Solar energy companies in Indonesia are struggling to keep their margins intact. The Indonesian government had announced a renewable energy target of 23% to be reached by 2025.
In order to push the renewable energy facilities, the government has introduced various regulations through different ministries. However, companies are protesting against some regulations because they believe they are not conducive to the development of solar energy in the country.
The Ministry of Energy and Mineral Resources introduced regulations on licensing of rooftop solar photovoltaic systems and feed-in fees for exporting excess electricity to the state-owned company’s grid PT PLN.
In 2017, the government introduced MEMR 50/2017 regulation, by which a new mechanism was introduced to determine the tariff at which PT PLN will purchase electricity from independent power producers (IPP). This enabled PT PLN to better control the prevailing tariffs in the sector through negotiations and benchmarking against the applicable base cost of power generation (Biaya Pokok Penyediaan Pembangkitan or “BPP”).
The BPP reflects the cost for PT PLN to generate electricity and purchase it from third-party suppliers, but does not include the cost of its transmission. The price calculation for solar PV technology is done as follows:
- If the local BPP is higher than the national BPP of the previous year, the tariff will be set at 85% maximum of the local BPP.
- If the national BPP is greater than or equal to the local BPP of the previous year, the tariff will be based on a mutual agreement between the IPP and PLN.
This regulation presented a challenge to solar photovoltaic investors since their offer price to PT PLN was no longer directly linked to their respective production costs, but rather to the cost of producing energy in general and from n ‘ any source in a given region. In addition, the annual BPP calibration resulted in a fluctuation in the price at which companies sold electricity to PT PLN.
In November 2018, the ministry introduced MEMR regulation 49/2018 for rooftop solar photovoltaic installations. Under this regulation, all rooftop solar PV installations require prior verification and approval from the local distribution company of PT PLN and the verification and approval process must be completed within 15 days.
The verification required information on the customer identification number PT PLN, the installed capacity of the photovoltaic system on the planned roof, the specifications of the equipment to be installed and a single line diagram of the planned photovoltaic system. The regulation also introduced the calculation of electricity bills for PT PLN customers with rooftop photovoltaic solar installations.
Invoices should be calculated on a monthly basis based on the import value per kilowatt per hour (kWh) minus the export value per kWh. The export value will be calculated at 65% of the applicable PT PLN tariff. Rooftop photovoltaic solar panel developers are concerned about the additional approval requirement as well as the 65% multiplier.
Under the previous government, the multiplier was not in place, so the difference between the value of imports and the value of exports was taken into account when calculating customer invoices. Under the current government, if the value of imports is the same as before, the difference between the value of the export imports and 65% of the export value is taken into account for the calculation of customer invoices, thus making more inflated bills. As a result, customer interest in installing photovoltaic solar panels on rooftops is reduced.
At present, all renewable energy projects in Indonesia are developed under the Build, Own, Operate and Transfer (BOOT) program where PT PLN is the sole purchaser of the electricity produced. Independent Power Producers (IPP) own and operate the generation facilities for a limited period as stated in the Power Purchase Agreement (PPA) with PT PLN.
In 2017, through MEMR 10/2017 regulation, the government introduced certain mandatory requirements for PPAs which included bankability provisions regarding risks related to government force majeure (GFM) and natural force majeure (NFM). ) that can affect the network and the parties involved. PPAs. Prior to the introduction of this regulation, GFM events were divided into two scenarios, namely unjustified government action or inaction (for example, revocation of permits without good or legal reason) and changes in laws and regulations. .
The State risks were transferred to PT PLN which was then able to manage the risks through various provisions. The company used to either make deemed shipping payments to cover lost revenue in the event the plant ceased operations due to GFM events, or made tariff adjustments to compensate for lost revenue. impact on costs.
PT PLN has also adjusted the termination amount payments which equals the outstanding project debt plus future returns on equity lost if the PPA is terminated due to extended GFM events.
As such, insecurity around consistent income for solar developers prevailed in the market. In 2018, the government amended the regulation with MEMR 10/2018 regulation, where parties to the PPA have the freedom to negotiate terms in the event of GFM. But in case of NFM, the PT PLN has the option to pay the deemed shipment if there is a disruption in the PT PLN network due to NFM events like flood, lightning, etc.
There was no provisioning for NFM under MEMR 10/2018 regulation for the bankability of PPAs. This meant that in case of NFM clarity, it was not possible to know if developers would be paid by PT PLN for the units they send to the network. This created a state of dilemma among solar developers as to whether to continue investing.
The Ministry of Industry (MOI) also has regulations in place that state that companies can only build solar power plants if they meet the 60% local content (LCR) requirement. Since most of the equipment is imported, it becomes difficult for investors to comply with the CRL.
According to GlobalData at the end of 2018, Indonesia reported a total capacity installation of over 65 GW. The country is primarily powered by fossil fuels, with over 85% of the country’s cumulative capacity coming from thermal technology, mostly coal. The country has more than 30 GW of coal-fired power plants at the end of 2018.
Indonesia has set a renewable energy target of 23% of its energy mix by 2025 but, at the end of 2018, it has just installed 106 MW of solar installations and 85 MW of wind installations, respectively. In order to increase contributions to renewable energies, the country needs to provide incentives and regulations that can improve investments in the renewable energy sector.
Figure 1: Composition of capacities, Indonesia, 2018
Source: GlobalData
Indonesia has strong solar potential, but a series of political missteps have stunted the growth of the technology. The country launched its Electricity Supply Business Plan (RUPTL) 2019-2028 which places less emphasis on solar power, with PT PLN reducing its solar plan by 137 MW. In view of the successful experience of solar power in a number of countries around the world, Indonesia needs to develop regulations to have a strong solar installation in order to exploit its potential so that the technology can contribute more to the mix of solar energy. production of the country.
