfully
reformed their electricity markets to better enable renewable energy producers to partake in the market. Indonesia
should liberalise the vertically-integrated electricity market to enable more efficient market operation, and create a
more attractive environment for IPPs. Current market set up, however, would require substantial reform and to
achieve a functioning market and allow fair treatment of new IPPs would require (Setyawan, 2014):

• Separation of PLN’s generation, wholesale market dispatch, and transmission functions

• Disaggregation of PLN’s generation and distribution capacity into many separate and competing entities

These changes are recommended as they would offer wider system efficiency improvements and provide a more
amenable place for private investment (Maulidia, et al., 2019). If there is the political will to make these changes,
further consultation would be required to design the market structure.

4.3 Support for Renewable Generators

The higher cost of provision for renewable generators means that they would need additional support to provide
power. This is particularly true for emerging technologies such as tidal power. There are two key mechanisms to
support the market:

13
 Figure 8: Contract for Difference Mechanism (EMR Settlement, 2021)

Contract for Difference (CfD): This is a mechanism where the generator sells their electricity on the wholesale
market and the payment they receive is topped-up by the government to a pre-agreed amount (the strike price). If
the market price exceeds the agreed price, the generator must pay back the difference to the government, as shown
in Figure 8. In this way, generator always receive a constant payment per unit of energy produced, reducing their
price uncertainty.

Feed-in Tariffs (FiT): These guarantee a payment at a fixed rate per unit of energy produced. They therefore have
a similar effect to a CfD, but the electricity is not traded on the wholesale market, so it is usually used for smaller
generators.

If the aforementioned wholesale market reform is adopted, a CfD mechanism could be adopted, or if the existing
single buyer model is retained then a pure extension of the current Feed-In Tariff model would suffice to promote
tidal power. In either case, the tariff should be set by a competitive auction to minimise cost. In these auctions, an
administrative strike price is set to ensure a ceiling on the final agreed strike price. In order to ensure nascent
technologies are able to access the support, there should be separate auctions depending on the development stage
of the technology. In particular, to encourage the development of tidal technologies, there should be a separate
auction in which only tidal generators can participate, as tidal power will not be able to compete on cost against
more established forms of power in the foreseeable future.

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The existing approach of offering higher tariffs to generators in more remote regions should be maintained by
introducing separate auctions for different regions and technologies to reflect the importance of power provision in
these regions to the current government strategy, as well as the increased cost of provision. This is similar to the
precedent set in the UK, where remote island wind has been given a separate pot with a higher administrate strike
price than onshore wind (Red Point, 2013).

In order to encourage foreign investment into the technologies, a portion of the tariff should be index linked to a
stable foreign currency such as the US dollar to decrease the currency risk to the investor. The newly formed tidal
technology development body, together with the Ministry of Finance, should determine the ratio of the tariff that is
index linked, aiming to not overly expose the government to currency risk and encourage developer spending in
Indonesia.

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5 The Costs and Benefits of Tidal Energy
5.1 General comments on welfare benefits and costs of potential tidal projects in Indonesia
There are many potential benefits of implementing tidal generation projects. Firstly, tidal resource is sufficient to
potentially provide electrification for over 3 million people without electricity in 2019 (Our World In Data, 2021),
through the development of local electricity grids on remote islands (Indah and Rarasati, 2020).

Improved rural electrification has subsequent health benefits. In 2016, just 58.4% of Indonesia’s population had
access to clean cooking fuels or electric cookers (Our World In Data, 2021). The remaining 41.6% relied on solid
fuels for cooking such as wood and coal, which are associated with many health risks (Rehfuess, Bruce and Smith,
2011). Increased electricity supply to rural areas from tidal power could enable more communities to cook using
electricity.

Indonesia’s National Development Planning Agency (National Development Planning Agency, 2019) recognise
that renewable energy technologies, such as tidal, have the capacity to improve welfare in line with the UN
Sustainable Development Goals (UN, 2015). In 2019, the energy mix consisted of 37.3 % coal, 35.0 % oil, 18.5
% gas and just 9.2 % renewables (Asian Development Bank, 2020). Tidal could reduce reliance on fossil fuels,
especially coal and, in remote regions diesel generators and therefore lessen the economic impact of rising oil prices
(Asian Development Bank, 2020).

Tidal energy, like all renewable energy technologies, could also raise the economic prospects for people across
Indonesia, and therefore offers a good return on investment for the government. Spending on tidal energy projects
will provide stimulus not just for the energy sector but also for many other sectors of the economy. This is due to
high labour intensity associated with the construction and operation of renewable energy projects, which is
associated with high multiplier and employment coefficients (Hepburn et al., 2020). Investment now will also lead
to reduced energy costs in the future (Smart and Noonan, 2018).

There are, however, costs associated with all renewable energy projects, including tidal, beyond just the capital
required for investment. For example, some areas of high tidal energy density are intersected by shipping lanes (A.
M. Firdaus, Houlsby and Adcock, 2017) as shown in Figure 9. The shipping industry is an important source of
employment so these areas may need to be ruled out of consideration for the development of tidal energy projects.

