smi insight –renewable energy commercial review...• esdm ministerial regulation number 04 year...

PT. Sarana Multi Infrastruktur (Persero) I www.ptsmi.co.idSMI Insight 2019

SMIInsight– RenewableEnergyCommercialReview

1

RenewableEnergy Overview

Renewable Energy Definition

Renewable Energy is the energy produced from any sustainable and renewable sources in thehuman’s lifetime. The most common samples include: wind, solar, geothermal, biomass, andhydropower. They are different from non-renewable sources such as fossil fuel which will eventuallyrun out.(Source: https://www.studentenergy.org/topics/renewable-energy)

Renewable Energy Main Sources

• Geothermal EnergyGeothermal Energy is the heat coming from the earth having the clean and sustainable natures.Geothermal energy resources range from shallow soils for hot water and from hot rocks foundseveral kilometers below the earth's surface, and even deeper, from the molten rock called magmahaving a very high Temperature.(Source : https://www.renewableenergyworld.com/geothermal-energy/tech.html)

• Solar energySolar Energy is a sustainable renewable energy source coming from sunlight or from the sun'sheat. Unlike limited fossil fuel, solar energy is never used up. This kind of energy is also a non-polluting energy source and does not emit greenhouse gas when producing electricity.(Source: https://www.energymatters.com.au/solar-energy-education/)

• Wind EnergyWind power involves the conversion of wind energy into electricity by using wind turbines. Eachwind turbine usually has 3 blades like propellers called rotors. The rotors are attached to a talltower. The wind turbine captures wind to produce energy. The wind makes the rotors rotate andwhen the rotors rotate, the blade movement activates the generator to produce energy. Themovement to rotate the blades is called a kinetic energy. This power is what we convert intoelectricity.(Source: https://www.energymatters.com.au/components/wind-energy/)

• HydropowerThis kind of energy is produced by running water. Hydroelectric power plants use water movementto rotate turbine generators to produce electricity.(Source: https://www.risk.net/definition/hydropower)

PT. Sarana Multi Infrastruktur (Persero) I www.ptsmi.co.idSMI Insight 2019 2

• Biomass EnergyBiomass is an industrial term for getting energy by burning organic materials from plants andanimals. The plant or plant-based materials are not used for food or feed, and they are specificallycalled lignocellulosic biomass.

Biomass is a renewable and sustainable energy source; it can be used directly through combustionto produce heat, or indirectly after converting it into various forms of bio-fuel.(Source: http://www.powerworldanalysis.com/biomass-energy-definition/)

Renewable Energy Main Sources (Continued)

Biomass can be used directly as fuel or toproduce other types of fuels such as biodiesel,bio-ethanol, or biogas, depending on its source.Biomass in the form of biodiesel, bio-ethanol, andbiogas can be burned in deep combustion enginesor boilers directly in certain conditions.

Biomass becomes a renewable energy source ifthe uptake rate does not exceed its productionrate, because basically, biomass is the materialsproduced by nature in a relatively short timethrough various biological processes.

Indonesian Government Regulations regarding Renewable Energy

The Government of Indonesia in supporting Renewable Energy has issued several regulations. In2012, the Ministry of Energy and Mineral Resources (ESDM) issued two ESDM MinisterialRegulations related to the development of renewable energies, namely:

• ESDM Ministerial Regulation Number18 Year 2012 concerning Amendment to ESDM Ministerial Regulation Number 11 Year 2009 concerning Guidelines for Conducting Geothermal Business Activities.

• ESDM Ministerial Regulation Number 04 Year 2012 concerning the Purchase Tariff of Electric Power by PT PLN (Persero) from Power Plants Using Small-and-Medium Scale Renewable Energy or Electricity Overload.

This policy is called feed-in tariff (FIT). The feed-in tariff is a benchmark for energy tariff purchasingbased on the production cost of new and renewable energies.

Renewable energy payment or feed-in tariff (FIT) isa policy mechanism designed to accelerateinvestment in renewable energy technology. TheESDM Ministerial Regulation has applied feed-intariff on renewable energy sources including:photovoltaic, hydro, geothermal, and bio-energy.


