Vulnerability Analysis Of Oil Dependence For Electricity Supply Economics Essay

By and large economic and population growing follow the increasing demand of electricity. To carry through demand the Indonesian authorities has increased electricity coevals capacity. In 2005 Indonesia used about 35 % of oil fuel to bring forth electricity. High dependance on oil in power coevals raises concern about security of electricity supply in the epoch of lifting universe oil monetary value. Indonesian electricity duty has been subsided by the province budget. The increasing of oil monetary value would non give direct consequence on the electricity monetary value in the client side due to subsidy but straight consequence on the province budget. We found that the Indonesian dependance on imported oil consumed between 1.69 % and 2.72 % of gross domestic merchandise ( GDP ) in 2000 and 2006. For electricity supply the exposure consumed 0.59 % to 1.21 % of GDP in the same graduated table of times. In add-on, we found that the electricity exposure in the industrial sector consumed 2.41 % to 3.94 % of GDP that generated from industrial sector. For the future economic development the exposure on more imported oil has to be mitigated by implementing diverseness of energy beginning for bring forthing electricity such as coal and besides implementing energy efficiency.

Introduction

Electricity as one of the concluding energy signifier plays a really of import function in back uping assorted economic activities to increase the people ‘s public assistance [ 1 ] . Most underdeveloped states desperately need electricity for their economic development, on the other manus economic prosperity brings a strong growing of electricity demand [ 2,3 ] .

During 1963 – 1993, the Indonesia electric power coevals capacity increased steeply, from 542 MW to 13.6 GW or an addition of 24 times. The high addition of electricity coevals capacity occurred largely because of Indonesia ‘s important economic growing in that epoch [ 1 ] . In 2005, the electricity coevals capacity in Indonesia additions to 22.5 GW [ 4 ] . Indonesia has expanded its electricity coevals to carry through its increasing demand.

Most of electricity coevalss are dependent on oil fuel. In 2006, the State Electricity Company ( PLN ) , who monopolizes the power concern and Acts of the Apostless as the national electricity authorization used 35 % of fuel from oil for PLN ‘s power workss [ 5 ] , and pass 42 % from whole of PLN ‘s operation cost [ 6 ] . Oil used as the chief fuel for electricity coevals in Indonesia for a long clip ago because in the past Indonesia oil production was higher than today. Harmonizing to informations from Ministry of Energy and Mineral Resources [ 5 ] the Indonesia oil production during 2000 to 2006 reduced 41 % from 517,489 barrel to 367,049 barrel. Indonesia has imported the oil to run into the domestic demand, its alteration Indonesia position from the oil exporter to be an oil importer.

In the same state of affairs the universe oil monetary value addition quickly about 55 % from early of 2008 ( 91.90 US $ /Barrel ) to July 2008 ( 136.94 US $ /Barrel ) harmonizing OPEC basket monetary value [ 7 ] . Increasing the universe oil monetary value hit province budget ( APBN ) , because oil monetary value in the state controlled by the authorities subsidy. Subsidy for electricity sector addition dual from 32,444 billion Rupiah in 2007 twelvemonth to 60,291.6 billion Rupiah in 2008 twelvemonth [ 8 ] .

Indonesian Electricity Sector

Electricity coevals in Indonesia is supplied by the State Electricity Company ( PLN ) , which is responsible for the interconnected grid system, the decentralised system, every bit good as the Independent Power Producers ( IPP ) and auto-generation ( confined power ) . PLN has dominated electricity supply in Indonesia [ 9 ] . In 2006, Indonesian electrification reaches 63 % of entire population or increases about 11 % from 2000 [ 10 ] .

The largest system constituent is the Java-Madura-Bali ( Jamali ) supply, stand foring 77 % of entire PLN installed capacity in the whole state [ 11 ] . The mean rate of electricity growing in Jamali system is 10.5 % and outside Jamali system is 8.5 % [ 1 ] . The entire supply of the Jamali system is 18.4 GW, from 256 bring forthing unit, out of the 4766 bring forthing units installed in the whole state. All the big coevals units are installed in Java Island because past demand was concentrated in this location, and it is the most developed island in the state [ 2 ] .

