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Renewable Sources of Energy in Indonesia

Author: Eva Armila Djauhari, Thu, Mar 26th 2020, 18:31

Renewable Sources of Energy in Indonesia: shaping the future of renewable energy             

In 2025 Indonesia target 23% of its national energy sourced from renewable energy and in 2050, it is expected to reach 31%[1].  Perhaps it is an ambitious target as the realisation in 2019 only reached 12.36%, just about half of the 2025’s target, which is far below the expectation.

Renewable energy is also hoped to contribute towards the national non-tax state revenue (Pendapatan Negara Bukan Pajak or “PNBP”). In 2020, PNBP from all energy and mineral sectors is targeted to reach IDR 181.7 trillion - lower than the last year target of IDR 214.3 trillion. Of such revenue from energy and mineral sectors, renewable energy contributed only IDR 0.9 trillion. This year, renewable energy is expected to contribute more towards PNBP, i.e. around IDR 1.2 trillion.

As for electricity from renewable sources, various factors contribute to the failure of reaching such revenue target including the unattractive feed in tariff scheme which refers to the PLN production costs (“BPP”), complex red tape in government sphere as well as uncertain and conflicting regulations, to name a few.

The government endeavours to boost investment in this sector by identifying several incentives for investors in addition to its agenda fixing the regulations. MEMR Regulation No. 4 of 2020 (“Regulation No. 4/2020”) just recently passed to amend the MEMR Regulation No. 50 of 2017. Subject to few conditions, such regulation allows fiscal incentives, land access and availability, simple licensing procedures and elimination of the previous mandatory BOOT scheme. PPA model is aimed to be more attractive and acceptable by financial institutions without ignoring the importance to balance the risks of PLN and the investors.

In general, the pricing scheme under such Regulation No. 4/2020 still refers to BPP. In the event of the local BPP is above the average national BPP, the purchase price will be at the maximum of 85% of the local BPP or the price will be agreed by both parties if the local BPP is below the average national BPP. This scheme applies for solar, wind, biomass, biogas and ocean power.

The government targets investment in renewable energy to reach USD2.3 billion in 2020, which number is derived from the assumption that target electricity consumption for 2020 is increased to 1,142 kWh/capita compare to 1,084 kWh/capita in 2019. Thus, there are ample investment opportunities in this sector.

With regard to the renewable fuels, numerous government programs have been introduced to support the use of non-fossil fuel such as biodiesel mandatory policy that is targeted to reach 10 million kilo litre and the use of electric cars and stoves.

Despite the Covid-19 pandemic which has been causing slowdown of global economy, Indonesian government’s target and commitment towards renewable energy remain strong. This is in line with continuous improvement in many respects initiated by the governments at all levels including improvement in coordination between governmental departments, revision to unfavourable regulations and simplification of permits.

 

[1] As regulated in the Presidential Regulation No. 22 of 2017 concerning General Plan of National Energy (Rencana Umum Energi Nasional or RUEN)