This week, solar energy stakeholders in Indonesia have taken various government ministries to task over four regulations they say disincentivize clean energy development. One of them, Energy and Mineral Resources Ministerial Regulation No. 50/2017, makes it difficult for renewable energy to enter the market, according to experts.

The debate over this regulation highlights tension between the desire for cheap energy and the need to increase the share of energy produced from renewable sources in Indonesia.

The electricity market is dominated by state power firm PLN, the single buyer of electricity in the country and the largest owner of fossil fuel assets. “PLN is not only dealing with renewables, it is also [pressured] by the government to deal with electricity, to make electricity as cheap as possible,” said Fabby Tumiwa, executive director of the Institute for Essential Services Reform (IESR), a Jakarta-based sustainability think tank.

Regulation No.50/2017 caps what PLN is allowed to pay independent power producers to purchase renewable energy, pegging the price to the local cost of electricity production.

Under this regulation, electricity produced from hydropower and geothermal power has to be as cheap as locally produced electricity, while electricity from other sources, including solar and wind, has to be even cheaper at 85 percent of the local average cost, before the government will buy it.

As it stands, that is nearly impossible in many regions. The average national cost of electricity production last year was 8 US cents per kilowatt hour. Meanwhile, the cost of purchasing solar before the 2017 regulation was 25-30 US cents per kWh, according to James Guild, a PhD candidate at the S. Rajaratnam School of International Studies in Singapore.

“That means in places like Java, which have lots of cheap coal-fired power, solar will struggle to be competitive,” said Guild, “Regulation 50/2017 will make it extremely difficult for PLN to add solar or wind power at utility scale anytime soon. Meanwhile coal remains very cheap, as Indonesia has abundant reserves.”

Furthermore, the government artificially drives the price of coal down through a domestic price cap, preventing it from rising above $70 per ton for purchases by PLN. While this ensures cheap prices to satisfy the population, experts say it makes it hard for renewable energy to get a foot in the energy market.

“[Regulation 50] is basically a tacit admission that neither PLN nor the energy ministry want to shell out for the large up-front capital needed to add solar or wind power at scale at this time,” said Guild.

In many other countries, renewable energy is outcompeting fossil fuels and the cost of solar panels have gone down globally each year. The success of the renewable energy industry seen in places like India, China, Brazil and Mexico has not been matched in Indonesia.

Because Indonesia is an archipelagic nation, the cost of renewable energy installation varies widely from region to region. In more remote locations, roads and logistical infrastructure have to be built before renewable energy can be installed, adding additional costs. Furthermore, much of the technology has to be imported.

But experts have argued that the government does not lack the resources to invest in energy. PLN pays billions of rupiah each year to coal-fired plants in capacity payments made in advance for energy that will be produced in the future. Yet, a 2017 report by the Institute for Energy Economics and Financial Analysis found that Indonesia has significant excess capacity in coal.

Such wasteful investment represents a lost chance to invest in renewables, according to Leonardo Nascimento, a climate policy analyst at the NewClimate Institute, a climate change NGO. “Instead of using [the funds] to increase the share of renewable energy, you’re investing in coal-fired power plants that are not being used to generate power,” said Nascimento.

This raises the question as to whether there is any political will in Indonesia to make renewable energy competitive.

“For India — they see [renewable energy] as an opportunity; it could be that the Indonesian government, at the moment, sees it rather as a threat, because of their domestic coal reserves they want to make use of,” said Hanna Fekete, a founding partner of the NewClimate Institute.

Given the significant economic and political challenges facing renewable energy in Indonesia, Guild believes the government intends to pursue an incremental, long-term approach in transitioning to renewables.

“Instead of trying to displace coal with renewables in a matter of a few years [which is unrealistic], they will go for incremental capacity increases in remote areas, where coal is not economically feasible anyway,” he said. “Personally I think that’s a lot more realistic, although they won’t achieve the renewable goals they have set for themselves.”

— The writer is an intern at The Jakarta Post.

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