Reflection on Regional Government Authority for Energy Transition at the 2023 Regional Energy Forum

Jakarta, 7 November 2023 – The role of regional governments in accelerating the energy transition is expected to become increasingly significant. The Ministry of Home Affairs as the parent body that facilitates regional governments is trying to facilitate this need by issuing Presidential Regulation (Perpres) No. 11 of 2023 concerning additional concurrent government affairs in the energy and mineral resources sector in the renewable energy sub-sector.

It is hoped that the existence of a legal umbrella for regional governments will provide additional authority for regional governments and will have a linear impact on accelerating the energy transition.

Sri Retnowati, Young Expert Policy Analyst at the Directorate of Synchronization of Regional Government Affairs I, Ministry of Home Affairs, emphasized that with the issuance of Presidential Decree 11 of 2023, it is hoped that regional governments will have more freedom in taking program initiatives.

“Limited authority is closely tied to budget limitations, so through policy instruments, we give more authority to regions,” said Retno.

Retno added that there are still complaints that Presidential Regulation No. 11/2023 is still not effective, especially regarding fiscal capacity that cannot yet be used. Retno revealed that this made several regions choose not to immediately implement Presidential Decree 11/2023.

Ariansyah, Representative of the South Sumatra ESDM Service, explained the division of authority for industrial licensing. If all industrial permits are gathered in the central government, it will be difficult for local governments to monitor and take firm action against industrial players who do not support the government’s agenda, such as using less efficient energy or not implementing energy conservation practices.

Highlighting the formulation of the Draft Government Regulation on National Energy Policy (RPP KEN) which is currently being worked on by the National Energy Council, Ariansyah views the need for provisions regarding energy conservation to support the achievement of regional energy mix.

“In the draft of the new RPP KEN we see that the energy conservation point has been removed. If this applies, South Sumatra’s renewable energy mix will decrease, because South Sumatra’s renewable energy mix, which currently reaches 23%, is mostly contributed by industries that we ask to carry out conservation. energy,” said Ariansyah.

Yunus Saefulhak, Head of the Energy Policy and Conference Facilitation Bureau, National Energy Council (DEN) on the same occasion said that the big goal of the revised energy policy in Indonesia is to increase energy security while providing energy at affordable prices.

“Apart from that, (the revised KEN-ed) also aims to meet rational energy needs to achieve high human and economic development index targets as a developed country and realize decarbonization and energy transition to reach peak emissions before 2045 and NZE in 2060, said Yunus.

Cirata Floating Solar PV Plant Ready to Operate: Important Milestone for Accelerating Solar Energy Development to Decarbonize Electricity in Indonesia

Jakarta, November 9, 2023 – Cirata floating photovoltaic (PV) power plant located in Cirata Reservoir, West Java, with a capacity of 145 MW(ac) or 195 MW(p), has been inaugurated today. This event marks an important milestone for Indonesia as it is now home to the largest floating solar power plant in Southeast Asia, surpassing the Tengeh floating solar power plant in Singapore.

The Institute for Essential Services Reform (IESR) considers the operation of the Cirata floating PV power plant as a significant achievement in accelerating the development of large-scale solar power plants in Indonesia. The country’s solar power development has been almost non-existent since 2020. However, the decreasing investment cost of solar PV has made it the cheapest renewable energy source. Therefore, Indonesia must optimize the technical potential of PLTS, which reaches 3.7 TWp to 20 TWp, to support its goal of achieving the electricity sector’s peak emission target by 2030 at the lowest possible cost.

IESR also encourages the government and PLN to take advantage of the technical potential of floating PV power plants, which reach 28.4 GW from 783 water body locations in Indonesia, to accelerate the utilization of solar power plants. Based on the data from the Ministry of Energy and Mineral Resources shows that there is potential for large-scale floating solar power plants that can be developed in at least 27 locations of water bodies that have hydropower plants (PLTA), with a total potential of 4.8 GW and an investment equivalent to USD 3.84 billion (IDR 55.15 trillion). Utilizing the potential of this floating solar power plant will accelerate the achievement of the renewable energy mix target and achieve the net zero emission (NZE) target sooner than 2060.

The government and State Electricity Company (PLN) must optimize the potential of floating solar power plants by creating a regulatory framework that attracts businesses to invest in these plants. One way to achieve this is by offering an attractive rate of return on investment that matches the risk profile but is attractive and reduces additional burdens.

One area of concern for the government is PLN’s assignment scheme to its subsidiaries, which has been a priority option for developing floating solar power plants. Through this scheme, the subsidiary seeks equity investors for minority ownership but must be willing to bear a larger portion of equity through shareholder loans.  

“This scheme benefits PLN but cuts the return on investment for investors and risks the bankability of the project and the interest of lenders. This scheme can also create unfair business competition among business players, as only those with large equity can partner with PLN, and most investors are foreign. This could impact overall investment interest,” said Executive Director of IESR, Fabby Tumiwa.  

The solution, according to Fabby, requires government support by strengthening the capital of PLN and its subsidiaries through special state capital participation (PMN) for renewable energy development and providing concession loans to PLN through PT SMI, which can then be converted into share ownership in floating PV power plants project. 

Indonesia can reap the potential for investment and low-emission electricity from floating solar power plants with the support of definitive and binding regulations from the government. In July 2023, the government issued Minister of Public Works and Public Housing Regulation Number 7 of 2023 on the Second Amendment to the Regulation of the Minister of Public Works and Public Housing Number 27/PRT/M/2015 on Dams, which no longer limits the area of water bodies in reservoirs that can be utilized for floating solar power plants at 5%. The regulation opens up opportunities for the development of floating solar power plants on a larger scale, provided that when using more than 20% of the water body area, it is necessary to obtain a recommendation from the Dam Safety Commission.

Marlistya Citraningrum, Program Manager for Sustainable Energy Access, IESR, sees this as an opportunity to overcome land issues in developing solar PV.

“Land availability is often an obstacle in the development of solar PV, especially in areas already dense with high land prices, as well as land cover that may not be suitable for solar PV, for example, too steep or productive agricultural land. Indonesia also has several dams, whether hydropower or not, that could be used as potential sites. The Hijaunesia 2023 project, for example, has offered the development of floating solar power plants in Gajah Mungkur, Kedung Ombo, and Jatigede with a capacity of 100 MW each,” Marlistya mentioned.

However, according to Marlistya, the overall planning, tendering, and construction of floating solar power plants in Indonesia still needs to be improved. Despite being a flagship project and a form of intergovernmental cooperation (G2G), the timeline for completion of the Cirata floating solar power plant is quite long – starting with a memorandum of understanding between Indonesia and the United Arab Emirates in 2017 and the formation of a joint venture between PJB Investasi and Masdar in the same year, the signing of the new PPA took place in 2020 and financial closing in 2021. This lengthy process reduces the attractiveness of floating solar power plant investment in Indonesia.

The development of supply chains for solar PV and floating PV components in Indonesia is also wide open, including for solar cells and modules. Not only for the domestic market, which has yet to reach 1 GW, solar cells and modules with tier 1 criteria produced in Indonesia are also intended for foreign markets. Chinese tier 1 solar cell and module manufacturer Trina Solar has collaborated with Sinarmas to build an integrated solar cell and module factory in Kendal Industrial Estate, Central Java, with a production capacity of 1 GW/year.