New provisions support use of renewable energy in electricity generation

Introduction

Indonesia's renewable energy sector has attracted greater government support in 2017. New regulations have provided clarity for investors interested in solar, wind, hydro, geothermal and biogas projects by:

• introducing incentives for undertaking such projects;
• detailing the procedures for renewable power purchase agreements; and
• updating the tariff rates.

Despite the primary role that coal and gas continue to play in meeting Indonesia's electricity needs, the government seems to be demonstrating a commitment to promoting renewable energies.

Government incentives

President Joko Widodo's ambitious infrastructure plan to generate a further 35 gigawatts of power is accompanied by a policy target that 25% of this power derive from new and renewable energy sources by 2025. To this end, the Presidential Regulation on the Acceleration of Electricity Infrastructure Development (4/2016) demonstrates the government's support for renewable energy projects, as it:

• establishes a new entity to procure electricity from renewable energy sources and on-supply the electricity to state-owned electricity company PT Perusahaan Listrik Negara (PLN) Persero; and
• provides subsidies specifically for renewable energy projects.

Presidential Regulation 4/2016 was amended in February 2017 by Presidential Regulation 14/2017, which clarified a number of matters, including that PLN and domestic or foreign-owned power producers must cooperate by way of a sale and purchase agreement. Notably, the incentives for renewable energies introduced under Presidential Regulation 4/2016, as well as other material provisions concerning the acceleration of power infrastructure development, remain intact.

Renewable energy projects will benefit from other measures maintained by Presidential Regulation 14/2017, which are designed to ease the bottlenecks that hamper infrastructure development in Indonesia. These include an additional form of government guarantee for the development of power projects and shorter licence processing times.

Power purchase agreements and tariffs

The Ministry of Energy and Mineral Resources (MEMR) has indicated that approximately 62 renewable energy-based power projects are planned for development. The MEMR is updating its regulatory support for renewable energy use and has released the following regulations concerning renewable power purchase agreements and tariff rates:

• the MEMR Regulation concerning the Utilisation of Renewable Energy for Electricity Supply Purposes (12/2017), as amended by the MEMR Regulation concerning the Amendment to MEMR Regulation 12/2017 (43/2017);
• the MEMR Regulation concerning the Mechanism for the Determination of Primary Unit Costs of Power Generation by PLN (24/2017); and
• the MEMR Decree concerning the Primary Unit Cost of Power Generation by PLN (1404 K/20/MEM/2017).

Regulation 12/2017

Regulation 12/2017, as amended, requires PLN to purchase electricity from power plants which use renewable energy resources. The regulation:

• establishes guidelines for the purchase of electricity from renewable energy power plants; and
• clarifies the procedures for the appointment of an independent power producer (IPP) and the electricity purchase price or feed-in tariff for each type of power plant.

Solar (photovoltaic) and wind power plants With regard to solar and wind power plants, the regulation provides as follows:

• An IPP must be selected by way of a tender process on the basis of a minimum total capacity quota of 15 megawatts (MW), which may be drawn from a single power producer or a project that comprises several plants located separately.
• Where the respective power plant's primary unit cost is higher than the average national supply's primary unit cost, the maximum electricity purchase price is 85% of the plant's primary unit cost.
• Where the respective plant's primary unit cost is equal to or below the average national supply's primary unit cost, the electricity purchase price is equal to the plant's primary unit cost.

Hydropower plants With regard to hydropower plants, the regulation provides as follows:

• An IPP must be selected by way of the benchmark price mechanism.
• Where the local electricity system's primary cost of supply is higher than the national primary cost of supply, the maximum tariff or electricity purchase price must be equal to the local electricity system's primary cost of supply.
• Where the primary cost of supply applicable to Sumatra, Java, Bali or another local electricity system is equal to or below the national primary cost of supply, the maximum tariff or electricity purchase price must be mutually agreed by the parties.
• Where the direct appointment process applies, the tariff calculation is determined during the appointment process.
• Hydropower plants with a maximum capacity of 10MW must be able to use a minimum of 65% of their capacity in their operation.
• Hydropower plants with a capacity of more than 10MW must operate on the basis of the system's demand.
• The build, own, operate and transfer partnership scheme applies.

Biomass and biogas power plants With regard to biomass and biogas plants, the regulation provides as follows:

• To be eligible to participate, an IPP must own sufficient feedstock to support the operations of the respective biomass or biogas power plant throughout the lifetime of the power purchase agreement with PLN.
• Biomass and biogas power plants with a capacity of up to 10MW must use the benchmark price mechanism to select an IPP, for which the maximum tariff is:
  • 85% of the plant's primary unit cost if this is higher than the national supply's primary unit cost; or
  • 100% of the plant's primary unit cost if this is equal to the national supply's primary unit cost.
• Biomass and biogas power plants with a capacity of more than 10MW must use the direct appointment mechanism to select an IPP, for which the tariff is determined during the direct appointment process.

Waste-based power plants Waste-based power plants must use the benchmark price mechanism to select an IPP, for which the maximum tariff is:

• 100% of the plant's primary unit cost if this is above the national supply's primary unit cost; or
• as mutually agreed by the IPP and PLN, where the plant is located in Sumatra, Java or Bali and its primary unit cost is equal to or below the national supply's primary unit cost.

The government may provide incentives for IPPs.

Geothermal power plants With regard to geothermal power plants, the regulation provides as follows:

• To be eligible to particpate, an IPP must already own a geothermal working area, as proven by its reserves following exploration.
• Geothermal power plants must use the benchmark price mechanism to select an IPP, for which the maximum tariff is:
  • 100% of the plant's primary unit cost if this is higher than the national supply's primary unit cost; or
  • as mutually agreed between the IPP and PLN, where the plant is located in Sumatra, Java or Bali and its primary unit cost is equal to or below the national supply's primary unit cost.
• The build, own, operate and transfer partnership scheme applies.

Decree 1404

Decree 1404 stipulates the national supply's primary unit cost and the primary unit costs for plants according to region.

The above primary unit costs are valid from April 1 2017 to March 31 2018 and will apply for the remainder of 2018 if no new regulations are issued before March 31 2018.