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Unlocking the Potentials of Solar Photovoltaic Electrical Generation in Indonesia
16 March 2023

Due to the high energy consumption growth in Indonesia’s highly populated areas, it is projected that Indonesia’s energy future will heavily impact the global greenhouse emission. In 2015, Indonesia pledged to significantly decrease its greenhouse emission to 29-41% by 2030. To further engage on this agenda, the government started to promote the utilization of renewable energy to fulfill the domestic electricity demand.

 

Indonesia has consistent year-round sunshine, projecting a full potential on solar energy than all the world’s photovoltaic energy combined, making it the finest renewable energy source. Ironically, despite Indonesia’s commitment to reducing carbon emissions, the optimization of the country’s renewable energy potential is unpromising. Whereas national electricity consumption is still heavily reliant on coal-fired power plants. 

 

Indonesia’s Solar Potential

 

Worldwide energy consumption is most likely to grow faster than population growth. To meet the electricity demand, energy transition to renewable energy is necessary. Indonesia has great renewable energy potential such as geothermal, solar, wind, and biomass.

 

As a tropical country located in the center of the equator, Indonesia has vast potential for generating electricity through solar photovoltaic (“Solar PV”) or solar rooftops to meet future energy needs at a competitive cost. The country’s renewable energy potential is presented below:

 

 

 

Provided on the table above, the utilization of solar energy for electrical generation is fairly low, considering the vast potentials all year round. Geographically, solar radiation potential across the archipelago is distributed as follows:

 

 

 

According to the statistics above, regions such as West Kalimantan, South Sumatera, and East Kalimantan has the highest amount of solar radiation, reflecting a huge potential to develop high-capacity solar power plants (“Pembangkit Listrik Tenaga Surya” or “PLTS”). In Indonesia, the operating PLTS with the highest capacity is PLTS Likupang with a 15 MW installed capacity in North Sulawesi. The following table presents the data on some of the high-capacity solar power plants in the country:

 

Issues on Renewable Energy

 

Efforts to develop the renewable energy sector encounter several challenges. Firstly, high production cost. Renewable energy is costly, causing it difficult to compete with cheaper non-renewable alternatives, for instance, coal. Coal has been used as the easiest and cheapest alternative to meet the rising energy demand due to its availability and low price. As a result, most of Indonesia’s energy generation relies on coal-fired power plants. Secondly, inefficient subsidies. A massive percentage of the state budget is allocated for fossil fuel subsidies annually, this policy is not helpful for the ongoing transition to renewable energy. Instead of promoting the production of greenhouse gasses, it is necessary to reallocate a portion of the state’s expenditure to renewable energy-based electrical infrastructure.

 

Thirdly, lack of clarity and stability in the regulatory framework. Given the rising urgency, the regulatory regime applicable to renewable energy projects faced frequent changes over the past years, therefore lacking attractiveness to investors. This is reflected in the applicable regulation regarding tariffs for renewable Independent Power Producers (IPPs).

 

Throughout the years, many incentive policies have been introduced globally to support renewable energy development. However, the most prominent mechanism is still the Feed in Tariff (“FiT”). In a nutshell, the FiT mechanism provides a determined renewable energy tariff by Public Authorities for a guaranteed period which calculates the construction, management, and other costs specific to renewable energy. FiT is most responsible for the massive growth of Solar PV in Europe during 2008 – 2012, China during 2011 – 2016, and Japan during 2012 – 2017. Over the years, this mechanism open doors for Solar PV investment globally.

 

In Germany, a prominent country for solar PV usage, the first law on FiT for green electricity was enacted in 1991. The regulation provided a guaranteed FiT price for 20 years for grid companies to connect all renewable energy power plants. Despite the bold move, it was not until 2000 that the FiT price was concretized and solar energy reached its peak. The German authorities also targeted a 100,000 roofs scheme along with low-interest credit facilities by 2001 – 2003. Thus, the success demonstrates how FiT can promote renewable energy development.  Similarly, in Japan, Solar PV plants soared to huge success in 2012 after introducing the FiT scheme whereas the electricity tariff is priced at 53 US cents/ kWh or two times more than the price offered in Germany during the same time. In 2017, Japan’s total installed solar capacity reached 49 GW. 