Indonesian Government Regulations Regarding Renewable Energy (Continued)

The following tariff and criteria were issued by the Directorate General of New Renewable Energyand Energy Conservation (EBTKE) of the Ministry of ESDM for electricity feed-in tariff by:a. Photovoltaic Solar Power Plant (PLTS PV)

b. Geothermal Power Plant (PLTP)

Electricity Feed-in Tariff by PLTS PV(ESDM Ministerial Regulation Number 17 Year 2013 Concerning the Purchase of Electricity by PT PLN (Persero) from

PLTS PV)A. TARIFF AND CRITERIA

1. The purchase tariff of PLTS PV electricity for all capacities is set at USD 25 cents/kWh for the first 10 years and USD13 cents/kWh for the second 10 years

2. If using photovoltaic solar module with local content (TKDN) of at least 40%, an incentive is given so that the purchase tariff of electricity is set at USD 30 cents/kWh

3. The purchase tariff includes all interconnection costsfrom the power plant to the interconnection points ofPT. PLN (Persero)

4. The criteria in determining the quota and location isthe load and the ability of PLN system to absorb on-grid PLTS production with a capacity of around 1-1-MW and the locations of the isolated sub-systemwhich are currently being supplied in part or in fullfrom oil-based PLTD and production cost (BPP) in theabove sub-system to determine the FiT price in thedraft of ESDM Ministerial Regulation

B. QUOTA OFFERING SYSTEM1. The Directorate General of EBTKE offers Capacity

Quotas to Business Entities in accordance with thestipulation of Capacity Quotas

2. If only 1 (one) Business Entity that registers theCapacity Quota Offer, it shall be carried out through adirect appointment

3. If more than 1 (one) Business Entities that register theCapacity Quota Offer, it shall be carried out through adirect election

C. QUOTA STIPULATION PROCEDURE1. The Directorate General of EBTKE submitted the total

of Capacity Quota plan to PT. PLN (Persero)

2. PT. PLN proposes the details of the Capacity Quota tothe Director General of EBTKE, no later than 30 daysfollowing the submission of total Capacity Quota

3. The Director General of EBTKE establishes aCapacity Quota by considering the proposed detailedCapacity Quota at the beginning of the Year

Electricity Feed-in Tariff by PLTP(ESDM Ministerial Regulation Number 17 Year 2014 Concerning the Purchase of Electricity by PT PLN (Persero) from

PLTP)• PLT Highest Benchmark is the study result of World Bank with all

stakeholders as its counterpart team namely the CoordinatingMinistry for the Economy, the Ministry of Finance, the Ministry ofEnergy and Mineral Resources, PT PLN (Persero) and theIndonesian Geothermal Association

• With the issuance of ESDM Ministerial Regulation Number 17 Year2014, 13 Constrained Geothermal Work Areas (1,275 MW) havebeen able to overcome its problems, namely:

• 10 Geothermal Work Areas (WKP) have signed PowerPurchase Agreements (PPA/PJBL): WKP TangkubanPerahu I, Tampomas, Cisolok-Cisukarame, Ngebel Lake,Baturaden, Guci, Sokoria, Banten Lake Caldera, SorikMarapi and WKPJaboi);

• 1 WKP is in the process of PPA/PJBL signing (Jailolo);• The permits of 2 WKP were returned to the government;

namely WKP Hu’a Daha and WKP Suoh Sekincau• As such, 11 current Constrained WKP with a total capacity of 1,035

MW have been in the development process and shall then negotiatetariff after the developer completes its feasibility study

• Until now, no one has provided input to increase the electricity tariffsfrom geothermal energy

COD YEAR

HIGHEST BENCMARK PRICE(USD cents/kWh)

