Since late 2016, Ignasius Jonan, Indonesia’s newly appointed Minister of Energy and Mineral Resources question the pricing of renewable energy in the country. Referencing solar PV PPA tariffs signed around the world at below US$0.05/kWh and especially below US$0.025/kWh in Abu Dhabi, he compared Indonesia’s then current feed in tariff regulation for solar PV projects at US$0.145/kWh as the lowest tariff. Indonesia’s Ministerial Decree of the Minister of Energy and Mineral Resources number 19/2016 had been signed but the registration period to start the process had not been enacted.
Similarly, the latest renewable energy regulation establishes a reference tariff for many of the prevalent renewable energy technologies. This include the long-awaited answer for what is to come to Indonesia’s utility scale solar PV industry.
Jonan’s comments and reluctance to start the process for the Ministerial Decree 19/2016 signaled a caution to the industry. He made a trip to Abu Dhabi and brought a special delegation to study UAE’s success in signing such low PPA tariffs. Throughout this period many industry players and stakeholders waited with bated breath for what’s to come. It seems unlikely that the previous Ministerial Decree for solar PV would stand as is. Adding to the fire are comments about the controversial mini hydro PPA pricing that was deemed too high by PLN, Indonesia’s State Owned Enterprise for Electricity.
In the last week of January 2017, the Indonesian Minister of Energy and Mineral Resources Ignasius Jonan issued the second ever comprehensive renewable energy regulation (Ministerial Decree of the Minister of Energy and Mineral Resources number 12/2017). The first was a regulated feed in tariff for PLN to purchase electricity from small to medium size renewable energy based power plants (Ministerial Decree of the Minister of Energy and Mineral Resources number 31/2009). Similarly, the latest renewable energy regulation establishes a reference tariff for many of the prevalent renewable energy technologies. This include the long-awaited answer for what is to come to Indonesia’s utility scale solar PV industry.
This latest regulation specifies the tariff and procurement methods for PLN to purchase electricity from prevalent renewable energy based power plants. The technologies mentioned in the regulation include solar PV, hydro, wind, biomass, biogas, municipal waste and geothermal. Solar PV and wind power plants are singled out due to their nature of being a variable renewable energy source and highly dependent on local weather. They are singled out by being the only technologies that require PLN to issue tenders based on the quota of available capacity.
This is certainly not a lucrative incentive, nor was it meant to be. The focus of this regulation is to lower PLN’s cost of generation even as it integrates renewable energy into its energy mix.
In all cases, the energy purchase price for the electricity produced by renewable energy based power plants are indexed to PLN’s generation cost. Typically, if the local generation cost is higher than the national average, then a ceiling price of 85% from the local generation cost is enacted. If it is lower, then the local average generation cost is used instead.
This is certainly not a lucrative incentive, nor was it meant to be. The focus of this regulation is to lower PLN’s cost of generation even as it integrates renewable energy into its energy mix. What this means is that PLN will be motivated to issue tenders for various renewable energy projects including solar PV. The ceiling price will limit both the locations that are financially viable for most developers as well as limit the projects only to those developers with access to low EPC cost and financing cost.
Based on the latest (but not yet audited) PLN’s generation cost, there are quite a few of its business units that have generation costs high enough so that 85% of it is still above US$0.10/kWh. Out of 24 PLN business units, about half of them meet this criterion. The highest generation cost based on this list is East Nusa Tenggara Region with US$0.22/kWh generation cost. Almost 16% of the energy sold by PLN are in the regions where 85% of the local generation cost is still at US$0.10/kWh or above.
Informational graphic that explains the new regulation (originally published by MEMR - Ministry of Energy and Mineral Resources of Indonesia)
One positive point of the regulation is the requirement specified in Article 4 Paragraph 3 that require PLN to operate renewable energy based power plants up to 10MW as must-run. It remains to be seen whether the PPA terms for the solar PV projects will be beneficial to the project owners and include a take-or-pay clause.
One positive point of the regulation is the requirement specified in Article 4 Paragraph 3 that require PLN to operate renewable energy based power plants up to 10MW as must-run.
A question that is always on everyone’s mind since the Indonesian Association of Solar PV Module Manufacturers sued Ministry for the solar PV regulation in 2013 is the local content requirement. Luckily in the Ministerial Decree 12/2017, local content is not a strict requirement. In Article 13 Paragraph 1, PLN is directed to prioritize project developers who utilize the local contents according to the prevailing regulations.
In a move toward transparency of the process PLN is required to publish a standard procurement methodology for renewable energy based power plants. More importantly PLN is also required to publish a standard PPA for each type of the renewable energy based electricity purchases. This Ministerial Decree also require PLN to openly inform the electricity network system’s conditions that are ready to integrate renewable energy.
In some aspects, this new regulation provide support for PLN to want to integrate renewable energy into their energy generation mix. This could be the push from the national energy plan that require 23% renewable energy in the national energy mix by 2025. In the near future, by 2017, the national plan targets 11% of renewable energy in the national energy mix.
Link to the Ministerial Decree of the Minister of Energy and Mineral Resources number 12/2017: http://jdih.esdm.go.id/view/download.php?page=peraturan&id=1621
