Editions : April-July 2016

JOURNAL | POINT OF VIEW By: Ben Lawson

The 21st session of the Conference of Parties (COP21) to the United Nations Framework Convention on Climate Change, held in Paris last December, was lauded by the masses for inking agreements that define strict guidelines and implementation protocols for reducing CO2 emissions globally. Will the agreed reductions go the way of the Kyoto Protocol, or actually lead to change?  And a better question: is change actually so necessary, especially in Indonesia?

During Leonardo DiCaprio’s Oscar acceptance speech in February, the Hollywood actor, who has no scientific background and was more likely repeating what he heard in Al Gore’s documentary “An Inconvenient Truth,” said that 2015 “was the hottest year in recorded history; our [movie] production needed to move to the southern tip of this planet just to be able to find snow. Climate change is real and is happening right now. It is the most urgent threat facing our entire species.” DiCaprio might be interested to know that in January, I took a 75-minute train ride from Tokyo to Niigata and skied in a heavy snowstorm.

To start this essay, I would like to refer to a few quotes from Dr. Patrick Moore, who has a doctoral degree in ecology and is the co-founder of Greenpeace. He is a man who now considers himself as a “sensible environmentalist,” basing his findings on science and not hearsay.

At a recent conference, Moore said “there is no definitive scientific proof through real-world observation that carbon dioxide is responsible for slight warming of the global climate that has occurred during the last 300 years.” He added: “If there were such a proof through testing and replication, it would have been written down for all of us to see. The contention that human emissions are now the dominant influence on climate is simply a hypothesis, rather than a universally accepted scientific theory. It is therefore correct – indeed verging on the compulsory in the scientific tradition – to be skeptical of those who express certainty that ‘the science is settled’ and ‘the debate is over.’”

Dr. Moore continued, saying “there is certainty beyond a reasonable doubt that CO2 is the building block for all life on earth and that without its presence in the global atmosphere at sufficient concentrations, this would be a dead planet. Yet today our children and the public are taught that CO2 is a toxic pollutant that will destroy life and bring civilization to its knees. … I hope to turn this dangerous, human-caused propaganda on its head. … In the absence of our emitting some of the CO2 back into the atmosphere from whence it came in the first place, most or perhaps all life on earth would begin to die.”

Before COP21

Know this: as early as 11,000 years ago, “natural” climate change was so profound that ocean levels were low enough to allow humans to walk from what is now Siberia to what is now Alaska. Climate change, in often catastrophic upheavals, was a naturally occurring event for countless millennia before the arrival of humans and the burning of fossil fuels.

By “natural” climate change, I am referring to occurrences such as regular volcanic eruptions above and below the ocean surface, and super- volcanic eruptions (Tambora, Toba and Krakatau); animal methane excretion (termites and cows are some of the biggest offenders here); and earth’s proximity to the sun. With an elliptical orbit, the earth can spend thousands of years closer to the sun, experiencing global warming, or further away from it, resulting in ice ages at any given time. Not to mention the occasional meteorite or asteroid impact that can lift enough dust to block out the sun’s rays for thousands of years.

So, when one considers the actual science, as opposed to the arguments of Gore and DiCaprio and Hollywood actor Matt Damon (who flies around the world in a private jet to fight for the environment), it is clear that human activity is not really as likely to cause a massive acceleration of “global warming” as the doomsday prophets would have us believe.  Remember, a decade ago Al Gore predicted that we would already be under water in 2015. I am neither saying that we shouldn’t make our absolute best effort to reduce greenhouse gasses, nor advocating that mankind has been a loving son to Mother Earth. But to resort to scaremongering based on inaccurate information, and essentially force countries, companies and entire industries and surrounding communities to adapt to the environmentalists’ ways when it may not be in our common best interest, is rather ludicrous.

The West was built on fossil fuels, period. For hundreds of years the burning of coal and flow of oil was how Western economies expanded at break-neck speed. Fast-forward to 2016 and these same governments want to force the world’s emerging economies to forgo the affordable option and opportunity to grow their economies, based on “do as I say, not as I do (did)” hypocrisy. Although they could be lauded for their great strides in renewable energy technology implementation, the fact that Western nations continue increasing the generation of cheaper electricity produced from burning lignite (the lowest and dirtiest rank of coal) is a glaring example of this hypocrisy. Not being educated in the truth is also prevalent. A perfect example is in the United States, where “environmentally friendly” electric cars are plugged into the grid to charge, making people happy that they are doing their bit for the environment. But where does the majority of base-load US electricity come from? Coal-fired power plants.

Old King Coal is not dead

While chairing the recent Sumatra Miner Conference, I asked a panel of experts whether the Indonesian government’s 35-gigawatt power program was the savior of the Indonesian coal industry. Personally, I not only think it is the savior, but I think it’s about time it was done. At many conferences, I have promoted the notion of Indonesia keeping its energy (coal) at home, instead of subsidizing China’s and India’s electricity.