 

Ultimately, the Indonesian government can learn from the FiT mechanism designed by worldwide leading countries in renewable energy to provide a more comprehensive scheme to promote Solar PV plants in the country.

 

Following its development, the regulation was amended by the Minister of Energy and Mineral Resources Regulation No. 26 of 2021 concerning the Solar Photovoltaic Power Plant Connected to the Electricity System of the License Holder of Electrical Generation for Public Interest (“MEMR 26/2021”). The enactment of MEMR 26/2021 encourages the use of rooftop solar for electrical generation for personal interest, further supporting the national commitment to environmental-friendly electricity.

 

Recent Policies

 

In the Indonesian National Energy Policy or Kebijakan Energi Nasional (KEN) the government is planning on a 23% renewable energy mix plan.

 

Through the Presidential Regulation No. 22 of 2017 on RUEN, the government projects the development of solar-powered electrical generation to reach 6,5 GW in 2025 and 45 GW in 2050. To achieve this goal, the government has enacted several implementing regulations. In 2018, the government established the Minister of Energy and Mineral Resources Regulation No. 49 of 2018 on the Utilization of Solar Photovoltaic Electrical Generation System by PT PLN’s Consumers (“MEMR 49/2018”). Whereas prior to the establishment of MEMR 49/2018, the solar power plant system was not specifically regulated.

 

Following its development, the regulation was amended by the Minister of Energy and Mineral Resources Regulation No. 26 of 2021 concerning the Solar Photovoltaic Power Plant Connected to the Electricity System of the License Holder of Electrical Generation for Public Interest (“MEMR 26/2021”). The enactment of MEMR 26/2021 encourages the use of rooftop solar for electrical generation for personal interest, further supporting the national commitment to environmental-friendly electricity.

 

The utilization of solar rooftop systems in MEMR 26/2021 is aimed at (1) saving on electricity bills of rooftop solar customers; (2) obtaining electricity from renewable energy sources; and (3) reducing greenhouse gas emissions. MEMR 26/2021 made several substantial changes to solar power generation, as such:

 

  1. Electricity Export-Import Policy

 

To clarify, electricity export-import in this context refers to the storage of electrical energy at PLN.  Export refers to the amount of electrical energy transmitted from the rooftop solar customer installation system to the PLN network system recorded on the export-import kWh meter. On the other hand, import is the amount of electrical energy received by the rooftop solar customer installation system from the PLN network system recorded on the export-import kWh meter. If the amount of electricity exported is greater than that imported in the current month, then the difference will be accumulated and considered as a reduction in the next month's electricity bill.

 

Previously in MEMR 49/2018, consumers could only receive 65% of the electrical energy deposited in PLN. Following the enactment of MEMR 26/2021, the quota of electrical energy that is received by consumers is 100%. This means that 100% of the electricity produced by consumers can be deposited to PLN. Furthermore, the government also increased the accumulation period of electricity export difference from three to six months. The policy serves as an incentive to promote rooftop solar usage in common households.

 

  1. Licensing

 

The licensing requirements above are made in line with risk-based business licensing provided in the Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation. Licenses application can be made through electronic integrated service and reporting system for solar rooftop.

 

 3. Capacity Charge and Emergency Energy Charge

 

Under MEMR 26/2021, only rooftop solar for industrial purposes are subjected to monthly capacity charges. On the contrary, no capacity charge or emergency energy charge will be made for solar rooftops used for personal interest.

 

Conclusion

 

Acknowledging the issues respective to solar energy generation, the government constantly attempts to improve the relevant regulation. Despite the efforts, it must be understood that the country seems to fall behind on solar energy optimization given its vast solar potential. Thus, major reform is deemed necessary to accelerate the Indonesian renewable energy target in electrical generation.

 

Should there be any queries related to this regulation or to find out if this affects your business or personal interest, please do not hesitate to contact us.

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