The Role of New, Renewable
and Clean Energy in
Achieving SDG7: Policy,
Investment, Technology
Policy Deep Dive
13 NOVEMBER 2019
Energy mix
Emissions
Electrification
23%
26%
100%
New & renewable
share of energy
mix by 2025
GHG reduction vs.
predicted BAU
scenarios by 2030
Nationwide
electrification
by 2025
Target of 30% coal, 25%
natural gas, 23%
renewables and 22% oil
energy mix in 2025
With international
support, GHG reduction
target rises to 41% vs.
BAU baseline scenarios
Increase from ~95%
electrification of
households today
across Indonesia
1. GHG included in inventory : CO2, CH4, N2O, PFCs, HFCs, SF6, NF3 - Total GHG Emissions Including Land-Use Change and Forestry. Business as usual emissions projected at 2,881 mt CO2 eq.
Source: UNFCCC – INDC Indonesia, UNFCCC data interface, IEA policy database, press reports
1
Copyright © 2019 by Boston Consulting Group. All rights reserved.
Indonesia has set ambitious goals for energy transition …
Points Slide 1
Through the National Energy Policy, and In line with climate change
commitments made during the COP 21 conference in Paris, Indonesia
defined a series of environmental goals.
Achieve 23% share of new and renewable energy; up from 5 – 7 % share
of renewables in primary energy mix today
Finally, up from 98% electrification and universal electrification – in
remote areas, such as Papua where electrification rate remains low at
50%
2
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Second is to reduce emissions by 23% vs. BAU scenarios, or 41% with
international support
Complexity in achieving optimal balance between socio-economic
and environmental trade-offs in the "energy trilemma"
Accessibility and affordability of
energy supply across the population
for socio-economic empowerment ,
to fuel industry necessary for
economic growth
Energy
Affordability
Effective management of energy
supply, reliability of energy
infrastructure, and the ability to
meet current and future demand
Energy
Security
3
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Environmental
Sustainability
Achieving energy production in a
sustainable way through low carbon
sources – in line with climate change
and other environmental objectives
Holistic approach needed for energy transition, policy a key enabler
to overall success
23% renewable energy mix & 100% electrification
by 2025, 29% GHG reduction by 2030, economic growth targets …
Environmental sustainability
Energy affordability
Energy security
Shifting energy mix
towards renewables
Increasing
energy efficiency
Manage volume
of energy demand
Strong enabler foundations to facilitate and incentivize change
Policies
Institutions
Technology
Public Sentiment
…
4
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Balancing and breaking trade-offs across the Energy trilemma
Strengthen institutions – by creating
clarity mitigating trade-offs between
economic & environmental interests
Activate the power of the private sector
for RE investment, through financing &
regulatory stability
Increase affordability of RE – review local
content, hold reverse auctions, technology
plays, etc.
5
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Four needle
moving policy
outcomes to
consider to
achieve
environmental
objectives
Level the pricing playing field for
renewable energy, and then move further
to reflect externality costs
Level playing field between RE and non RE, and mature a step
further to price in cost of negative externalities
3
Level the playing field with
the removal of subsidies …
… to reflect true levelized
cost of energy …
… and factor in externalities
to identify "real costs"
Today, coal subsidies artificially
deflating cost of energy; carrying
over to renewables through BPP caps
By leveling playing field,
renewables compete on same
footing with non-renewables
Some countries have gone step
further to cost in negative
externalities of non-renewables
Subsidized
non renewables
Unsubsidized
renewables
With coal subsidies, renewable projects
are non-viable for developers with 85%
BPP tariff cap especially in major regions
(e.g., Java-Bali) where prices are low
due to strong grid & infrastructure1
True production
cost of non
renewables
True production
cost of
renewables
Removing effects of coal subsidies
estimated to balance playing field by
about USD 0.05 per kWH1, allowing
pricing to reflect true levelized cost
of energy for region
Factoring in cost of externalities
(health, climate change) into price of
non renewable generation; some
estimates point towards figure
between USD 0.05 – 0.25 per kWH
Indonesia has LCOE of USD 0.06 –
0.11 per kwh
1. Coal subsidies estimated to deflate price of electricity by as much as IDR 68 per kWH or USD 0.05 kWH (Attwood et. Al., 2017) 2. Based on studies by Attwood et. Al., Intragency
Working Group on Social Cost of Carbon, 2010 and Westphal et. Al, 2015 and IISD report
6
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2
1
2
Solar PV module costs decreasing with increasing capacity
Log (€M/MW)
100.0
1976
1980
1990
2005
2000
2010
1.0
0.1
~25% price reduction
with doubling of capacity
1
10
100
Experience curve
Source: Bloomberg New Energy Finance, BCG analysis
2015
1,000
10,000
Crystalline Si PV module
100,000
1,000,000
Log (MW)
7
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10.0
2
PV & wind auction prices has plummeted...
