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JAKARTA (TheInsiderStories) – State-owned electricity organization PT Perusahaan Listrik Negara (PLN) has signed yet another purchasing power agreement (PPA) with Independent Power Producers (IPP) to expand renewable energy sources in Indonesia, following the signing of 53 previous PPA, with combined capacity of 350 megawatts (MW), in August 2017.

This new deal is an impetus by the Indonesian government to accelerate the renewable energy mix, targeted to reach 23 percent by 2025.

Ministry of Energy and Mineral Resource Ignasius Jonan witnessed the signing of 11 hydro and micro-hydro power plants with combined electricity capacity of 291.4 MW. Total investment for the 11 units was US$600 million. With these additional power plants, the government comes closer to achieving its targeted energy mix of 8,050 MW by 2025.

“Those power plants are spreading out around Central Java, North Sumatra, West Sumatra, Lampung, South Sulawesi and Bengkulu,” he commented at the signing ceremony of the PPA on Friday (8/9).

The 11 IPPs, namely, Aek Sibundong Energy, Bukit Cahaya Powerindo, Gading Energy Prima, Energy Alam Sentosa, Indah Alam Lestari Energy, Bayang Nyalo Hidro, Tiga Oregon Putra, Kunci Hidro Energi, Bangun Tirta Lestari and Energy Sakti Sentosa will complement Amera Terrasys Energi, that produces the greatest electrical capacity of 200 MW.

The CEO of PLN, Sofyan Basir added that with the additional capacity, 26,000 MW worth of power generation has been signed off, from a total target of 35,000 MW, of which 16,450 MW, or 47 percent has already entered its construction phase. National electricity coverage ratio has reached 92.8 percent, with mixed energy marking 12.5 percent.

He continued, stressing that there will be another 300 MW of hydro power plant and 100 Geothermal power plant PPA signings this year, adding that 1,300 MW of new renewable-based power plants are to be installed this year.

Government previously admitted that issues of pricing mechanisms, together with tax-tariffs, land availability and banking rates have previously deterred investment in renewable energy development. Even so, investment will certainly become the main story in upcoming Indonesian renewable energy development.

Typically, renewable energy (geothermal, solar, wind, hydro, biomass, etc) plants require a greater capital base than that needed for the construction of a comparable fossil fuel-fired power plant. It is estimated for 1 Geothermal Working Area at least US$25 million of investment is needed, for example, while a 1MW installed hydro power needs around US$2 million.

Thus far, the government has instructed PLN to boost renewable power purchases such as geothermal, wind, hydro-power solar, micro-hydro, steam, biomass, biogas, etc. by offering an appealing profit margin for IPP investment. That target will only be achieved after 11 years if government carries this out in its “business as usual” way.

Indonesia is expected to face an energy shortfall by 2020-2030 due to its inability to generate enough clean energy to meet electricity needs of a growing urban population and industries. Government has thus set an ambitious target for renewable energy production, to reach 8,050 megawatt (MW) by 2025.

The Government wants to accelerate mixed-use energy, a resource that only reaches 8 to 9 percent at present. It is shooting for a 25 percent energy mix by 2023.

Among IPPs that have signed off on the deal, PT Nusantara Hidro Utama has concluded an agreement with Arcandra. New price mechanism still allows investor to get an appropriate return: not too much, nor too little. The selling price has been set at 1,049 per Kwh. (MS)

Writing by Yosi Winosa, Email: yosi.winosa@theinsiderstories.com)

 

Geothermal Potential

 

Indonesia is top three geothermal potential sites in the world, reached an estimated 28.6 gigawatts (GW), far ahead of the Philippines (4 GW) and the rest of the world, excluding the United States. Having abundant geothermal potency, equal to 24.7 percent of total world geothermal reserves of 119.3 GW, Indonesia is already passed by the Philippines in term of installed capacity: 14.47 percent versus 15.93 percent.

 

Again, tariff incentives are a main obstacle in geothermal power plant development. One geothermal well is estimated to cost about $12 million. Additional costs include EPC for power plants that cost $2 million per MW, along with development & maintenance, that add 1 cent per kilowatt. As regulated in Government Decree Number 7/ 2017, exploration and production phases are set at 7 years and 30 years, respectively.

 

Government financial incentives including VAT and duty exemptions for good used for exploration (PMK 107/ 2016), 5 percent net income tax reduction for each year over 6 years (PP 18/ 2015), accelerated depreciation/ amortization (PP 18/ 2015), compensation for losses incurred over 5-year period (but no more than 10 years) (PP 18/ 2015), 10 percent withholding tax reduction on dividends to foreign investors (or such lower rate determined by double tax treaty) (PP 18/ 2015) and land and building tax exemption (PMK 172/ 2016) are apparently not sufficient enticements to attract investors.

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