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Legal Updates | New Incentives for the Development of Solar Photovoltaic Plants

Indonesia has set an ambitious national energy target of 125 GW of installed capacity at power plants by 2025. As of 2016, the installed capacity has not reached even half the targeted number. In an attempt to support the development of power plants in Indonesia, the government, 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 Perusahaan Listrik Negara (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 programme 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  solar plant developers can bid for. For a project with more than 100MWp quota capacity, each solar plant developer can only bid 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 the tender project location. Under MEMR Reg No. 19/2016, Jakarta has the lowest purchase tariff at $14.50 USD/kWh and Papua has the highest at $25.00 USD/kWh. This new purchase tariff policy is a significant improvement on the 2013 policy, which set a fixed purchase tariff of $0.25 USD to $0.30 USD/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 achieve its national energy policy target.

SSEK - 6th September 2016

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Indonesia Snapshot

Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)