Zone I Zone II Zone III

2015 11.8 17.6 25.42016 12.2 18.2 25.82017 12.6 18.2 26.22018 13.0 18.8 26.62019 13.4 19.4 27.02020 13.8 20.0 27.42021 14.2 20.6 27.82022 14.6 21.3 28.32023 15.0 21.9 28.72024 15.5 22.6 29.22025 15.9 23.3 29.6



c. Bio-energy-Based Power PlantBiomass and Biogas Feed-in Tariff(ESDM Ministerial Regulation Number 27 Year 2014 & Number 19 Year 2013)

No. Energy Capacity Electricity Tariff Information

Medium Voltage1 Biomass up to 10 MW Rp. 1,150,- / kWh X F

2 Biogas up to 10 MW Rp. 1,050,- / kWh X F Non-PLTsa

3 City trash up to 10 MW Rp. 1,450,- / kWh Zero Waste

4 City trash up to 10 MW Rp. 1,250,- / kWh Landfill

Low Voltage1 Biomass up to 10 MW Rp. 1,500,- / kWh X F

2 Biogas up to 10 MW Rp. 1,400,- / kWh X F Non-PLTsa

3 City trash up to 10 MW Rp. 1,798,- / kWh Zero Waste

4 City trash up to 10 MW Rp. 1,598,- / kWh Landfill

F is an incentive factor based on the region where the power plant is constructed• Java island : F = 1• Sumatra island : F = 1.15• Sulawesi island : F = 1,25• Kalimantan island : F = 1,3• Bali, Bangka Belitung, Lombok islands : F = 1,5• Riau islands, Papua island & other islands: F = 1,6

BIODIESEL MARKET INDEX PRICES (HIP – BBN)VALID FROM 1 APRIL 2014

HIPFormula=103.48%xMOPSGasoil

Year 2014 Biodiesel Price (USD/Litre)Bio-ethanol Price

(USD/Litre)

January 0.837 0.738February 0.800 0.707

March 0.773 0.699April 0.786 0.780May 0.793 0.783June 0.790 0.794July 0.783 0.794

August 0.769 0.809September 0.754 0.812

Amendments to the Biodiesel Market Index Prices (HIP-BBN) havebeen stipulated by the ESDM Ministerial Decree Number3784K/12/MEM/2014 concerning the Market Index Prices ofBiodiesel (Bio-fuel) that are Mixed into Certain Fuels

Biodiesel HIP-BBN applies to biodiesel mixed into certain types offuel oil (PSO/subsidized)

d. Hydropower Plant

Electricity Feed-in Tariff by PLTA(ESDM Ministerial Regulation Number 12 Year 2014 concerning the Electric Power Purchasing by PT PLN (Persero) from PLTA)

No. Electric Grid Voltage (Generating Capacity) Location/Region

Purchase Tariff (Rp. /Kwh)

F FactorThe 1st to 8th Year The 9th to 20th Year

1

Medium Voltage (up to 10 MW)

Jawa, Bali and Madura 1,075.0 x F 750.0 x F 1.002 Sumatra 1,075.0 x F 750.0 x F 1.103 Kalimantan and Sulawesi 1,075.0 x F 750.0 x F 1.204 NTB andNTT 1,075.0 x F 750.0 x F 1.255 Maluku and North Maluku 1,075.0 x F 750.0 x F 1.306 Papua and West Papua 1,075.0 x F 750.0 x F 1.607

Low Voltage (up to 250 kW)

Jawa, Bali and Madura 1,270.0 x F 770.0 x F 1.008 Sumatra 1,270.0 x F 770.0 x F 1.109 Kalimantan and Sulawesi 1,270.0 x F 770.0 x F 1.2010 NTB and NTT 1,270.0 x F 770.0 x F 1.25

11 Maluku dand North Maluku 1,270.0 x F 770.0 x F 1.3012 Papua and West Papua 1,270.0 x F 770.0 x F 1.60

Information:• The tariff includes the connection fee from the power plant to PT. PLN electricity network• For the transition, negotiations are carried out using the highest benchmark tariff of Rp. 880,-/kWh for medium voltage and Rp. 970,-/kWh for low

voltage by keeping in mind the F factor• For dam/reservoir/irrigation channels, the above tariff is multiplied by 90%