...Batteries on the same trend?
Auction / PPA Prices
Forecast of Ion Lithium battery costs
($/MWh)
($/kWh)
300
1 500
200
1 000
100
500
0
2013
2014
2015
2016
2017
2018
PV
Onshore wind
Offshore wind
Avg. price: -54%
Lowest price: -72%
Avg. price: -25%
Lowest price: -45%
Avg. price: -68%
Lowest price: -71%
0
2010
2012
2014
2016
2018
2020
Realized
Tesia claims or forecasts
Estimates from 2010
8
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Costs of green technologies are plummeting
2
Residential grid parity is a reality – storage the "next big thing"
Residential grid parity of PV standalone
already reached in many countries
Starting 2014, PV+storage systems
become an attractive business case
Average electricity price for house-holds in 2015 in €Ct/kWh
Average electricity price for house-holds in 2015 in €Ct/kWh
0.30
0.30
Germany
Germany
0.25
0.25
Italy
Spain
0.20
UK
Netherlands
Japan
Australia
Sweden
Luxembourg
Italy
0.20
California peak
France
0.15
Texas
1,200
1,400
1,600
1,800
India
South
Africa
2,000
California
Turkey
2,200
2,400
Texas
South Korea
China
India
0.05
2,600
Solar irradiation on optimally inclined plane [in kWh/m 2/year]
Iso-LCOE curve at a PV system price of
Australia
Czech Republic
0.10
California peak
France
Romania
0.05
1,000
Japan
Sweden
0.15
South Korea
China
Spain
Luxembourg
California
Romania
0.00
800
Netherlands
Turkey
Czech Republic
0.10
UK
0.00
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
South
Africa
2,400
2,600
Solar irradiation on optimally inclined plane [in kWh/m 2/year]
1.4 €/Wp (2015)
Iso-LCOE curve at a PV+storage system price1 of
1.0 €/Wp (2020)
Peak demand in GW (2015)
2,9 €/Wp (2015)
1,5 €/Wp (2020)
Residential grid parity by 2020
at current electricity prices
1. For a residential PV+storage system; 1h storage capacity (e.g,. 4 kWp PV and 4 kWh storage) Source: BCG PV market model, Eurostat, Enerdata, EIA, ENTSO-E, Cigre, SNL
9
2
Innovation is driving efficiency and cost reduction
Wind efficiency
Solar efficiency
Efficiency (%)
Efficiency (%)
50
100M tower
40
50
40
50M tower
30
20
20
10
10
0
0
1993
5,0
6,0
7,0
8,0
9,0
1997
2001
2005
2009
2013
2017
Wind speed (m/s)
100 M tower (2013)
50M Tower (2013)
Source: IBA, Fraunhofer
50M Tower (2003)
Multi-junction concentrator solar cells
Thin film CdTe
Organic solar cells
10
Copyright © 2019 by Boston Consulting Group. All rights reserved.