16
 Figure 9 Indonesian archipelago shipping routes (dashed dotted red lines), Indonesian Through Flow currents (solid
black lines) and China Sea Through Flow (dashed black lines).

The benefits of tidal barrage systems can exceed those associated with tidal stream systems, as barrages provide a
means of energy storage so that electricity generation can be matched to demand. The costs of tidal barrages are,
however, much higher than those associated with tidal stream systems, both in terms of the financial investment
required and potential environmental damage (Etemadi et al., 2011). For this reason, tidal stream energy is better
placed to contribute towards improved welfare across Indonesia.

There are also site-specific risks and benefits which vary between projects. Some specific additional costs and
benefits associated with the Tidal Power Plant Larantuka project are highlighted in the next subsection, while
project-specific factors at the Nautilus project in Lombok are discussed in Appendix A.

17
5.2 Costs Benefit Analysis of the Tidal Power Plant Larantuka Project

In 2018, the government approved plans to incorporate a 40 MW tidal turbine system into pre-existing plans to
build a road bridge across the Larantuka strait connecting the remote island of Adonara from the island of Flores.
The risks and benefits of this project are presented in Table 3.

Table 2 The costs and benefits associated with the Larantuka Strait Tidal Power Project

Costs/Risks Benefits

1. Estimated cost USD225 million to develop 1. 40 MW of generating capacity (Tidal Bridge B.V., 2020)
(Tidal Bridge B.V., 2019)

2. The current design could affect marine wildlife 2. 100 GWh/year power generation (Tidal Bridge B.V.,
populations, including whales and endangered 2020)
turtle (Witteveen+Bos, 2021)

3. Small number of residents and businesses will 3. Electricity supply for over 500,000 people (Masli, 2018)
need to be relocated to construct wider access
roads (Witteveen+Bos, 2021)

4. Compensation will need to be arranged for the 4. Reliable energy supply for communities on Adonara
75 ferryman who will become redundant once where power supply is current insufficient and frequently
the bridge is operational (Witteveen+Bos, cuts out (Witteveen+Bos, 2021)
2021)

5. Two diesel-powered generators on the island of

Larantuka will be replaced (Witteveen+Bos, 2021)

6. Improved job opportunities for over 250,000 people

(Masli, 2018)

7. Indirect employment boosts as a floating road bridge

would allow goods to be transported to and from Adonara
by motor vehicle, day and night (as opposed to be hand
during the day time only as is currently the case)
(Witteveen+Bos, 2021)

8. The floating bridge will offer a safer means of travelling

to and from Adonara compared to dangerous crossings
on small ferries (Witteveen+Bos, 2021)

9. The project may raise the tourism profile of the area

(Tidal Bridge B.V., 2020)

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6 Conclusion
Indonesia has ambitious energy targets and climate commitments. The government are seeking to increase energy
independence and promote electrification, whilst also cutting carbon emissions, with the goal of reaching net zero
by 2060. Thanks to Indonesia’s unique geography, the country has an abundance of renewable energy resources,
especially from tidal power. This power, amongst other forms of renewables, could contribute towards these targets,
but enabling it would require a shift in energy policies. Existing policies have been found to discourage innovation
in the marine renewable sector and instead encourage continued reliance on conventional generation options. A
range of policy proposals have therefore been made in order to encourage the future development of tidal energy.

Achieving Indonesia’s energy goals will be expensive. The direct, indirect and induced employment opportunities
produced by investments in tidal technology should be taken into account for their social benefits. So too, should
the health and environmental benefits, at both a local and a global scale, of reducing diesel and fossil fuel
consumption in electricity, transport and residential sectors. When all factors are considered, tidal energy must be
considered for investment alongside more mature renewable energy projects.

19
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Appendix A: Cost-Benefit Analysis of the Nautilus Tidal Energy Project
Nautilus 150 MW Project – SIMEC Atlantis and SBS International

In 2015, SBS International, in partnership with Scottish developers SIMEC Atlantis, secured an engineering,
procurement and construction contract with PLN. This contract initially included Front-End Engineering Design
work for the 150 MW project, as well as an Environmental Impact Assessment (SBS Intl Ltd, 2017). The potential
costs and benefits of the project are outlined in Table 2.

Table 3 The costs and benefits associated with the Nautilus 150 MW Project

Costs/Risks Benefits

1. USD750 million cost (SBS Intl Ltd, 2017) 1. SBS is an Indonesia based developer, most probable to
use local workers (SBS Intl Ltd, 2017)

2. 30 year power purchase agreement could be 2. 150 MW of clean electricity (SBS Intl Ltd, 2017)
risky for a quickly developing technology

3. This strait is a major shipping lane and this 3. Grid expansion to the Lombok island (SBS Intl Ltd,
vital industry may be influenced by the project 2017) where only 72% of its 3.2 million habitats have
(A. Firdaus, Houlsby and Adcock, 2017) electricity today (Fast Power: Grounded Jet Engines Are
Powering Indonesia’s Pearl Paradise | GE News, 2017)

4. Substitution of diesel use for electrification of Lombok

(Danish Energy Agency, 2019)

5. International cooperation between experts of Indonesia

and UK (SIMEC Atlantis, 2018)

24