In 2017, the Government issued a new regulation related to Renewable Energy is throughMinisterial Regulation (Permen) Number 12 Year 2017 concerning Utilization of Renewable EnergySources for Electricity Supply. This regulation sets the ceiling price benchmark for electricity fromsolar, wind, water, biomass, biogas, waste, and geothermal energies. The benchmark of newrenewable energy tariff aims to reduce the electricity cost production (BPP) while simultaneouslymeeting electricity needs in locations where there are no other primary energy sources. Thefollowing table lists the electricity tariff based on energy sources in accordance with the relevantenergy sources.

Energy Source Tariff based on ESDM Ministerial Regulation Number 12 Year 2017

Solar

If local BPP> national BPP = 85% of local BPP

If local BPP ≤ national BPP = 100% of local BPP

WindHydropowerBiomass andBiogasUrban Waste If local BPP> national BPP = 100% of local BPP

If Sumatra, Java and Bali BPP



Energy Source Tariff Based on ESDM Ministerial Regulation Number 50 Year 2017Solar If local BPP> national BPP = 85% of local BPP

If local BPP ≤ national BPP = Agreement of the partiesWind

HydropowerIf local BPP> national BPP = 100% of local BPP

If Sumatra, Java and Bali BPP ≤ national BPP = Agreement of the parties

Biomass and BiogasIf local BPP> national BPP = 85% of local BPP

If local BPP ≤ national BPP = Agreement of the partiesUrban Waste If local BPP> national BPP = 100% of local BPP

If Sumatra, Java and Bali BPP ≤ national BPP = Agreement of the partiesGeothermal

Sea WaterIf local BPP> national BPP = 100% of local BPP

If Sumatra, Java and Bali BPP ≤ national BPP = Agreement of the parties

The concerned local BPP and national BPP are the local BPP and national BPP in the previous year determined by the Minister of Energy and Mineral Resources

Based on the documents of RUPTL 2016-2025, the National BPP is +/- Rp 1,360/kWh

In the same year (2017), the Ministry of ESDMissued a second amendment to ESDM MinisterialRegulation Number 12 Year 2017 concerningUtilization of Renewable Energy Sources forElectric Power Supply, namely ESDM MinisterialRegulation Number 50 Year 2017.

In addition, it also regulates the addition of provisions regarding price agreements, where allelectricity purchases from the power plants that utilize renewable energy sources must obtainapproval from the Minister of ESDM using Build, Own, Operate and Transfer (BOOT) cooperationscheme, except for Trash Power Plants (PLTSa).

In the new regulation, the tariff ceiling limit isremoved specifically for regions having a lowerBPP than the National BPP, for example Java,Bali, Sumatra. The tariff are based on anagreements between the Renewable EnergyDevelopers and PLN (business to business/B to Bmechanism).



The government has ratified Electricity Supply Business Plan (RUPTL) 2019-2028.The RUPTL hasbeen approved by the Minister of Energy and Mineral Resources (ESDM) through ESDM MinisterialDecree Number 39 K/20/MEM/2019. The following is the summary of RUPTL 2019 - 2018

In RUPTL 2019-2028, the renewable energies also have a portion of 23%. This is in line withRUPTL 2018-2027 target. In addition to encouraging the target achievement of Energy Mix of therenewable energies, the Government said that the construction of renewable energy power plantscould be carried out without having to wait for amendments to PLN’s RUPTL.

