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New geothermal feed-in-tariffs for Indonesia expected in the coming months

Drilling Rig on site of the Muara Laboh geothermal project, Indonesia (source: Sumitomo Corp.)
Alexander Richter 5 Feb 2020

With the preparation of new presidential regulation of new feed-in-tariffs for renewable energy, the Indonesian geothermal sector is hoping it will provide sufficient incentive for much needed investment into geothermal development in Indonesia.

News from Indonesia report on ongoing work on a presidential regulation (Perpres) regarding the price of electricity from renewable energy power plants and plans to announce those within the first six months of this year.

The price of renewable energy electricity will be arranged in stages to accelerate the return on project investment. This regulation is a form of government incentive that is expected to attract investors to work on the potential of renewable energy in Indonesia. The Director General of Electricity at the Ministry of Energy and Mineral Resources Rida Mulyana said that the tariff regulation in the form of a Perpres is to be more binding.

The tariff regulation is the government’s step to increase the energy mix and reach the target of 23% in 2025. Currently the energy mix is ??at 14.8%. “We are currently drafting regulations on EBT tariffs. The target is for the first semester of this year,” Rida said at a hearing with the House of Representatives Commission VII in Jakarta, this week.

Rida said, renewable energy tariffs will no longer refer to the regional cost of production (BPP) as currently applied. He said the tariff rates would be tiered divided between 1-12 years later from 12 years to 20 years or until the contract expires. He explained, in the first 12 years the tariff was higher than the tariff rate after the 12 years. However, Rida did not want to disclose the tariff rates in question.

“So, the staging tariff is only two stages. The initial tariff is greater so that the developer returns capital faster,” he said. He said, the Perpres on renewable energy tariffs is not retroactive. This means that there are no renewable energy tariff adjustments that have signed a power purchase agreement (PPA) with PLN. He emphasized that the tiered renewable energy electricity tariff applies to the latest PPA contract, but the tiered tariff does not apply to geothermal projects. Geothermal tariffs will be regulated separately, but regulations are arranged together.

“For geothermal energy, it will be more specifically regulated, because it is much different from other EBTs. This is more like oil and gas. But we are working (regulation) together (with tiered tariffs),” he said.

Rida explained, geothermal development is similar to the oil and gas sector. Because the two projects have an exploration stage. He said the development of geothermal energy would use a scheme such as cost recovery in oil and gas. In essence, the scheme prevents geothermal developers from taking too high a risk. “Inspired by cost recovery. The point is how the government can be more involved in development,” he said.

The Indonesian Geothermal Association (INAGA) considers that high investment in the field of renewable energy power is needed. However, regulatory certainty is also needed that makes developers interested in investing in the EBT sector.

Previously, the Ministry of Energy and Mineral Resources (ESDM) projected the investment value of renewable energy power plants to reach US $ 36.96 billion until 2025.

Project investments for renewable energy development consists of US$ 17.45 billion for Geothermal Power Plants (PLTP), of US$ 14.58 billion for Water and Micro Hydro Power Plants, of US$ 1.69 billion for Solar Power Plants and Bayu Power Plants, of US$ 1.6 billion for PLT Garbage, US$ 1.37 billion for Bioenergy PLT US$ 1.37 billion, and of US$ 0.26 billion for Hybrid PLT.

Prijandaru Effendi, Chairman of INAGA admitted, each investor would consider various aspects before implementing the development of a renewable energy power plant project. One aspect that is quite influential is regulations that support investment from renewables developers themselves.

“Investors need certainty in the selling price of electricity that supports the economic value of the renewable energy project,” he said.

Therefore, INAGA continues to pay close attention to the government’s plan to issue a Presidential Regulation on the selling price of electricity from renewable energy plants. Prijandaru hopes that regulatory certainty can encourage investment in the renewable energy sector, especially geothermal.

“The last three years the geothermal power plant project is difficult to run because the existing regulations do not support it,” he said.

Furthermore, he is not too concerned about the tariff scheme that will be determined as part of renewable energy Feed in Electricity Tariff later. Indeed, the feed in tariff (FiT) scheme in the regulation could be an option to facilitate investment in the geothermal sector.

Because the selling price of electricity is immediately determined at the beginning without having to negotiate with prospective buyers.

However, this scheme can also be a problem if the initial selling price provisions are not profitable for various parties, both developers and prospective buyers.

In the geothermal sector, the challenge is quite heavy considering that the only electricity buyer so far has been PT Perusahaan Listrik Negara (PLN).

“So the selling price provisions must be carefully considered. From there, new investors can measure the risk of renewable energy investment,” said Prijandaru.

A while ago, publication Kontan obtained a copy of the draft rules for the feed-in-tariff scheme for renewables.

It said, the selling price of electricity from private PLTPs for the capacity of 1 to 10 MW from year 1 to year 12 was set at US$0.145 per kWh. The electricity sales price for the 13th to the 30th year is set at US$ 0.129 per kWh.

Source: Investor Daily, Kontan