PRESS RELEASE: RENEWABLE ENERGY IN INDONESIA, SAILING UNDER THUNDER AND STORM WITH NO LAND IN SIGHT

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The release of a new report Indonesia Clean Energy Outlook: Reviewing 2018, Outlooking 2019 by Institute for Essential Services Reform (IESR) sees very little progress of renewable energy development in 2018. The report predicts that prospect for renewable in 2019 is even bleaker, at least until the first semester of 2019. The quality of policy and regulatory framework in the energy sector, consistency in policy implementation, internal PLN’s procurement process, access to low-cost financing, grid capacity, and lack of bankable project are some key barriers that hamper renewable energy development in Indonesia.

The report highlights that new installed capacity of renewable plants is stagnant in the last three years. Although Minister of Energy and Mineral Resources and PLN claimed to have the highest renewable PPAs – as much as 70 PPAs signed in 2017, after one year, about half of the projects are still struggling to reach financial close and face the risk of termination by PLN by the end of this year.

The report also assesses the availability of renewable energy finance in Indonesia. While renewable project developers complain about the difficulty to access financing, financial institutions are struggling to get the bankable projects to be financed. The bankability of renewables projects in Indonesia is mainly hampered by unattractive tariffs, Build-Own-Operate-Transfer (BOOT) scheme, and risk allocation of PLN and project developers.

Fabby Tumiwa, Executive Director of IESR stated, “This report gives a stern warning that government is not in the path to achieve 23% renewable energy target as stipulated in 2014 National Energy Policy and 2017 National Energy Plan. The situation has worsened in the past two years because of the policy and regulation favors PLN’s interests but fail to create enabling condition for mobilizing private sector investment. As a result, renewable investment is declining steadily since 2015.”

IESR predicts that in 2019 situation is unlikely to improve. First, since the election time is coming and energy prices are central campaign issues, it is very likely that the government will make attempt to keep electricity price low. Recently, Minister of EMR, Ignatius Jonan, in one interview stated that the government will not increase electricity price until the end of 2019. This means that the government will keep the status quo policy to protect PLN’s interest and renewable energy tariff is set lower to subsidize higher PLN’s existing generation cost.

 Second, although MEMR has signaled to revise MEMR Regulation No. 50/2017 sometime next year, no official statement has been made on this matter. Nevertheless, the scope of the revision is unknown since the tendency of the minister is to keep the process internal and nontransparent to the public or relevant stakeholders. Based on the revision of MEMR Regulation No. 12/2017 jo 48/2017 and then to 50/2017 any change in regulation nowadays did not lead to improving the condition for private investment in renewables.

Third, given the political condition in 2019, it is very likely that foreign investor will keep waiting and see the outcome of the election and policy direction of the new cabinet in October 2019. We anticipate that modest renewables investment by the private sector will flow in the fourth quarter next year. Therefore, most investment next year will be made by PLN’s and other SOEs.

The report also predicts that geothermal, wind, solar and biomass project will remain stagnant next year. Geothermal development will be limited to survey and pre-exploration activities to gather data. The development will be limited in the existing fields. Rooftop solar PV that has potential to be developed to 1 GWp per year will grow slowly, particularly for residential. Thanks to MEMR Regulation No. 49/2018 that discourage potential rooftop PV users in residential and industry. Utility wind power plant will also be slowing down next year, because of the regulatory framework, the grid issues and the readiness of PLN to address intermittent power.

Pamela Simamora, Head of Research Group of IESR stated that to attract investment, MEMR should improve the policy and regulatory framework to support renewable energy investment. This means that it would require a total overhaul of MEMR Regulation No. 48/2017, 50/2017, 10/2017 jo 49/2017 and clarity regarding parallel power in MEMR Regulation No. 1/2017 are required to remove barriers in investment, better risk allocation, and boost the confidence of investors.

Hence, we urge President Joko Widodo to take leadership in developing clean energy in Indonesia and provide clear and strong guidance to sectoral ministries to accelerate renewable energy development and investment. IESR also urges the government to establish an Indonesia Clean Energy Fund to support renewable energy finance for small-scale, particularly renewables project below 10 MW. Fiscal incentives shall be provided to improve the economics of the renewable project. With these, clean energy development could get a new push during the political year and beyond.

Jakarta, 19 December 2018

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Yesi Maryam (Eci) | Email: yesi@iesr.or.id  |Mobile : 0812 1247 04 77