Natural gas, oil and coal has used as chief fuel by PLN for electricity coevals [ 5 ] , while the IPP and confined power in general operate on coal, geothermic and non-oil fuel workss. The portion of IPP part in Indonesian electricity coevals has increased significantly from merely 2 % in the early 1990s to more than 25 % in 2005 [ 11 ] . Figure. 1 shows the fuel portion of PLN ‘s power coevals [ 5 ] .

Figure 1: Fuel portion on PLN ‘s power coevals.

3. Effectss of High Oil Price on Indonesian Electricity

The recent crisp rise in oil monetary values has created concerns about their impact on all states, high and low income, both net oil importers and oil exporters [ 12 ] . For Electricity, increasing oil monetary value would give consequence on operating cost of power works in instance of oil and natural gas. In Indonesia the electricity monetary value controlled by the province budget, so the increasing universe oil monetary value would act upon in the budget allotment for the electricity subsidy, non straight to the clients. Figure. 2 nowadayss recent crisp rise of oil monetary value based on the OPEC monetary value [ 7 ] .

Rising of oil monetary value in this minute and in the hereafter can do the budget shortage, which will take to the demand to take deflationary steps in the hereafter. In this instance the addition in imports is offset by an addition in aggregative authorities disbursement so that there is no alteration in Gross Domestic Product ( GDP ) . The entire consequence on the economic system, discounted to the present, will be the same since the benefits of hold are cancelled by the involvement cost on the shortage ( or involvement foregone if a decreased excess is held ) . Delaying the passing of monetary value additions to consumers prevents the monetary value snap at all, so there is no accommodation in oil demand until the authorities is willing to allow consumer monetary value addition [ 12 ] .

Figure 2: The Monthly Average Oil Price based on OPEC monetary value ( US $ per barrel ) .

To avoid the budget shortage caused by subsidy for energy sector as the impact of increasing oil monetary value, the Indonesian authorities has cut the oil subsidy and increased monetary value of domestic oil by 30 % . But it is non yet important to cut down the energy subsidy in the province budget because allotment for energy subsidy addition two-base hit from 88,048.3 billion Rupiah in 2007 to 187,107.8 billion Rupiah in 2008, mentioned that subsidy for electricity sector increases dual to avoid increasing electricity monetary value for clients. The long term increasing oil subsidies would be unsafe for the province budget.

3.1. National Vulnerability Due to Oil Dependence

From a macroeconomic point of view, the exposure of an oil importing state is measured by the ratio of the value of net oil imports to GDP. The impact of the oil monetary value daze is calculated as the index of exposure multiplied by the per centum addition in oil monetary values [ 13 ] . In this paper, we use a exposure index that follows the World Bank study [ 12 ] in Box 1. The Indonesia ‘s exposure was analyzed from 2000 to 2006, where the oil monetary value sloping additions. All factors required in Box 1 are illustrated in Table 1.

Box 1.

Oil exposure

?

value of net oil imports / GDP

=

monetary value of oil – ( volume of oil imports / entire oil usage ) – ( entire oil usage / sum energy usage ) – ( entire energy usage / GDP )

Figure 3. shows exposure index from 2000 to 2006. The exposure in 2001 lessenings 30 % from 2000 because universe oil monetary value and oil import ingestion have decreased. Additions of universe oil monetary value and oil ingestion in the state in 2005 caused exposure in 2005 increased aggressively by dual when compared to 2003, but in 2006 exposure downed by 18 % when compared to 2005 because the oil import reduced and the consequence from cut downing oil import every bit good.

Figure 3: Dutch east indies ‘s exposure indexs on oil dependance, 2000-2006.

