by Andre Susanto
The solar market of Southeast Asia’s largest energy consumer has been relatively underdeveloped until now. A new decree from the energy ministry is set to change the situation and open the heavily government controlled solar market.
Quick history of PV development: limited success due to lack of clear support mechanisms and transparent framework
New government decree highlighted: 14.5-25 $cents/kWh FIT, with rates and capacity quotas determined by PLN's operational regions
Implications for international investors and developers
Current Situation & Context
The struggles of the Indonesian commercial solar market are largely due to lack of clear support mechanisms and transparent framework. Until the reverse auction regulation in 2013, solar PV development in Indonesia was strictly possible only through government project tenders and a handful of power auctions by PLN (the state-owned electricity company). Even now, mid-2016, the largest share of solar PV projects are government and PLN projects. Privately funded project opportunities are growing, but have not reached the level of success that’s needed to qualify Indonesia’s solar PV industry as mature.
“Privately funded project opportunities are growing, but have not reached the level of success that’s needed to qualify Indonesia’s solar PV industry as mature.”
In the off-grid space alone, the Indonesian government - through its Ministry of Energy and Mineral Resources (MEMR) - has funded over 500 solar PV mini/microgrid projects. Some hybrid systems have also been called to tender and there will be a 2018 auction for 90+ solar PV - Diedel hybrid projects; this time hosted by PLN.
For the grid connected solar PV systems, MEMR issued tenders to fund the installation of rooftop solar PV systems in 4 airports (Tambolaka, Maumere, Labuan Bajo, dan Sumba Island) as well as numerous government buildings such as various governor and mayor offices, the presidential palace and a ministry office.
In the field of utility scale solar, the reverse auction regulation in 2013 was only able to achieve limited success. Just a handful of its 70+ planned locations actually completed the tender process. Regrettably, it was prematurely put on hold and ultimately cancelled, due to the lawsuit against the MEMR by the Indonesian Association of Solar PV Panel Manufacturers in regard to the local content requirements. .
“In the field of utility scale solar, The reverse auction regulation in 2013 was only able to achieve limited success.”
Recently two of the reverse auction winners in 2013-2014 completed the construction of their projects. One is a 2 MW system in Gorontalo and the other is a 5 MW system in Kupang. The other five projects as reverse auction winners are currently going through financial closure and should be starting construction soon.
A New Decree
Now, however, things are expected to start moving in the Indonesian solar market, with the decree of a new regulation that was signed mid-July of 2016. The new regulations aim to provide proper support mechanisms for utility scale solar PV systems. The regulation does not utilize a tender mechanism or a reverse auction system. It is a Feed in Tariff that’s promised to registered project developers once they meet certain milestones..
“The regulation is not utilizing a tender mechanism or a reverse auction system. It is rather a Feed in Tariff that’s promised to registered project developers once they meet certain milestones.”
The policy is quite similar to the Philippines’ last regulation, the difference being that instead of the project’s COD (Commercial Operation Date) being the leading condition for approval, Indonesia’s regulation will use the approval of the project and its feasibility study as the necessary milestone. Once the project developers meet the requirements and reach this milestone, they’re awarded the promise of the PPA tariff for the region where their project is located.
To quickly summarize, the highlights of the regulation’s main points are:
- An FIT of 14.5 cents to 25 $cents per kWh (20 year PPA) depending on the project’s region
- Each region (divided by PLN’s operational regions) has its own tariff and its own quota
- Total quota for Indonesia is 250 MW
- Largest quota is in Java at 150 MW and the smallest quota is 2.5 MW in Papua/West Papua combined provinces
- There is a maximum limit of project size per developer based on the available quota in the region:
- Quota above 100 MW, the limit is 20 MW
- Between 10-100 MW, the limit is 20%
- Below 10 MW, there’s no limit
- Local content on the project is required, subject to the minimum based on the Ministry of Trade and Industry’s regulations
- Projects not meeting the minimum local content will be penalized on the tariff according to the ratio of the achieved local content
- Other milestones (Financial close, Commercial Operational Date, etc) are given timelines as well and need to be observed to avoid any consequences
Implications for international investors and developers
With this new regulation in place, it is even more important to have a local partner who can quickly identify project locations as well as execute the tasks required to achieve Feasibility Study approval as well as project implementation.
“With this new regulation in place, it is even more important to have a local partner who can quickly identify project locations as well as execute the tasks required to achieve Feasibility Study approval as well as project implementation.”
Most project developers will need to select an area where they can be competitive with other developers on the speed of project execution. Another option is to select a less popular region where the likelihood of having competition is lower. These considerations will need to be made with the expertise and experiences of a lot of local input and knowledge.
It is important to engage the local office of the utility company as well as the local community leaders and its members. Many of the locations still have strong ties to traditional methods such as community land ownership. These lands may require the whole community to agree before being able to be sold or leased to the project. In some cases, these lands are not to be used for any commercial purposes strictly based on local customs.
Local grid code and technical requirements will also need to be considered early in the project development phase in order to assess the project viability. A seemingly simple decision may incur significant costs. As an example, deciding to connect to a transmission substation may allow the project to be able to sell more energy to the grid. But as a consequence, it will now need to build high voltage cable towers. Another example is the knowledge of whether certain transmission buses often get disconnected for grid stability management. If this bus is selected to be connected, then the project will not be able to sell as much power to the grid as predicted.
Though it’s early to tell what the full impact of the new regulations will be, the decree provides positive prospects for the development of the Indonesian solar market.
Andre Susanto is a Clean Energy Consultant, with many years of experience in the Indonesian clean energy market. He is the founder and Senior VP of PT IDP, a clean energy consulting company in Indonesia. He's collaborated with Solarplaza on the Trade Missions we've hosted in Southeast Asia and is a trusted advisor and source of expertis.
Solarplaza has organized two trade missions to Southeast Asia (Indonesia; 2013 & Vietnam/Thailand; 2016) and is keeping a close eye on the market developments.