Indonesia on the Acceleration of Renewable Energy Development
The Indonesian government is trying to bring in more investment into the green sector with incentives and less red tape, as the coal-reliant country seeks to transition to renewables. Indonesia is aiming for 23 percent renewables in its energy mix by 2025. The country has also set a goal to achieve net-zero emissions by 2060 or sooner. According to the BP Statistical Review 2021, Indonesia released 575 million metric tons of carbon dioxide into the atmosphere in 2020, a 7.4 percent decrease from the previous year.
Power industry associations cautiously welcomed the new Presidential Regulation No. 112/2022 on the Acceleration of Renewable Energy Development, and are waiting for the implementing rules. The new presidential regulation, which was signed by President Jokowi on 13 September, among others stipulates ceiling prices for electricity generated from various types of renewables that will be sold to state-owned electricity firm PT PLN. It allows a negotiation process in determining the selling prices of electricity from renewable plants. It also assigns the Minister of Energy and Mineral Resources to annually evaluate the selling prices. The presidential regulation also stipulates that the Ministry of Energy and Mineral Resources to draw up a plan for early retirement of coal-fired power plants in a bid to cut down emissions and encourage the development of renewables.
The Indonesian Independent Power Producers Association (APLSI) welcomes the new presidential regulation, which has long been anticipated by power producers in the country, as it stresses the government’s commitment to cut down emissions by accelerating the development of renewable power plants and for early retirement of coal-fired power plants. But APLSI warns the government to be careful in implementing the new presidential regulation particularly in realizing early retirement of coal power plants. APLSI urged the government to honor the provisions set in the contracts signed by IPPs operating the coal plants and PLN to help ensure investment certainty in the power sector. APLSI also appreciated the government’s promise to provide incentives including financing to help accelerate the development of renewables in the country. Regarding the renewables pricing mechanism, APLSI will further review and make economic simulations to see whether the ceiling prices will support the development of renewables in the country.
Meanwhile, the Indonesian Geothermal Association (or API) and the Indonesian Solar Energy Association (or AESI) expressed regret at the government’s decision to exclude the feed-in tariff (FIT) mechanism in determining the price of electricity generated from renewable-based plants. AESI had suggested the FIT at the start of drafting the presidential regulation in a bid to help ensure certainty for investors in developing renewables projects. The feed in tariff will be useful for small developers to get project fundings. AESI is also cautious of the price negotiation scheme and annual tariff evaluation by the Minister of Energy and Mineral Resources, adding that its implementation must be reviewed going forward. API Chairman Prijandaru Effendi said that the association had also proposed the FIT mechanism, saying that it provides greater certainty for investors, which will help accelerate investment in the geothermal sector.
However, the regulation leaves some loopholes that still allow companies to build new coal-fired power plants over the next few years. For one, coal-fired power plant projects that have secured their permits before the presidential regulation will be allowed to continue. Also, coal-fired power plants integrated with any projects listed in the government’s National Strategic Projects list will be allowed to proceed. It also gives special treatment to companies that are engaged in projects promoting value added of natural resources such as mineral smelters to build their own coal-fired power plants. The exempted committing over plants must fulfill several requirements, the regulation stipulated. That includes committing to reducing greenhouse gas emissions within ten years since they started operation by at least 35 percent compared to the typical coal-fired power plant emissions in 2021. The regulation said that to achieve the emission reduction target, the exempted coal-fired power plants could develop new technology, buy carbon offsets, or mix their power generation with renewable energy. The power plants also have to agree to cease operation by 2050.
In 2021, Indonesia’s investment realization in the energy sector reached USD28.2 billion, of which only USD1.4 billion came from the renewables sub-sector. Oil and gas accounted for most of last year’s energy sector investment realization, amounting to USD15.9 billion, data showed. This year, the government is aiming for USD32.6 billion in realized energy sector investment. About USD3 billion will come from investments in renewables