Compared with other developing states such as Thailand, Indonesia ‘s exposure on oil import is a small spot smaller. This is because the ratio of net oil import to GDP including entire oil ingestion in all economic sectors in Thailand is bigger than Indonesia, but the exposure ‘s tendency of both states is similar in footings of increasing universe oil monetary value. Figure 4. shows comparing of Thailand ‘s and Indonesia ‘s exposure.

3.2. Vulnerability Indicator from Oil Dependence in Power Generation

Although merely 73 % of all oil supply in Indonesia in 2006 comes from domestic resources, the state could be vulnerable from high oil dependance in its power coevals. The ground is that, higher universe oil monetary values would be transmitted to the electricity from the ingestion of oil in the power coevals and gives impact to higher electricity production cost, and eventually gives impact on province budget by the subsidy that must be paid to avoid the increasing oil monetary value to the clients straight.

Indonesian power sector in 2000 consumed about 9 % from entire oil ingestion, while in 2002, 2004, and 2006 power sector spends 12 % , 14 % , 16.5 % of entire oil ingestion severally. The fuel types of power works are automotive Diesel oil ( HSD/ADO ) , industrial Diesel oil ( IDO ) , and fuel oil. Figure 5. shows per centums of oil ingestion for power coevals to entire oil ingestion in the state [ 7 ] .

The exposure index can be calculated with a modified equation that used by Nakawiro and Bhattacharyya ( 14 ) in Box 2.

Box 2.

Vulnerability

=

Oil Price for Power Generation

GDP

The oil monetary value for power coevals presumed similar with the universe oil monetary value. The ground that Indonesian authorities subsidy wages for differences between domestic oil monetary value and universe oil monetary value. Table 2. illustrates all factors that required to cipher the exposure in power coevals, and Figure 6. shows the exposure comparing between national and electricity sector from oil dependance. In 2000 exposure electricity sector contributed 0.59 % , and in 2004 the exposure increased to 0.85 % from 0.57 % in 2003. The tendency of exposure in national and electricity sector is similar.

Figure 4: Comparison of Thailand ‘s and Indonesia ‘s exposure indexs on oil dependance.

Table 1: Factors for computation of national exposure index in Box 1.

Unit of measurement

2000

2001

2002

2003

2004

2005

2006

Oil Pricea

$ /barrel

26.963

23.008

23.452

26.953

34.682

50.402

61.379

Oil Importb

Mbarrel

91.01

89.15

106.5

107.3

153.5

166.4

141.2

Oil Useb

Mbarrel

351.4

363.0

370.1

376.1

402.8

401.7

381.6

Energy Useb

kBOE

765,632

778,409

762,320

781,456

841,727

839,567

853,804

GDPb

M US $

1.448E+5

1.582E+5

2.000E+5

2.274E+5

2.272E+5

2.476E+5

3.189E+5

Beginning:

a Energy Information Administration US [ 15 ] .

b Ministry of Energy and Mineral Resources [ 5 ]

Table 2: Factor for computation of electricity exposure index in Box 2.

Unit of measurement

2000

2001

2002

2003

2004

2005

2006

Oil Pricea

$ /barrel

26.963

23.008

23.452

26.953

34.682

50.402

61.379

Oil Consumption for PPb

Mbarrel

31.6

34

43.8

47.9

55.6

62.3

62.9

GDPb

M US $

1.45E+5

1.58E+5

2.00E+5

2.27E+5

2.27E+5

2.48E+5

3.19E+5

Table 3: Factor for computation of electricity exposure index in industrial sector in Box 3.

Unit of measurement

2000

2001

2002

2003

2004

2005

2006

Electricity Pricec, vitamin D, vitamin E

Rp/Kwh

273

320

320

434

434

434

434

GDP Industry Contributionf

Billion Rp

386

398

419

442

470

491

514

Q Electricityb

Gwh

3.40E+4

3.56E+4

3.68E+4

3.65E+4

4.03E+4

4.24E+4

4.62E+4

Q entire energy from Industryb

Thusand BOE

279,054

277,198

255,958

265,253

292,052

290,824

317,107

Beginning:

