New Incentives for the Development of Solar Photovoltaic Plants in Indonesia

New Incentives for the Development of Solar Photovoltaic Plants in Indonesia

Indonesia has set an ambitious national energy target of 125 GW of installed
capacity at power plants by 2025. As of 2016, installed capacity has not
reached even half the targeted number. In an attempt to support the
development of power plants in Indonesia, the Government of Indonesia,
through the Ministry of Energy and Mineral Resources, has introduced a new
regulation that is intended to promote the development of solar power
plants. This new regulation is Minister of Energy and Mineral Resources
Regulation No. 19 of 2016 regarding Power Purchase from Solar Photovoltaic
Plants by PT PLN (Persero) ("PLN") (hereinafter referred to as "MEMR Reg No.
19/2016").

Previous Regulation on Solar Power Plants

MEMR No. 19/2016 was enacted to replace and perfect the initial policy on
solar plants, which was introduced by Minister of Energy and Mineral
Resources Regulation No. 17 of 2013 regarding Power Purchase by PLN from
Solar Photovoltaic Plants ("MEMR Reg No. 17/2013"). MEMR Reg No. 17/2013
introduced a solar power tender program in Indonesia and obliged PLN, the
Indonesian state-owned electricity company, to purchase electricity
generated by solar photovoltaic projects on the basis of a Power Purchase
Agreement ("PPA"). However, in 2015, the Supreme Court annulled MEMR Reg No.
17/2013 on the grounds that the regulation did not require the use of local
content by foreign investors developing solar photovoltaic plants.

In response to the annulment, the Minister of Energy and Mineral Resources
enacted MEMR Reg No. 19/2016. The new regulation maintains several points
from MEMR Reg No. 17/2013, such as the appointment of PLN to purchase
electricity from solar plants and the 20-year term of the PPAs.

MEMR Reg No. 19/2016 improves upon the incentives introduced in the 2013
policy, including the quota capacities and purchase tariffs, and revises the
required level of local content in the development of solar photovoltaic
plants.

Quota Capacities

MEMR Reg No. 19/2016 determines a quota capacity for solar photovoltaic
plants. The quota capacity is the maximum amount of energy capacity that can
be offered to a potential solar plant developer by PLN in one offering
period. The quota capacity is determined on a regional basis by the Minister
of Energy and Mineral Resources pursuant to regional power needs and the
existing electricity supply in the region.

The nationwide total quota for generable solar energy is 250 MWp, with Java
having the largest quota capacity at 150 MWp, and Papua and West Papua
having the smallest quota capacity at 2.5MWp each.

The quota capacity will be offered gradually by PLN through several tender
projects, in which PLN will determine the maximum quota capacity that can be
bid for by solar plant developers. For a project with more than 100MWp quota
capacity, each solar plant developer can only bid for up to 20MWp of the
quota capacity, and for a project between 10MWp and 100 MWp quota capacity,
each solar plant developer can propose a maximum 20% of the quota capacity.
There is no limit for projects under 10MWp.

Purchase Tariffs

Similar to the quota capacities, the purchase tariff, which is the fixed
tariff that PLN pays a solar plant developer, will vary depending on tender
project location. Under MEMR Reg No. 19/2016, Jakarta has the lowest
purchase tariff at USD14.5/kWh and Papua has the highest at USD25.0/kWh.
This new purchase tariff policy is a significant improvement on the 2013
policy, which set a fixed purchase tariff of USD 0.25 to USD 0.30/kWh,
regardless of the location of the solar plant.

Required Local Content Level

MEMR Reg No. 17/2013 stipulated an increase of purchase tariffs for
developers that used more than 40% local content in their solar plants, but
did not impose an obligation for developers to involve local partners in the
production/service activities for plants. MEMR Reg No. 19/2016 addresses
this issue by requiring solar plant developers to comply with the minimum
local content requirements as stipulated by Ministry of Trade and Industry
regulations.

MEMR Reg No. 19/2016 provides generous incentives to developers complying
with local content requirements. It is hoped that the regulation will
provide a boost to Indonesia's electricity capacity growth and help the
country achieve the national energy policy target.

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com