Government Agrees to Increase Tariffs for Indonesian Hydro Developers

Legal Updates | Government Agrees to Increase Tariffs for Indonesian Hydro Developers

As reported in an earlier article, (please click here), in February 2017 the Indonesian government introduced of Minister of Energy and Mineral Resources Regulation No. 12/2017 which imposed maximum ceiling tariffs for the full range of renewable technologies.

For hydro power projects, the maximum tariffs introduced under Regulation 12/2017 were:

where the project was located on a grid where the average cost of generation (commonly referred to by its Indonesian acronym, BPP) on the local grid was higher than the average national BPP, 85% of the local BPP; and
where the project was located on a grid where the local BPP was equal to or lower than the national BPP, 100% of the local BPP.

Since the passing of those regulations in January 2017, hydro developers (particularly those in the locations such as Java and South Sumatra, where the local BPP is heavily impacted by the lower price coal fired power plants) have complained that the new tariff policy has essentially rendered a number of projects uneconomical.

Heeding those concerns, the Minister of Energy and Mineral Resources has just issued Regulation No. 43/2017 which amends the tariff ceilings applicable to hydro power projects as follows:

where the project is located on a grid where the local BPP is higher than the average national BPP, 100% of the local BPP; and
where the project was located on Sumatra, Java or Bali or a grid where the local BPP is equal to or lower than the national BPP, then the tariff is determined by negotiation between PLN and the developer.

Accordingly, in this respect, the tariff formulation that now applies to hydro projects are the same as the rules that currently apply to geothermal and waste-to-energy projects. As with the geothermal and waste-to-energy tariff wording, the specific reference to “Sumatra, Java or Bali” does give rise to some ambiguity, namely:

any hydro project located on (for example) Sumatra is subject to a negotiated tariff (irrespective of whether the local BPP is higher or lower than the national BPP)
any hydro project located on (for example) Sumatra is subject to a negotiated tariff only if the local BPP is equal to or lower than the national BPP.

If the second interpretation was the intent, then there would be no reason for the drafter of the regulation to specifically mention Sumatra, Java and Bali – i.e. the wording could simply have provided that in any location in the country where the local BPP was equal to or less than the national BPP, then a negotiation would apply.

In closing, this change is clearly welcome good news for hydro developers. We will continue to monitor to see whether the Indonesian government moves to increase the tariff ceilings for other forms of renewable energy.

Hadiputranto, Hadinoto & Partners, Member of Baker & McKenzie International - 20th July 2017

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Indonesia Energy Snapshot

Contribution to GDP: 3.44% (2016) Oil & Gas Imports: $1.22 billion USD (Jan 2016)
Proven Oil Reserves: 3.69 billion barrels (2016)
Proven Gas Reserves: 2.85 trillion cubic metre (2016)
Proven Coal Reserves: 28 billion tonnes total reserves (2015)
Proven Potential in Geothermal Energy: 27 GW
Proven Potential in Hydropower: 75 GW
Other Energy Sources: Coal Bed Methane, Biomass, Waste, Ocean Current, Solar, Wind.
Current Energy Mix: Petroleum 41%, Coal 30%, Natural Gas 23%, Renewables 6% (2014).