Managing director of Allotrope Partners for Indonesia
Earlier this month, Energy and Mineral Resources Minister Ignasius Jonan announced that the government will not approve any new coal-fired power plants on Java, an effort to open more opportunities for the development of renewable energy and gas-fired power plants.
This move is necessary to achieve our country’s ambitious climate change mitigation and clean energy goals: cutting greenhouse gas emissions by up to 41 percent by 2030 as part of the Paris Agreement, as well as increasing the share of renewable energy in from 12 percent to 23 percent by 2025.
While the announcement is good news, the renewable energy industry is largely left with uncertainty. Specifically, how will these ambitious goals be achieved?
At face value, the clean energy goals should appear realistic, given Indonesia’s vast renewable energy potential across solar, wind, geothermal and biomass resources; an estimated 200 gigawatts (GW) of available clean power. The government has also made an effort to be responsive to the renewable energy business community’s complaints – leading to seemingly never-ending policy revisions and updates – resulting in potential progress: more than 1,000 megawatts (MW) of renewable energy contracts have been signed in the first nine months of 2017.
But this is progress only on paper. Time will tell how many of these 1,000 MWs will be built and generating clean power for PLN’s grid. Renewable energy progress in Indonesia to-date has been underwhelming and the policy and regulations remain uncertain.
How can renewable energy investment grow in the near-term despite this uncertainty? One successful approach in various countries is to support investment where there is noticeable demand for clean energy supply.
One specific demand center for clean energy is the commercial and industrial customer base. Manufacturing activities account for approximately one-fifth of Indonesia’s gross domestic product (GDP), and the electricity demand for country’s manufacturing activities is projected to double by 2025.
Further, driven by the need for sustainable corporate growth, multinational and local companies alike are now serious about utilizing renewable energy to minimize environmental impacts and contribute to fighting climate change – all while saving money over the long term.
More than 110 multinational companies to-date have made “100 percent renewable” commitments with more joining every day. Just in 2015-16, corporations in the US agreed to buy more than 7,000MW of power generated by clean energy, according Bloomberg New Energy Finance. Globally, corporate power purchase agreements account for at least 19,000MW of clean energy capacity to-date.
Corporate demand is also driving renewable energy growth for our neighbors. Ayala Land, the largest property developer in the Philippines is committed to being completely carbon neutral in the next five years. Several of Apple’s suppliers in Asia have committed to 100 percent renewable energy supply. Thailand recently announced that rooftops owners can sell excess solar electricity back into the grid.
Indonesia should similarly harness this corporate demand. What would this look like and how would it be achieved?
First, it would be sensible to encourage private companies to add on-site renewable energy generation. At least, two major barriers need to be addressed to boost on-site renewable energy.
For starters, there is currently a capacity charge required for power plants operating at sites that are already connected to the PLN electricity supply. As an illustrative example, a business utilizing a 500 kilowatt (kW) rooftop solar power plant would be required to pay a monthly capacity charge of approximately Rp 20.70 million . That’s approximately Rp 250 million extra every year just to have renewable energy supplied to your business.
Next, it is currently very difficult for a company to procure renewable electricity if it doesn’t have the ability to invest in the assets. As it stands, third-party investors and owners of renewable energy plants are not allowed to sell clean power directly to private off-takers like factories or shopping centers, even if the renewable energy assets are located on-site. This type of private capital is plentiful, but regulatory constraints are inhibiting the flow of this private capital and slowing the deployment of distributed renewable energy solutions.
Addressing the capacity charge and regulatory constraints would bolster clean energy uptake and reduce greenhouse gas emissions – goals that both the government and companies want to achieve.
But stimulating on-site renewable energy installations is only one part of the picture. The larger opportunity may be enabling “off-site” renewable energy supply to commercial and industrial ratepayers through innovative schemes such as “power wheeling” or “direct power purchase agreements”, in which PLN would play an important role in the transmission and delivery of power.
Take, for example, a large manufacturing facility that wants 5 MW of renewable energy but only has enough space on-site for 500 kW. An off-site renewable energy purchasing mechanism such as a direct power purchase agreement (DPPA) would allow the company to buy clean electricity being generated a few, or even a hundred, kilometers away. Private investors are familiar with these models – off-site purchasing has been the primary driver of corporate renewable energy procurement globally – and large energy consumers like factories, shopping centers and data centers would be attracted to a long-term, predictable electricity price; not to mention one that was derived from clean power.
Indonesia isn’t alone in its ambitious renewable energy targets. Many of the companies operating here also have aspirations of tapping into Indonesia’s enormous renewable energy resources. Policies and regulations should therefore encourage, not hinder, renewable energy investment.
By partnering with and leveraging the resources of the private sector, Indonesia will have a much stronger chance to meet its Paris Agreement commitment and National Energy Policy goals.
Gina Lisdiani is Managing Director of Allotrope Partners for Indonesia. Allotrope Partners is a clean energy investment and advisory firm with the mission to accelerate the transition to a sustainable future. Gina leads public-private partnership initiatives in Indonesia that advance the policy and financing frameworks needed to mobilize private investment into the clean energy sector. Ms. Lisdiani holds her Bachelor degree in Industrial Engineering and Master degree in Business and Technology from Bandung Institute of Technology. And she has been engaged with clean energy activities for more than a decade.
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