Delay in the Construction of Biomass Power Plant in Japan and Its Impact on PKS Supply from Indonesia and Malaysia

An ambitious program always requires careful preparation to achieve the goals as expected. Moreover, the ambitious program is related to a strategic sector such as energy, so preparation also needs to be more serious. Hurry to be realized immediately and reach the target will further aggravate the situation and bring losses in the end. This readiness also involves many parties so that synchronization is not easy and supporting infrastructure. One of the ambitious programs in the energy sector, especially renewable energy and more specifically the use of biomass, is a power generation program in Japan. Japan as the most energy-dependent country, the sustainability of energy supply is very important, so government policy is needed for this. After the tragedy or accident at the Fukushima nuclear plant in March 2011, Japan began using renewable energy as an important energy source. The use of biomass as an energy source is targeted at 4-6 GW by 2030, and even this condition spurs developers so that there is a surplus of almost 3 times as much. This condition makes a special policy to control this so that not all are approved for the development of the power plants.

Regarding the use of biomass as an energy source, European Union countries even put a portion of biomass at 70% in their renewable energy program. The first RED (Renewable Energy Directive) program from the European Union will end in 2020. RED I aims to reduce emissions by 20% and the use of renewable energy to reach 20% by 2020, the program is also well known for its 20-20-20 target. At present the European Union has also prepared RED II to replace RED I which will soon be over. At the RED II the target to be achieved is a 30% reduction in emissions and 32% renewable energy use. For biomass energy, Europe is currently the largest producer of wood pellets, estimated at 13.5 million tons / year while consuming 18.8 million tons / year year, meaning there is still a shortfall of 5.3 million tons / year. America and Canada are the main suppliers of wood pellet needs of European countries with the majority of the use of wood pellets for electricity generation. Indonesia as a tropical country and rich in various biomass, especially woody biomass, has the potential to become the world's leading producer of wood pellets. Along with the increasing portion of renewable energy in the RED II program that will be proclaimed, the use of wood pellets is also getting bigger.

Map of Japan's biomass power plant status, red means it's already operating, yellow means that in the development stage, blue means planning.

Japan applies FIT (feed in tarrif) to encourage the use of renewable energy in electricity production. FIT has been implemented since 2012 and there are significant differences regarding the company's interest in the FIT. There has been a surge in interest of up to tens of times compared to before it was implemented by FIT with the number of power plants reaching 1,028 in 2017 or 5 years after the application of FIT. The highest surge of interest in solar power plants is solar PV up to more than 10 times, while for biomass it has jumped about 3 times. PKS is even a favorite fuel for the power plants. In March 2017, 38% of the FITs approved in the "general wood" category used PKS as their fuel or energy source. This makes export PKS can be a very attractive business opportunity. Electricity production costs also decreased with the implementation of the FIT. The biggest reduction in costs in solar PV power plants reached 38%, while in biomass power plants with an average capacity of 19 MW there was a 16% reduction in costs. While a review of the environmental aspects of carbon emissions (CO2 reduction) has also decreased by 6 points.

In 2019, it was originally planned that most of the power plants that had been built had been operating, but this year there were still many power plants not yet operating. This means there is a delay than planned. There are many factors that cause delays in both technical aspects such as connection to the grid and manufacturing the equipment and non-technical aspects such as capital and the availability of biomass fuel supplies. One example on the equipment side is that there are only 4 or 5 boiler manufacturers for power plants in the country so overwhelmed with high demand. Many of these power plants use biomass fuel in the form of wood pellets and PKS. For wood pellets Indonesia also has a great opportunity as will be done by Sri Lanka, for more details can be read here. As for PKS as the largest CPO producer in the world with palm oil plantations reaching 12 million hectares, Indonesia's potential is very large, second in Malaysia, with palm oil plantations reaching 5 million hectares.

PKS exports from Indonesia had a downturn some time ago due to high export duties ( tax plus levy) which totaled $ 17 per ton, whereas this did not happen in Malaysia because it was not charged as in Indonesia. Export duty out of PKS in Indonesia is associated with CPO prices. Many parties actually want the PKS exit duty in Indonesia to be eliminated as in Malaysia or at a minimum reduced so that it can be more competitive. This is because PKS is waste and exporting is part of the waste solution. The 15% decline in CPO prices in the international market turned out to have reduced PKS export levies to 0 so that they only paid $ 7 per ton of tax. But when CPO prices rise, the export duty (export tariff) also rises. Based on the Regulation of the Indonesian Minister of Finance (PMK) No. 152 / PMK.05 / 2018 which has been in effect since December 4, 2018, the government levy to be zero (US $ 0 / ton) all export levy rates if international CPO prices are below US $ 570 / ton. Meanwhile, if the CPO price is in the range of US $ 570-US $ 619 / ton, then the PKS export levy becomes US $ 5 / ton, whereas if the international CPO price has returned to normal, which is above US $ 619 / ton, PKS export levies become $ 10 / ton. If added with a tax of US $ 7 / ton, then when CPO prices are below US $ 570 then only tax is worth US $ 7 / ton like now, but later when CPO prices rise in the range of US $ 570-US $ 619 / ton, then export taxes and levies become US $ 12 / ton, whereas when CPO prices have been above US $ 619 / ton, PKS export taxes and levies have become US $ 17 / ton. Higher taxes and export levies make PKS prices less competitive.

PKS exporters who have collected a lot of PKS in the hope that they can be sent or exported in large numbers by 2019 are disappointed. Expectations and plans did not match reality. Japan is still continuing the FIT program but the realization is expected to have a delay. The collection and accumulation of PKS for a long time will not only damage the PKS if it is piled up too long, but of course it will cost more for storage. The planned realization, which was supposed to be 2019 but backwards become 2022-2023, would certainly wait for very long 3-4 years for the storage of the PKS. Whereas for wood pellet fuels for 3-4 years, it can be used to make energy plantations and wood pellet factories. The potential of industrial plantations (HTI) for energy plantations and production of wood pellets in Indonesia is very large, for more details can be read here.