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Indonesia and the Philippines offer an attractive opportunity to develop solar. Demand for electricity is soaring in Southeast Asia’s largest nations, with high solar irradiance through the region. And as vast archipelagos with underdeveloped grid networks, there is potential to build decentralized systems. However, policy uncertainty has thus far weighed on development.
That said, the Philippines is much further along than its neighbour, with roughly 916 MW already installed, according to research firm IH — the bulk of it under two feed-in tariff (FIT) rounds. However, with the second round oversubscribed beyond its 500MW quota, the government has yet to unveil details about the third version.
“It’s pretty much up in the air now as they deal with second-round projects,” says IHS analyst Josefin Berg, noting that some investors hope something will be announced this year. While uncertainty over the next round points to a troubling lack of transparency, there is still cause for optimism.
Financing, for example, is less of an issue than one might expect. Investors can obtain non-recourse financing if they deal with creditworthy utilities such as Manila Electric Co. (Meralco), according to Fabian D’Avola, senior director of project development at JinkoSolar.
“There is plenty of liquidity, thus local banks have a lot of appetite for non-recourse financing, especially with a long-term Meralco power purchase agreement,” D’Avola adds.
However, developers have been required to build their projects before they can secure a FIT — a risk that has left some completed projects hanging without subsidy support. Developers can get around this by directly signing PPAs with regional utilities, outside of the FIT scheme. Germany’s Conergy — which sees “strong upside” in the Philippines, with 274 MW installed — has already explored this route.
“The PPAs we’ve seen are competitively priced,” says Alexander Lenz, president for APAC at Conergy. Berg agrees that PPAs offer the “best opportunities” to develop projects in the near term.
“The big challenge right now is the uncertainty in terms of future support,” she explains, noting that it remains unclear how Manila plans to deal with existing projects that have not been granted tariffs.
Indonesia’s solar ambitions have been stymied by a similar lack of transparency. Aside from ongoing tenders for small off-grid systems, past attempts to subsidize development have failed. In 2013, for example, the government abruptly canceled its reverse auction system; ultimately, only a negligible amount of capacity was built.
“It was a pretty big mess,” laments Berg, who estimates Indonesia’s cumulative installed capacity at roughly 60 MW. However, a new FIT system unveiled earlier this year — along with an installation target of 5 GW by 2025 — has once again raised hopes that Indonesia may be on the cusp of a sustained build-out.
The first 250 MW of the 5 GW will be put up for grabs this year, with the FIT to be denominated in rupiah, to reduce foreign-exchange risks.
“It’s a big door-opener,” enthuses Horst Kruse, a senior advisor at HK Renewable Energy Consultancy in Jakarta. “If it all works, it will not be a risk.” Unlike in the Philippines, investors will be able to lock in their FIT rates before they build. Land acquisition will be a challenge, according to Kruse, but developers will be free to select their sites — a key difference from the ill-fated reverse auctions of 2013.
However, a number of concerns remain.
Securing a FIT for a project will be a challenge, as the government plans to set up an online application system, with developers to submit proposals on a first-come, first-served basis.
Non-recourse financing is still not widely available in Indonesia, but as with any market, this could improve over time, especially as more international banks become involved. State utility PLN has yet to provide a template for 20-year PPAs, and international investors will need to find local partners, partly because foreign companies will only be allowed to own 49% of projects.
Questions also remain about local content requirements, but Kruse is quick to dismiss such concerns. “They can be easily reached,” he argues. “Even if you import modules and inverters from abroad.”
A bigger issue, he says, is whether the government will stick with its new policies. And a number of worrying signs have already emerged, calling the stability of the current policy regime into question. In early August, the energy ministry canceled a launch party for the new FIT regulation without explanation, only a day before it was scheduled.
Weeks later, the ministry announced plans to cut 900 billion rupiah ($67.9 million) from its 2016 budget. And shortly thereafter, President Joko Widodo sacked Energy Minister Arcandra Tahar, after just 20 days on the job.Nonetheless, Berg says the new regulation is reason for cheer.
“At least this is a clear signal from Indonesia that they want to develop solar,” she says. “Maybe they won’t reach the 5GW target, but it’s an ambitious target and they’re laying down the basis for moving toward it.”