30
3
67 jurisdictions—representing about half of the global economy and more than
a quarter of global GHG emissions—are putting a price on carbon
NORTHWEST TERRITORIES
ICELAND
MANITOBA
CANADA
ALBERTA
ONTARIO
QUÉBEC
BRITISH
COLUMBIA
WASHINGTON
OREGON
EU
NEWFOUNDLAND
AND LABRADOR
RGGI
CALIFORNIA
VIRGINIA
PRINCE
EDWARD
ISLAND
NOVA SCOTIA
NEW BRUNSWICK
MASSACHUSETTS
UKRAINE
TURKEY
KAZAKHSTAN
REPUBLIC OF KOREA
JAPAN
CHINA
TAIWAN
MEXICO
THAILAND
VIETNAM
BRAZIL
CHILE
RIO DE JANEIRO
SÃO PAULO
AUSTRALIA
SOUTH AFRICA
ETS implemented or scheduled for implementation
Carbon tax implemented or scheduled for implementation
ETS or carbon tax under consideration
NEW
ZEALAND
ETS and carbon tax implemented or scheduled
Carbon tax implemented or scheduled, ETS under consideration
Note: The circles represent subnational jurisdictions. The circles are not representative of the size of the carbon pricing instrument, but show the subnational regions (large circles) and
cities (small circles).
11
Source: World Bank
Copyright © 2019 by Boston Consulting Group. All rights reserved.
SINGAPORE
COLOMBIA
3
Singapore's carbon tax would be on the lower end of the spectrum globally
$130/
tCO2e
$120/
tCO2e
$110/
tCO2e
$100/
tCO2e
$90/
tCO2e
140
$80/
tCO2e
$70/
tCO2e
87
Sweden
carbon tax
73
Switzerland carbon tax,
Liechtenstein carbon tax
69
$60/
tCO2e
$50/
tCO2e
$40/
tCO2e
56
$30/
tCO2e
36
Finland carbon tax
Norway
(Other fossil fuels) carbon tax (upper)
Korea ETS
24
Québec CaT,
New
California CaT,
Zealand ETS
Ontario CaT
18
15
13
$10/
tCO2e
$0/
tCO2e
27
France carbon tax
Finland carbon tax
(Liquid transport fuels)
Alberta SGER, BC carbon tax,
UK carbon price floor,
Ireland carbon tax
$20/
tCO2e
Denmark carbon tax
Estonia carbon tax,
EU ETS, Shenzhen
Guangdong pilot ETS,
pilot ETS
Hubei pilot ETS
Portugal carbon
RGGI, Norway
tax, Beijing pilot
carbon tax (lower)
ETS
8
6
4
2
Mexico carbon tax (lower),
Chongqing pilot ETS, Poland
carbon tax, Ukraine carbon tax
<1
$/tCO2e
20
16
Slovenia
carbon tax
Alberta
carbon tax
14
Saitama ETS,
Tokyo CaT
Source: World Bank
12
Iceland
carbon tax
7
5
3.7 3
1
Singapore
carbon tax
(2019)
Latvia carbon tax, Fujian pilot
Mexico carbon tax
ETS, Colombia carbon tax, Chile
(upper), Japan
carbon tax, Shanghai pilot ETS
carbon tax
Switzerland
ETS
Tianjin pilot ETS
12
Copyright © 2019 by Boston Consulting Group. All rights reserved.
$140/
tCO2e
Enhance institutional clarity with right incentives – marrying
economic and environmental objectives
… or not to RE
Institutions incentivized to contribute to
national goals and targets (e.g., renewable
targets), especially public entities
Profit impact by promoting non-renewable
energy due to impact on vertical or lateral
revenue streams (e.g., fuel offtake)
Institutions incentivized to diversify (risk exposure
to old energy) and to be first mover into new areas
of potential competitive advantage
Balance sheet impact of stranded existing
non-renewable assets with switch to
renewables, due to long operational life
In line with other objectives of institutions (e.g.,
renewables provides sustainable & long term cost
effective way to increase electrification)
Strong lobby positions from associations
and local communities involved in old
energy business (e.g., coal miners)
13
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To RE …
Improved economics and
financing terms
Access to long term
financing instruments
Increase familiarity of
lending institutions
• Fiscal incentives – such as lower or
deferred tax, subsidies for
renewable projects – potentially
funded by non renewable taxes
• Short term loans available in
market not in line with
operational life of projects
• Financial institutions in many
developing countries still
unfamiliar and risk averse with
renewable projects – due to
regulatory uncertainty, business
unfamiliarity, long payback periods
• Finance intermediation – using
high credit worthy public financial
institutions to raise low cost
funding
• Improved and stable return
profiles – long term commitment
to fair pricing of renewables vis-àvis other options
• Examples: IRENA and ADFD loans
ranging from $5m to $15m for
renewable projects. Financing will
be offered at 1-2 per cent lending
rates with a 20-year loan period,
including a five-year grace
period.
