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Ministry to revamp policy amid slow investment

29 October 2018

Renewable energy policy unappealing to investors: Experts, industry PLN’s slow progress seen as major reason for slow investment

The Energy and Mineral Resources Ministry has acknowledged that its policy on renewable energy is hampering investment growth in the sector, opening up a possibility that it will improve a current regulation seen as unappealing to investors.

Rida Mulyana, the Energy and Mineral Resources Ministry’s director general for renewable energy, acknowledged that Ministerial Regulation No. 50/2017 on the utilization of renewable energy for the electricity supply was one of the reasons as to why investment grew slow in the renewable sector.

“Other than [issues in] geothermal energy, it is probably due to prevailing regulations, with which we are open to any suggestions. The option for a revision exists,” he said in a press briefing in Jakarta on Friday, referring to the 2017 regulation.

Experts and renewable energy developers have criticized the regulation, which is seen as problematic in at least three areas: the existence of a scheme allowing PLN to determine the winner in a renewable project through direct appointment, the mandatory transfer of a project to PLN at the end of a power purchase agreement (PPA) and a price cap on renewable electricity at a maximum of 85 percent of the electricity supply cost (BPP).

The prevailing regulation is said to be unappealing for renewable energy investment, which only reached US$1.16 billion as of September, or 57.7 percent of its full-year target of US$2.01 billion in 2018, data from the ministry show.

Previously, Fabby Tumiwa, executive director of local energy watchdog Institute for Essential Services Reform (IESR), lambasted the government’s slow progress in revising the regulation, as it had failed to start a new renewable energy project since its issuance.

“The failure for some renewable energy projects to achieve a financial close shows that Ministerial Regulation No. 50/2017 is actually a barrier and, as a result, many of the projects are not bankable,” he told

Fabby was referring to the 70 PPAs for renewable energy projects that were inked by the government last year. Of the PPAs, only 30 projects had reached a financial close as of Friday. The rest, meanwhile, are still having difficulty securing funding.

European Business Chamber of Commerce in Indonesia (EuroCham) criticized the article that sets the maximum price of electricity at 85 percent of the BPP for being “too ambiguous” and “too risky for investment”.

“Key points for a successful renewable energy framework are predictability of the price and connection, a viable price and incentives [from the government] to the buyer [PLN],” EuroCham head of the energy working group Thomas Wagner said recently.

Aside from the regulation, PLN’s failure to complete the list of qualified developers after almost a year is also said to be a major reason behind the slow investment in the renewable energy sector.

Fabby of the IESR said new developers faced difficulties in meeting requirements to be on the list as PLN would only select experienced ones that already had global rating scores from United States-based data service firm Dun & Bradstreet.

Regarding the progress of the list, PLN regional business director for the eastern part of Java, Bali and Nusa Tenggara Djoko Rahardjo Abumanan could not be reached for comment on Friday.

Rida of the ministry said the government would continue to oversee the progress and urge PLN to speed it up as it did not want the issue to hamper investment in renewable energy.

“I have informally asked them [PLN] when the list will come out as, previously, they targeted a September finish,” he said.

While Rida said the government was open to the option of revising the 2017 regulation, a change in policy this year would not help jack up investment realization at year-end.

Therefore, to achieve the 2018 investment target, he put his expectations on the geothermal energy sector, which has thus far booked $800 million, or 70 percent of its full-year target of $1.2 billion.

Three geothermal power plant (PLTP) development projects worth a total 100 megawatts (MW) are expected to operate this year, namely state energy holding Pertamina’s 55-MW PLTP Lumut Balai in South Sumatra, its 5-MW PLTP Sokoria in East Nusa Tenggara and its 40-MW PLTP Sorik Merapi in North Sumatra.

Source: Jakarta Post, 29 October 2018