Indonesia desperately needs energy to support its economic development targets, and for the overall betterment of its people. The highly publicized 35-gigawatt electrification plan is actually 42 gigawatts, including seven gigawatts from the 2 X 10-gigawatt “fast-track” programs, known as FTP 1 and 2. Indonesia took more than 70 years to install production and transmission capacity of around 54 gigawatts, so an additional 77 percent increase in just over five years seems overly ambitious. But as Confucius said: “If you shoot for the stars and hit the moon, it's OK.” So aim high, Indonesia.

Originally, coal was going to account for 60 percent of the energy mix within the government’s 2015-24 plan. However, the government recently declared that coal would be reduced to closer to 50 percent. With proper legislation in place, Indonesia could easily see energy renewables in the energy mix be increased via solar, geothermal, biomass and hydro (especially mini-hydro) power generation. But in the meantime, the reason coal will remain the largest portion of the energy mix is simple: it is by far the cheapest and most abundant form of energy. Considering the vast coal resources that Indonesia possesses – given the current price of coal and near zero investment expenditure in exploration recently, PricewaterhouseCoopers has estimated that Indonesia may quite possibly run out of coal within 20 years – and capital expenditure costs and generation cost per kilowatt hour, I can guarantee that coal will remain king for base-load power, not just in Indonesia but the majority of emerging and developing markets (and many of the developed markets), despite the naysayers.

South Sumatra, with a large portion of the country’s coal resources, has the potential to be a big winner in Indonesia’s 35-gigawatt program. The province is being billed as the “Indonesian power hub” based on its 275 kilo-volt-ampere and 500 kilo-volt-ampere high-voltage, direct current transmission lines, known as HVDC, which will connect Sumatra with Java and peninsular Malaysia, and possibly other Southeast Asian countries. 

All of the plants built in this hub will be mine-mouth power plants (MMPP), which not only take advantage of the fuel “at the source,” but also reduce transportation-related pollution and public disturbance by eliminating or reducing the number of highly polluting trucks on the roads and barges on the rivers. New legislation is also looking quite good for coal miners to be involved in building MMPPs due to feasible prices, standardized power purchase agreements and fixed profit margins for guaranteeing supply to the dedicated MMPP. Coal mine owners should own 10 percent of the power plant under this new legislation.

Promoting renewables

Higher capital and operating expenditures (when unsubsidized) have traditionally resulted in negative returns on investment for solar, geothermal and mini-hydro power, making the majority of projects commercially unattractive for investors in Indonesia, which still on-sells electricity to consumers at subsidized rates.

With shorter tenures and higher interest rates from local banks, most project promoters prefer overseas, dollar-denominated financing. There are a multitude of financiers for both renewable and fossil energy, but they require the same thing: surety. Regulations limiting foreign ownership and requiring that all local contractual transactions be conducted in rupiah are some of a host of issues. Sovereign guarantees are also required for larger investments.

Beyond cost and risk, legislation has been seen as an impediment to investing in diversifying Indonesia’s energy mix. For example, Indonesia is estimated to have the world’s third-largest potential geothermal reserves (around 30 percent), after the United States and the Philippines. Unfortunately, projects were hampered or downright shelved due to costs and legislation issues. Most investors have remained interested in Indonesia’s geothermal prospects, but most project areas are in “protected forest” or “conservation forest” areas. In Indonesia, mining in these special forest areas is strictly prohibited. 

This begs the question: what does mining have to do with geothermal electricity production? Only that mines and energy are regulated under one government ministry. The government has wisely changed the status of geothermal production to be a non-mining activity, which hopefully will encourage increased investment in geothermal energy.

More recent positive legislation involves Indonesia’s state-owned utility company, Perusahaan Listrik Negara (PLN). The company has been given more freedom to negotiate higher tariffs for electricity produced from renewable sources of energy. Previously, PLN simply could not afford to subsidize the high cost of electricity produced from alternative sources. The establishment of tariffs is still a work in progress but has been made a priority, as it is so badly needed to spur costly, higher-risk investments in newer technologies.

There is also some very positive news for the solar industry. The cost of solar panels is constantly decreasing as more are being produced, coupled with increasing efficiency. If this trend continues, Indonesia should be able to successfully move toward a more environmentally friendly energy mix. Solar lighting is perfect for city and rural streets, toll roads and truck haul roads, remote villages and industries located in the off-grid areas of eastern Indonesia, which are in dire need of solutions. Micro and mini-hydro power plants will also be a major contributor in supplying these off-grid areas in eastern Indonesia. Investors are keen on these projects, but bureaucracy and tariffs seem to be impediments.  

