A year without any meaningful accommodative policies, coupled with uncertainty in the investment climate during the presidential election will only put Indonesia’s renewable energy development in a bleaker situation next year, a local energy think tank has warned.
The Institute for Essential Services Reform (IESR) in its report titled Indonesia Clean Energy Outlook: Reviewing 2018, Outlooking 2019 noted that the year of politics would only put renewable energy on the backburner.
“The [presidential] election is coming and energy prices are a central campaign issue, thus it’s very likely that the government will attempt to keep electricity prices low […] This means renewable energy [purchase] rates will be set lower to subsidize [state-owned electricity company] PLN’s existing generation costs,” the IESR noted in its report.
Indonesian Private Electricity Plants Association (APLSI) spokesperson Rizal Calvary concurred with the IESR, saying that the election year would put investors in wait-and-see mode.
“All investors, not just in the energy sector, will opt for a wait-and-see stance during the year of politics. However it shouldn’t be a concern if the existing regulations are accommodative, especially on electricity rates [for renewable energy],” he told The Jakarta Post on Wednesday.
The IESR further stated that foreign investors will halt investment in renewable energy until the outcome of the election and the subsequent policy direction of the new cabinet is established in October 2019. Thus, most investments would only be made by state-owned enterprises.
Data from the Energy and Mineral Resources Ministry shows that as of September, investment in renewable energy stood at US$1.16 billion, or 57.7 percent of its full-year target of $2.01 billion.
The IESR noted there were six key barriers that will continue to hamper renewable energy development in Indonesia, namely the quality of the regulatory framework, consistency of policy implementation, PLN’s internal procurement processes, access to cheap finance, grid capacity and lack of bankable projects.
“It has worsened in the past two years because existing policies and regulations are in favor of PLN’s interests and therefore fail to mobilize private investment. Hence investment in renewable energy has seen a steady decline since 2015,” IESR executive director Fabby Tumiwa said.
The report also claimed that Energy and Mineral Resources Ministerial Regulation No. 50/2017 on the use of renewable energy sources had a tendency to “keep the [procurement] process internal and non-transparent to the public or relevant stakeholders”.
One of the articles in the regulation seen by private electricity producers as an obstacle is the build-own-operate-transfer scheme, in which assets will become state assets after a sales and purchase contract ends.
Rida Mulyana, the ministry’s director general for renewable energy, acknowledged that the regulation had been one of the reasons why investment grew at a snail’s pace in the renewable sector.
Rizal also pointed out another obstacle in the regulation, namely the price cap on electricity from renewable resources at a maximum of 85 percent of the electricity supply cost, which has caused a number of power purchase agreements (PPAs) to fail in attracting funding.
There were 70 PPAs for renewable energy projects that the government inked last year in which PLN would purchase from once the projects start generating electricity, said the APLSI spokesperson.
However, as of November, only 33 projects had passed financial close. The remaining faced difficulties in obtaining funding while one has been terminated, according to data from PLN.