ElectricityGrowth

6.42%AdditionalGeneratingCapacity

56,395MWEnergyMixin2025

RenewableEnergy 23.0%Gas 22.0%Coal 54.6%Fueloil 0.4%

AdditionalTransmissionNetwork

57,293kmAdditionalCapacityofSubstation

123,341MVA

AdditionalDistributionNetwork

472,795km

TotalAdditionalCustomers

16,985thousand

SummaryofRUPTL2019-2028

RUPTL 2018-2027: 6.9%

RUPTL 2018-2027: 56,024 MW

RUPTL 2018-2027:

Renewable Energy 23.0 %Gas 22.2 %Coal 54.4 %Fuel Oil 0.4 %

RUPTL 2018-2027: 63.,55 kms

RUPTL 2018-2027: 151.,24 MVA

RUPTL 2018-2027: 526.,92 kms

RUPTL 2018-2027: 25,496 ribu

0,00%

20,00%

40,00%

60,00%

80,00%

100,00%

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Air PanasBumi EBTLain BatuBara Gas LNG BBM Impor

Energy Mix Projection 2019 - 2028

Type RUPTL 2018 - 2027RUPTL

2019 - 2028RenewableEnergy 23.0% 23.0%Gas 22.2% 22.0%Coal 54.4% 54.6%Fuel Oil 0.4% 0.4%Total 100.0% 100.0%

Energy Mix Target in 2025

Renewable Energies23.2%

• To maintain 23.2% energy mix of the renewableenergies in 2026-2028, an addition of around 3,200MW of PV rooftop is necessary (equivalent to 1.6million PV rooftop customers @ 2 kW)

• The target can be achieved with communityparticipation and Government support in therenewable energy development, especially rooftopPV whose prices are expected to fall further in thefuture

Gas22.0%


Obstacle to Deal With in Renewable Energy Project Development

§ Limited developer’s financial capacity (including in providingguarantees)

§ Inadequate human resource capacitySponsor

The current obstacle dealt with by Renewable Energy investors is the inconsistent regulations,which have driven away the investment interest. For examples, ESDM Ministerial RegulationsNumber 12 Year 2017 and Number 50 Year 2017 concerning Utilization of Renewable EnergySources for Electric Power Supply. The following are the four obstacles faced by investors in theRenewable Energy Project Development, including:

Project Readiness

§ Low Feasibility Study Quality§ Environmental and social safeguard aspects are not

considered consistently§ Limited technological mastery

Tariff

§ The long-winded bureaucracy in the electricity approvalbecause it must get the final approval by the Minister ofESDM.

§ There is uncertainty in the Power Purchase Agreement(PPA) clauses (tariff-changing risk)

§ Tariff based on Production Cost (BPP) is not profitable forinvestors because energy sources come from differentsources

Regulation

§ Lack of fiscal incentives provided by the government§ BOOT contract scheme in Ministerial Regulation Number 50

Year 2017 which is considered detrimental to investors,where the land price is not taken into account when thecontract period expires. This scheme requires developers tohand over power plants to the government after the contractexpires. Consequently, banks do not want to accept powerplants as collateral

(Source: https://www.suaramerdeka.com/news/baca/169170/ada-empat-kendala-untuk-berusaha-di-energi-baru-terbarukan)


Low-cost or Renewable Energy?

Indonesia is currently developing environmentallyfriendly energies or renewable energies (EBT).Many investors are interested in EBT developmentin Indonesia.

This EBT development must also consider thepeople purchasing power so that this EBTdevelopment’s goal can be sustainable.

The Ministry of Energy and Mineral Resources, today prioritizes low-cost and efficient energy, forexample coal and natural gas for fuel of power plants. The goal is to cut down the electricityproduction costs (BPP) so that people can enjoy electricity at affordable rates. Until end-2018, thenational electrification ratio was recorded at 98.3% or higher than the target in the medium-termdevelopment plan (RPJMN) of 97.5%.

The government is currently reluctant to set high tariff benchmark for EBT because low-costelectricity for the people becomes today’s priority. Therefore, ESDM Ministry issued ESDMMinisterial Regulation Number 12 Year 2017 (ESDM Ministerial Regulation 12/2017), which limitsEBT tariff such as solar, hydro, wind, biomass, and geothermal energies not to exceed the localBPP.

Even though the renewable energies are regarded important, the government must have a priorityscale. What to be the problem is the relatively high investment costs to develop EBT, which lead tothe high average selling price of electricity.

