In this update, we discuss the new regulation issued by the Ministry of Energy and Mineral Resources on the use of renewable energy for electricity supply and whether it fulfils the expectation of independent power producers.
The Indonesian government has once again promised to boost the proliferation of renewable energy industry in Indonesia by enacting the Ministry of Energy and Mineral Resources Regulation (“MEMR“) No. 4 of 2020 on Use of Renewable Energy for Electricity Supply (“New Regulation“). The New Regulation amends MEMR Regulation No. 50 of 2017 as amended by MEMR Regulation No. 53 of 2018 (“Previous Regulation“), which was viewed by many as inadequate.
Contrary to the expectation of many independent power producers (“IPP“) and rumours that the Government will re-introduce the feed-in tariff scheme for renewable energy, the New Regulation still benchmark the pricing of renewable energy against PT Perusahaan Listrik Negara’s (“PLN“) average electricity generation basic cost (biaya pokok penyediaan or “Generating BPP“). Benchmarking the electricity tariffs to the Generating BPPs is seen as a major hurdle in attracting investors’ appetite in developing renewable power generation projects as Indonesia’s low Generating BPP is derived from Indonesia’s reliance on coal-fired power plants.
In other words, the pricing of renewable energy must compete against fossil fuel-based electricity generating plant, which price is even depressed on a global scale.
The electricity tariffs for renewable power generation projects under the Previous Regulation, which has not changed by the New Regulation are as follows:
|Power Source||Calculation of Electricity Tariff|
|Solar PV||If the local Generating BPP is higher than the national average, the tariff must not exceed 85% of the local Generating BPP. If the local Generating BPP is lower or equal to the national average, the electricity tariff is determined based on the mutual agreement between the IPP and PLN on a case-to-case basis.|
|Ocean tidal or thermal|
|Hydro||If the local Generating BPP is higher than the national average, the tariff under the power purchase agreement (“PPA“) must not exceed the local Generating BPP. For Sumatra, Java and Bali islands, if the local Generating BPP is lower or equal to the national average, the electricity tariff is determined based on the mutual agreement between the IPP and PLN on a case-to-case basis.|
|Biofuel||Electricity tariff is based on mutual agreements.|
Despite hopes that the New Regulation will finally give the push demanded by the renewable energy industry, it seems that now is still not the time for the renewable energy industry to take centre stage. Within the context of promoting renewable power generation projects in Indonesia, it seems that the New Regulation is still not enough to attract investors considering that it fails to address the main concern of many IPPs on electricity tariffs. Coupled with the plummeting price of fossil fuels (oil, gas, and coals), the government would need to do more to promote renewable power generation projects in Indonesia and to achieve the 23% renewable energy mix by 2025.
But there are news that the Government is also in the process of preparing a new regulation on tariff, which we hope would finally be the push needed for the renewable energy industry.
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AHP Client Alert is a publication of Assegaf Hamzah & Partners. It brings an overview of selected Indonesian laws and regulations to the attention of clients but is not intended to be viewed or relied upon as legal advice. Clients should seek advice of qualified Indonesian legal practitioners with respect to the precise effect of the laws and regulations referred to in AHP Client Alert. Whilst care has been taken in the preparation of AHP Client Alert, no warranty is given as to the accuracy of the information it contains and no liability is accepted for any statement, opinion, error or omission.