New FiT for Indonesias Solar Sector
A few weeks ago, Indonesia’s government approved the Energy and Mineral Resources Minister Decree (MD) No. 12/2017, altering the calculation method for the renewable power projects’ feed-in tariff (FIT).
So, whereas before the FITs were set by the government, the MD No.12/2017 allows the FITs to be the result of negotiation between the country’s state-owned power utility PLN and independent power producers (IPPs).
The new law
Specifically, the new law provides a FIT cap based on the electricity supply costs of the region where the renewable power project is to be developed. This is the cost state utility PLN needs to generate each kWh in the region’s electricity system and sub-systems.
Indonesia consists of more than 17,500 islands, of which 6,000 are inhabited and 1,000 are permanently settled. The dispersed geography of the country is a challenge for electricity production, with costs varying between different regions and islands.
Thus, when a region has supply costs above the national average, the FIT will be capped at 85%. If a region has an electricity supply cost lower than the national average, then the renewable energy project will receive a FIT equal to the regional cost. This capping mechanism is valid for all types of renewable energy, apart from geothermal and waste-to-energy plants.
The new law is controversial, however, it is rather obvious that the government is trying to convince the PLN to sign more PPAs with independent power investors. Under the old regime, where tariff prices were higher and fixed, the PLN was unwilling to sign renewable power contracts. The new law will perhaps lead to a surge of solar PV projects in eastern parts of the country where electricity supply costs are higher.
250 MW of new PV capacity via Akuo Energy
An example of how quickly Indonesia’s renewable energy development moves is the MoU signed recently between the PLN and Akuo Energy, a French IPP headquartered in Paris. Based on the MoU, Akuo Energy, which created a subsidiary in Bali, Indonesia in 2012, will conduct a feasibility study for a hybrid system (solar PV, wind, energy storage and genset) in Indonesia with a potential capacity of 500 MW and a total investment US$ 850 million.
Christophe Moyon, of Akuo Energy Indonesia, said that of the 500 MW capacity, about 250 MW will be solar PV installations. These projects will be developed in small to medium islands in Indonesia, with small and isolated electricity systems, where the grid relies mainly on genset, added Moyon.
Asked why the hybrid project needs to include genset, Moyon replied that “a small amount of genset is needed to avoid an over-sized storage capacity in order to reach the target PPA price that PLN expects in each particular location.”
Meanwhile, the PLN has also signed power purchase agreements to buy electricity generated from six new solar PV plants to be built in the country. These are four PV plants of 5 MW each, a 10 MW plant and a 15 MW plant. The tariff for the projects has not been revealed.
Indonesia has a target to provide 23% of its energy mix from renewable energy sources by 2025. The recent renewable energy activity is encouraging, however in March the PLN has also signed engineering, procurement and construction contracts for about 1 GW of fossil fuel-based generation, like a 650 MW combined-cycle power plant in Bekasi, West Java.