COMPARISON OF ELECTRICITY GENERATION COSTS (US$ cent/kWH)Generator Type Global Average India Indonesia

Fossil Fuels 5 - 17 12 7.55 – 20Solar Panel/Solar PV 13.1 10 - 12 7.55 – 20Biomass 8.1 5.5 – 6 7.55 – 20Geothermal 6.4 6.4 7.55 – 20Hydropower 5.1 4.5 – 5 7.55 – 20Wind (Onshore) 5.6 5.5 - 6 7.55 - 20

It seems that solar panel-sourced electricity generation is the least commercially attractive inIndonesia, compared to the global average. For example, the average cost of electricity generationfrom solar photovoltaic sources globally is in the range of US$ 13.1 cent/kWh, while Indonesia onlyfixes a national BPP of US $ 7.66 cents/kWh

To get a bigger margin, investors may work on projects in remote areas (with BPP reaching US$ 20cents/kWh), but the Ministry of Energy and Mineral Resources itself has underlined that thelimitations of supporting infrastructure in remote areas are challenging for investors.

Source: Baker Mc Kenzie Report : “Indonesian Government publishes 2017 Cost of Generation (BPP) figures” April 2018


[ESDM] ESDM Ministerial Regulation regarding Feed in Tariff, ESDM, Ministry, DirectorateGeneral of New and Renewable Energy and Energy Conservation (EBTKE)http://ebtke.esdm.go.id/regulation/9/feed.in.tariff

[ESDM] ESDM Ministerial Regulation Number 12 Year 2017, ESDM Ministry, Directorate Generalof New Renewable Energy and Energy Conservation (EBTKE)

[ESDM] ESDM Ministerial Regulation Number 50 Year 2017, ESDM Ministry, Directorate Generalof New Renewable Energy and Energy Conservation (EBTKE)

[ESDM] Dissemination of PLN’s RUPTL 2019 - 2028, ESDM Ministerial Decree Number 39K/20/MEM/2019 dated 20th February 2018. http://djk.esdm.go.id/pdf/RUPTL/2019%2003%2018%20Diseminasi%20RUPTL%202019-2028.pdf

[CNBC Indonesia] “Review on New Regulation regarding EBT Electricity Tariff Scheme”https://www.cnbcindonesia.com/news/20180525141148-4-16595/menimbang-aturan-baru-terkait-skema-harga-listrik-ebt/2

[Detikfinance] “Choosing Low-cost or Renewable Energy?” https://finance.detik.com/energi/d-3434257/pilih-energi-murah-atau-terbarukan-ini-jawaban-esdm

[Suaramerdeka] “Four Obstacles in Doing Renewable Energy Business”https://www.suaramerdeka.com/news/baca/169170/ada-empat-kendala-untuk-berusaha-di-energi-baru-terbarukan

DisclaimerAll information presented were taken from multiple Sumbers and considered as true by the timethey were written to the knowledge of PT Sarana Multi Infrastruktur (Persero). PT Sarana MultiInfrastruktur (Persero) can not be held responsible from any inacuracy contained in the material.Any complaint can be submitted to:Corporate Secretary PT SMITel : +62 21 8082 5288Fax : +62 21 8082 5258Email : [email protected] complaints on PT SMI service will be kept strictly confidential and handled by a specialcommittee to ensure that complaints are addressed appropriately.

Reference

ConclusionToday in Indonesia, the climate of renewable energy industry is still very volatile. The electricitypurchase tariff scheme through BPP calculation is considered to be too less competitive due todifferences in technology tariff originating from different sources. In addition, other BOOT schemeis considered to be detrimental to investors of which impact is that the bank’s refusal to acceptpower plants as collateral.

Therefore, it can be concluded that the current policy of the Government of Indonesia is morefocused on the equal electricity distribution throughout Indonesia. To balance the electricitydistribution policy and acceleration of renewable energy increase, special regulations are requiredto be able accommodate both targets.

smi insight –renewable energy commercial review...• esdm ministerial regulation number 04 year...

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