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Indonesia: Gov’t Issues Regulation to Jumpstart Stalled Renewable Energy Projects

March 19, 2020


The government aims to jumpstart stalled renewable energy projects through a recently issued regulation as it races against time to catch up with Indonesia’s green energy commitments.

The Energy and Mineral Resources Ministry issued last month a regulation that scraps the unpopular build, own, operate, transfer (BOOT) scheme. Many renewable energy players have said the scheme undermined their projects’ bankability.

The new regulation also enables Indonesia’s sole off taker, state-owned PLN, to sign power purchase agreements without conducting a bid under certain conditions.

The ministry’s various renewables director, Harris, told The Jakarta Post on Wednesday that these “few changes” were meant to get stalled renewable projects going before a more powerful presidential regulation (Perpres) on renewable electricity pricing – slated to be issued this year – put new projects on the table.

“Passing the Perpres will take time but if we don’t issue regulations immediately, the growth of renewables will be stalled,” he said.

The government is aiming for renewables to contribute 23 percent of power production by 2025, yet regulatory headwinds are setting the country back from achieving its goal.  Regulation stipulates that Indonesia should have reached a 17.5 percent renewable power mix by 2019 yet the country only hit 12.36 percent that year.

Among the frequently complained headwinds is Ministerial Regulation No. 50/2017 – dubbed “Permen 50”. This was the regulation that introduced the BOOT scheme and erased a feed-in-tariff pricing policy, which is widely considered to be a very effective means of boosting green energy growth.

As a result, out of 75 renewable energy projects signed between 2017 and 2018 in Indonesia, 27 remain without financial close and five have been terminated as of October last year, according to records from Jakarta-based energy think tank Institute for Essential Services Reform (IESR).

“This revision is temporary by nature. It gives a legal basis for stalled projects and is a stop-gap measure while waiting for a new pricing scheme under the Perpres,” IESR executive director Fabby Tumiwa told the Post.

Indonesia did not sign any new renewable energy contracts last year and industry investment shortfall – the difference between actual and targeted funding – was the greatest compared to the mining, electrification and oil and gas industries.

The new regulation also introduces guarantees for government-backed renewable plants “in improving their economics.” The regulation authorizes the energy minister to order state-owned power firm PLN to buy electricity from hydropower plants attached to government-built reservoirs from state-funded waste-to-energy power plants and from state-funded renewable energy power plants.

The guarantees assume such government-backed projects operate in the best public interest. Hydropower and waste-to-power plants, for instance, serve a secondary role of providing irrigation and waste management systems, respectively.

Harris also said the energy ministry was in talks with PLN. However, the electricity company’s spokesman, Dwi Suryo Abdullah, told the Post he was unaware of the changes.

PLN, the company responsible for offtaking power under the new regulation, has been experiencing financial constraints due to competing ambitions of developing 35,000 megawatts (MW) worth of new power plants while also keeping electricity selling prices at a minimum. Both ambitions are at the behest of the government.

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