• Support needed to educate lending
institutions on renewable energy
return profiles, and build stable
regulatory framework to reduce
financing risks
14
Copyright © 2019 by Boston Consulting Group. All rights reserved.
Activate the power of the private sector, by setting right
foundations and incentives for investments
Increased
consumer
awareness
and action to
express
environmental
preferences
Increased
economic and
P&L onus for
companies to
respond to
customer
demands
Increased
economic onus
for nations to
drive towards
environmental
friendly
energy policies
15
Copyright © 2019 by Boston Consulting Group. All rights reserved.
Over time,
increasing voice
of the global
customer will
bridge gap
between
environmental
and economic
interests
Renewables procurement is already a fact
Apple and Google 100% Renewables in 2017
Renewables procurement in 2016 (%)
96%
80%
100% Renewables
procurement year
2017
Source: Click Clean; BCG Analysis
2017
n.a
40%
40%
n.a
n.a
16
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50%
RE100 is a group of the
worlds most influential
corporations
committed to 100%
renewable energy
17
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As of today, 191 global companies
have made a commitment to go
100% renewable, as part of RE100
Nike chose to open a factory in Vietnam over other SEA countries due to its
capability to supply power via 100% renewable energy
Nike held a competition
to assess which SEA country
could best support their
100% renewable energy
supplied plant
With increased voice of customer, economic imperative for renewable energy will accelerate.
First mover advantage in renewable energy will become increasingly important differentiator for FDI.
18
Copyright © 2019 by Boston Consulting Group. All rights reserved.
Winner
Investors are divesting from fossil-based assets and
'greening' their portfolios
Investors claiming for consistent data to assess
financial risks associated with climate change
More than 400 institutions across 43 countries
representing $2.6 trillion in assets have already
committed to divest from fossil fuels
BlackRock warns companies that "climate change has
become an investment risk"
Recent examples
• Norway's largest pension fund decided to divest from
all companies that earn >50%
of their revenues from coal-based activities.
Divestment: $9-10bn
• Allianz will divest from any company that generates
>30% of revenue by mining coal or bases >30% of its
energy production on coal. Divestment: $4bn
Source: The investors guide to climate change, Press search
Latest example: Exxon forced to report on Climate
Change
• A number of large institutional fund firms including
BlackRock, the world’s largest asset manager, and
Vanguard, supported a shareholder resolution calling
on ExxonMobil to share more information about how
new technologies and climate change regulations
could impact the business of the world’s largest
publicly traded oil company
19
Copyright © 2019 by Boston Consulting Group. All rights reserved.
Investors acknowledge the risks associated with climate change
Behind the intellectual problem is a very real human problem, and
Indonesia will be a key player in the "battle of our time"
11.0
China
6.2
US
4.4
EU28
3.0
India
2.3
Russia
Sept 20, 2019 – New York Times Opinion
Source: New York Times, Climate Action Tracker, data compiled by Climate Analytics (2016 data)
Brazil
1.0
Indonesia
0.8
Mexico
0.7
Iran
0.7
Canada
0.7
South Korea
0.7
Australia
0.6
Saudi Arabia
0.5
RoW
9.2
Total
43.3
0
10
20
30
40
50
Gt GHG
20
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1.3
Japan
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