cPresident Decree No. 48/2000

dPresident Decree No. 83/2001

ePLN ( State Electricity Company ) Jakarta and Tangerang Distribution Branch

fDepartment of Industry

Figure 5: Percentages of oil ingestion for power coevals to entire oil ingestion

3.3. Electricity Vulnerability Indicator in the Industrial Sector

The industrial sector consumed about half of entire electricity demand in Indonesia. In 2000 the industrial sector consumed 34,013 GWh or 43 % from 79,164 GWh of entire electricity ingestion. In 2006 the industrial sector consumed 46,223 GWh or 40 % from 115,217 GWh of entire ingestion. Table 4. shows the Indonesian electricity ingestion by sector.

Figure 6: Vulnerability comparing of national and electricity sector.

Table 4: Electricity ingestion by sector in Indonesia ( in GWh ) .

Year

Family

Commercial

Industry

Social

Public

2000

30,563.42

10,575.97

34,013.22

1,643.52

2,368.68

2001

33,339.78

11,395.35

35,593.25

1,781.55

2,410.45

2002

33,993.56

11,845.04

36,831.30

1,842.89

2,575.96

2003

35,753.05

13,223.84

36,497.25

2,021.60

2,945.21

2004

38,588.28

15,257.73

40,324.26

2,237.86

3,689.33

2005

41,184.29

17,022.84

42,448.36

2,429.84

3,946.90

2006

43,753.17

18,415.52

46,223.59

2,603.64

4,222.05

In this survey the exposure is analyzed in the fabrication industries as it is the most energy intensive sector. The equation to cipher the exposure index in the Industrial sector follows equation used by Nakawiro and Bhattacharyya ( 14 ) in Box 3. All factors required in Box 3 are illustrated in Table 3.

Box 3.

Vulnerabilityi

=

Pelectricity Qelectricity, I / GDPi

Vulnerabilityi

=

Pelectricity – ( Qelectricity, I / Qtotalenergy, I ) – ( Qtotalenergy, I / GDPi

where Pelectricity is the monetary value of electricity to large industrial clients & A ; gt ; 30.000 kVA, in ( Rp/kWh ) , Qelectricity, I is the ingestion of electricity in industrial sector, in ( kWh ) , Qtotalenergy, I is the ingestion of energy in industrial sector, in ( kBOE ) , and GDPi is the value that industrial sector generates to Indonesia ‘s GDP, in ( Rp ) .

From the analysis, industrial sector has the exposure parts about 2.41 % to 3.95 % of GDP that generated from Industrial sector in 2000 to 2006. Figure 7. shows the exposure index of the industrial sector

Figure 7: Vulnerability index from Industrial sector.

4. Decision

In the past oil used as the chief fuel for electricity coevals in Indonesia because Indonesia oil had plenty to carry through domestic demand and even for exported to other states. But today, Indonesian oil production has collapsed and Indonesia has to import oil from other states to carry through domestic demand. Increasing of universe oil monetary value has hit Indonesian economic system, and forced the province budget to cut the oil subsidy but non yet for electricity subsidy.

This research shows that Indonesian electricity dependance on oil indicated exposure from 2000 to 2006 for both electricity supply and industrial sector. For electricity supply the exposure consumed 0.59 % to 1.21 % of GDP, and in the industrial sector consumed 2.41 % to 3.94 % of GDP that generated from industrial sector. For the future economic development the exposure on more imported oil fuel has to be mitigated.

To cut down the exposure on oil dependance the energy planning must be applied in the close hereafter. Diversity of energy beginning such as coal and renewable energy for electricity coevals in Indonesia is one solution to cut down the oil dependance. Furthermore, attempt to implementing energy efficiency both in power coevals and the clients would assist to cut down the exposure on more imported oil.

5. Acknowledments

The writers would wish to admit The Joint Graduate School of Energy and Environment at King Mongku ‘s University of Technology T for supplying scholarships during the survey and to Mr. Hakimul Batih from Indonesian Energy Economic Institute ( IEEI ) for the support of supplying informations in this research.