Indonesian government is forcing renewable firms to compete with coal: analyst

Renewable projects could become uneconomical in the future.

The Indonesian Government last week introduced a new regulation setting the tariff framework for Indonesian renewable energy projects, according to Baker McKenzie.

Regulation of Minister of Energy and Mineral Resources No. 12/2017 on the Utilization of Renewable Energy Resources for Electricity Supply ("MEMR Reg 12") now sets out the tariff framework for the following types of renewable energy projects: solar PV, wind, hydropower, biomass, biogas, municipal waste, and geothermal.

MEMR Reg 12 regulates the price at which electricity generated from these renewable energy sources is to be sold to the Indonesian State-owned power utility, PT
PLN (Persero) ("PLN"), and the manner in which PLN is entitled to procure electricity supply from a number of these renewable sources.

Here's more from Baker McKenzie:

The key theme running through MEMR Reg 12 is that the price payable by PLN from renewable energy sources should be aimed at lowering (or at the very least not increasing) the existing average cost of generation (known by its Indonesian acronym, BPP) on the relevant local grid.

Whilst the objective is admirable, across an increasing number of grids in Indonesia, coal is becoming the dominant fuel source, and therefore the net result of this new renewables tariff philosophy is that renewable energy is being asked to compete head on with coal fired power generation.

With PLN continuing to sign up coal fired power projects at very low tariffs at anywhere between US$0.04 – US$0.07 (depending on coal technology and size), it is expected that BPP will continue to decline over coming years with respect to a number of the grids within Indonesia.

Even with renewable technology prices in areas such as wind and solar PV expected to continue to fall over the coming years, the continued build out of coal projects will put even more pressure on the renewable tariffs, and may result in a number of these renewable projects becoming uneconomical.