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Analysis: Jokowi issues renewable energy regulation with unattractive pricing scheme

Presidential regulation (Perpres) No. 112/2022 on renewable energy, which had been teased since last year, is finally out. However, the reaction to the regulation has been bleak.

Tenggara Strategics (The Jakarta Post)
Jakarta
Wed, September 28, 2022

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Analysis: Jokowi issues renewable energy regulation with unattractive pricing scheme SURYA PANEL: Officers check the installation of solar panels in Terminal Tirtonadi, Surakarta, Central Java, Monday (7/31). The Ministry of Transportation project is capable of producing 500 kilo volt amperes (kVA) or 500,000 watts of electricity as an effort to save electricity in terminal operations. (JP/Ganug Nugroho Adi)

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residential regulation (Perpres) No. 112/2022 on renewable energy, which had been teased since last year, is finally out. However, the reaction to the regulation has been bleak. There is no feed-in tariff and the ceiling price set for electricity purchased by state-owned electricity company PLN is lower than expected, disappointing renewable energy developers.

Indonesian Solar Energy Association (AESI) executive director Fabby Tumiwa said the ceiling price set in the regulation allowed some room for solar power plant developers to gain some margin. However, it would remain difficult for developers to meet the local content requirements (TKDN), especially for solar photovoltaic (PV) modules.

Renewable energy developers have been struggling to meet the 40 percent TKDN under the existing electricity pricing scheme. The local solar PV component price is still more expensive than its imported counterparts while the electricity offtake price is low, making solar power projects economically unfeasible, especially for smaller developers unable to achieve economies of scale and lacking access to capital amid rising interest rates and inflation.

A more fundamental issue with the regulation is the removal of the feed-in tariff from the draft regulation. Article 5(1) in the issued regulation emphasizes negotiation between PLN and the power producers, with or without considering the power plant’s location, a process that takes time and is full of uncertainty. This will hamper projects that require massive investment, such as geothermal power plants.

Indonesian Geothermal Association (API) chairman Prijandaru Effendi said his side was in no position to conduct business-to-business (B2B) negotiation with PLN and was instead waiting for direct appointment to speed up the project development because negotiations would take time. He insisted an electricity tariff that followed PLN’s ability to pay would not cover geothermal project development costs, emphasizing the need for power purchase agreement to guarantee the economic feasibility of geothermal projects.

Beyond pricing issues, another controversial point in the regulation is the exception to the prohibition of new coal-fired power plant (PLTU) construction. This exception will impose challenges for the country in reaching its Nationally Determined Contribution (NDC) commitment to become carbon neutral by 2060 and the 2021-2030 long-term electricity procurement (RUPTL) target to source 51.6 percent of its new power plant installation from new and renewable energy sources.

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The exception, stated in Article 3(4), applies for PLTU installation plans included in the RUPTL prior to the issuance of the regulation. In addition, the exception also applies to PLTUs integrated with industries that add value to the country’s resources or are included in the National Strategic Plan to create jobs or boost economic growth, as well as to those committed to reducing greenhouse gas emissions at least 35 percent during the first 10 years of operations and operating until 2050 at the latest.

What we’ve heard

In the eyes of the EBT players, Perpres No. 112/2022, which came into effect on Sept. 13 does not have much impact. They are not sure that PLN will want to follow the rules set within the Perpres, especially regarding buying electricity from EBT sources. Additionally, some of the provisions to buy electricity will still be regulated by ministry rules

Their doubts are based on their experience when the energy ministry published the PLTS guidelines for rooftop solar panels. At the time, PLN rejected the purchasing regulations set by the ministry on buying electricity from solar panels.

On the other hand, a source from the government explains that the publication of the Perpres on EBT development is related to the government’s desire to show the other G20 countries that Indonesia is committed to green energy. He says that the government is also interested in claiming the funds for implementing new and renewable energy sources that are meant for carbon emissions reduction.

Another source highlights that Indonesia only recently submitted the second national Forest Reference Emission Level (FREL) for deforestation, forest degradation and forest carbon stock to the UNFCC last January 2022. This FREL is the baseline for the REDD+ initiative. The UNFCCC team’s independent expert secretariat began verifying and validating the FREL documents last April. Once the verifications are finished, Indonesia can claim that it has reduced emissions.

The main question among green energy businesses and environmental activists is how fast Indonesia can transition to renewable energy. They cite the fate of the new and renewable energy bill that still has no due date for 2022. They hope that this bill will act as a roadmap for the development of Indonesia’s renewable energy. Several large corporations are ready to enter the green energy industry. “Numerous businesses such as Indika Renewable Energy and Adaro are ready to enter the EBT project,” said an industry player.

Disclaimer

This content is provided by Tenggara Strategics in collaboration with The Jakarta Post to serve the latest comprehensive and reliable analysis on Indonesia’s political and business landscape. Access our latest edition to read the articles listed below:

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  2. Outgoing Jakarta governor Anies offers himself for 2024. Any takers?
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Business and Economy

  1. LRT safety issues cause further delay, cost overruns
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