The other ‘clean’ alternatives

Natural gas should have less consideration as a clean energy source than it does. Liquefied natural gas (LNG) proponents claim “natural gas is cleaner when burned.” This is true – when the gas is actually burned. What they fail to mention, coincidentally, is the fact that a large amount of methane (CH4) escapes during extraction from the ground and again during transport. Methane is 21 times more detrimental to the atmosphere than baseline CO2, the “evil gas” produced from burning coal. 

There should be no real consideration in Indonesia for nuclear power, even as an alternative, as it’s simply too dangerous given how prone the country is to earthquakes. Similar to LNG, nuclear power is cleaner in producing electricity (when “burned”), however, the long-lasting negative repercussions of meltdowns far outweigh the positives. Just think of Fukushima and Chernobyl.

Biomass has a long history in Indonesia, but it is still in the growing stages and needs support from the government. Most of Indonesia’s major palm oil producers use biomass waste (palm kernel shell) and biogas from palm oil mill effluent for their internal electricity needs. Last December, Sampoerna Agro Tbk commissioned a commercial four-megawatt biogas plant in South Sumatra Province, which is the largest biogas-fired power plant to supply power directly to the grid in Indonesia.

Biomass, mostly from wood pellets, has been used for many years in Europe for co-firing with coal, as a way to possibly reduce pollution. But the cost of doing so without subsidies has made the return on investment impractical for many utilities, namely because the biomass does not have the same heat content as coal, meaning that it takes more energy to produce the electricity at a reduced efficiency rate. Even though wood biomass is lower in mercury, sulfur, nitrogen, ash (varying elements) and chlorine than coal, CO2 emissions may actually be greater than burning pure coal due to a lack of efficiency from the low carbon content in the wood. Due to this, the US state of California has banned the burning of wood in many cities, even in fireplaces for heating private homes. Furthermore, a recent study shows that cutting down trees to make wood pellets is actually worse for the environment because of the reduced carbon absorption (sequestration) of old-growth forests and swamps being cut down. Sustainable forestry is an answer and in Indonesia, fast-growing acacia and bamboo are quite promising in this respect.  

Going forward

As technologies evolve and costs decrease, there is hope that alternative energy sources will continue to increase their share in the overall energy mix worldwide. But for the foreseeable future, coal will remain the world’s dominant fuel source for power generation, in both emerging and developed markets, with an average worldwide energy mix share of more than 40 percent.

I was recently asked in an interview, “What do you think should be done [in Indonesia] to create more efficient and cost-reduced coal-fired electricity production while still fulfilling the needs across the country?” My answer, unfortunately, was that “more efficient” and “reduced cost” are contradictions in terms in the power generation industry. Yet, instead of demonizing coal and CO2, I suggest we should be investing in and advancing “clean coal” technologies. Japan is at the forefront of engineering supercritical and ultra-supercritical coal-fired power plants. These burn coal cleaner, with resulting emission levels as low if not lower than LNG, and with similar efficiency rates. However, as mentioned, more efficient does not equate to reduced cost; the cost per megawatt makes these plants substantially more expensive.

In my view, the most prospective clean coal technology is coal gasification. Gasification of coal has been used around the world since the mid-1800s, when it was originally used to light streetlights. This was also known as “town gas.” Coal gasification has dramatically evolved over the last 150 years or more, and the end products can be used in the same ways as natural gas, without the methane emissions. It can also be used to produce dimethyl ether to replace high-sulfur, high-particulate diesel for land and sea transportation, and replace costly liquefied petroleum imports in eastern Indonesia. In addition, coal gasification can also produce high-valued base chemicals, including fertilizers currently produced from petrochemicals.

Making a difference

For those who truly want to reduce greenhouse gas emissions, we can help by refusing to use the Internet. All major Internet search engines and storage companies use gigantic refrigeration systems to cool their server “farms,” where they store all of their and our data. If the refrigerant used is an older generation of halocarbons it will contribute to ozone depletion and global warming. If it is of a newer generation it will only contribute to global warming, not to mention the impact of coal-fired electricity used to power the refrigeration units themselves.

I think that Indonesia is in a great position to surprise everyone in the renewable energy space, similar to how the country leapfrogged the West in mobile telecommunications usage, ie, instead of building old-tech copper landlines, Indonesians moved immediately to mobile. With continuing lower costs and better and cleaner technologies, Indonesia will be in a great position to build renewable base-load power generation from the start, instead of later converting from coal and other fossil fuels.

I am definitely a proponent of renewable energy – for those who can afford it. If Europe, the United States, Canada and other developed nations want to subsidize expensive electricity, that is their prerogative, but the extra expense should not be forced upon those in emerging economies who cannot afford it. Indonesia should find its own path, with a strategy somewhere between affordability and sustainability.

 

Ben Lawson is a Jakarta-based mining and energy executive and consultant. He is also vice chairman of the Djakarta Mining Club and Coal Club Indonesia. 

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