A Turning Point for Renewable Energy in Indonesia?

President Jokowi’s administration seems poised to break through the regulatory bottlenecks that have long held back the country’s renewable energy ambitions.

The year 2021 might end up being seen as an important milestone for the development of renewable energy (RE) in Indonesia. So far this year, the government has issued two important regulations, the energy ministry’s Regulation No. 26/2021, concerning the use of rooftop solar power systems, and the Electricity Procurement Plan (RUPTL) for 2021-2030.

These two documents are predicted to facilitate the growth of renewable energy to 23 percent of the nation’s energy mix by 2025. One notable point in the new regulation for solar rooftop systems is the ability of customers to export 100 percent of the electricity generated by rooftop solar panels to the state-run power company PLN. Furthermore, the RUPTL 2021-2030 plan sets an ambitious target for RE to make up more than 51 percent of the national energy mix by the end of the decade. Together, these documents raise the hope that Indonesia could soon transcend the unsupportive regulations that have long held back RE development.

In recent years, renewable energy development in Indonesia has dwindled due to regulatory uncertainties and an unattractive investment climate. On average, Indonesia’s renewable energy installed capacity has grown by only 4 percent per year since 2012. This lags far behind Malaysia, Singapore, Vietnam, India, and Thailand, all of which have achieved average annual growth of more than 10 percent over the same period. In 2018, 46 out of the 70 independent power producers (IPPs) that signed power purchase agreements (PPAs) with PLN failed to meet their financial closing deadlines. Moreover, between 2018 to 2020, only 13 new PPAs on renewable energy were signed. This was worsened by the slow progress in the drafting of a renewable energy law, which remains to be completed. In this context, the government’s decisions to amend solar rooftop regulations and significantly raise the country’s RE targets could be important turning points for Indonesia’s future RE development.

The new RUPTL 2021-2030 was launched on September 27 by PLN. As mentioned, it set out a renewable energy target of 51.6 percent by 2030, a significant increase on the 30 percent target contained in the previous iteration of the RUPTL released in 2019. In the long term, PLN also targeted the full phasing out of coal power plants by 2056, through their  gradual substitution with battery-based renewable energy. The majority will be generated from hydropower (25.6 percent), solar power (11.5 percent), and geothermal power (8.3 percent). The striking RE increases are predicted to kick in in 2028, due to technological advancements and falling costs of battery technology.

Solar power is one of the forms of RE that will dominate Indonesia’s electricity mix, including solar rooftop systems. According to the Ministry of Energy and Mineral Resources, Indonesia has a solar rooftop potential of 32.5 GW. The government has regulated the implementation of rooftop panels since 2018, and is targeted to reach an installed capacity of 3.6 GW by 2025. The main target is households and the industrial sector, especially in Jakarta, West Java, and East Java, which it identifies as having the highest market potential.

However, the main problems in solar rooftop development are the high upfront cost and the low return on investment. The regulation was revised twice in 2019 in order to introduce minor modifications to permitting for the industrial sector and the calculation of capacity charges, fees charged to the industrial sector to connect their solar rooftop systems to PLN’s grid. The government also has tried to provide low-interest financing to bolster the installation of rooftop solar systems. Still, during the first three years of its implementation, the total capacity of solar rooftop systems only reached 35 MW. To accelerate solar rooftop implementation, in the third quarter of 2021, the government published energy ministry Regulation No. 26, which amended the previous 2018 solar rooftop regulation, boosting the percentage of solar-generated electricity that can be exported to PLN from 65 percent to 100 percent, as mentioned above. Although this new regulation is still being debated, it undoubtedly improves the attractiveness of solar rooftop systems to industry and homeowners.

The government’s plan to accelerate renewable energy development is also generating controversy among energy experts. This is particularly the case given the fact that Indonesia has actually experienced an electricity oversupply since last year. This was mainly caused by the overestimation of national economic growth and the COVID-19 pandemic, which decreased electricity demand. It has increased PLN’s debt to about $35 billion in 2021 due to the take or pay scheme, which forces PLN to purchase unutilized electricity provided by private IPPs. Hence, some experts argue that the new solar rooftop regulation implementation should be held back in order to avoid worsening PLN’s debt burden.

Another concern is the lack of a smart grid and energy storage development in the national electricity network. The government plan to increase RE must be followed by improvements to the electricity network in order to resolve the intermittency of renewable energy supplies. To do otherwise would threaten the country’s future national electricity resilience.

Regardless of the above issues, both the energy ministry and PLN have successfully engineered a breakthrough for Indonesia’s renewable energy sector after several years of hiatus. Furthermore, Indonesia’s long dependence on coal power plants has became more precarious given Chinese President Xi Jinping’s recent pledge to stop investing in coal power plants abroad. China is one of the biggest investors in Indonesia’s coal power plants.

The government’s decision to exit from coal power plants and focus on increasing RE is not only in line with Indonesia’s government target to achieve net-zero emissions by 2060, but will also increase national energy security in the long term. Nevertheless, there is still homework to be done, especially on the finalization of renewable energy laws and presidential regulations on the mechanism for renewable energy pricing and procurement. The government also needs to make an optimum energy transition roadmap that must not overshoot the pressure on the environment and fall short of the required energy supply. Hopefully, both documents can be issued by the end of this year as promised.

October 2021

THE DIPLOMAT