Indonesia is one of the largest energy users and greenhouse gas emitters in South East Asia. Rapid acceleration of investment in solar PV generation is urgently required for transition to clean energy and to avoid lock-in to a carbon intensive path of development. However, the recent record of investment in solar PV in Indonesia has been relatively slow compared to other Asian nations.
Economic regulation in the utility sector usually aims to de-risk private investment. For renewable electricity, this is often achieved with Feed in Tariff (FIT) laws. This paper critically reviews the design, implementation and effectiveness of Indonesia’s 2016 and 2017 FIT incentive laws for grid-connected utility-scale solar PV. Interviews with solar developers and government policy makers are drawn upon.
One finding is that the FIT as presently configured will be unlikely to encourage substantial investment in utility scale solar in well-serviced areas such as Java-Bali where PV will be asked to compete with fossil fuel generation, due to the setting of FIT tariff levels based on the local average cost of generation (BPP). Due to its design, it will also be extremely unlikely to encourage small scale residential or commercial installations under 1 MW capacity.
More potential lies in displacement of diesel generation in remote areas with the highest BPP such as Eastern Indonesia. Among the most significant barriers are the minimum domestic content rules, the negative investment list for foreign investment, and regulatory uncertainty due to frequent amendments to legislation. Other fundamental institutional and structural issues in the electricity sector present multiple barriers to incentivizing renewables. These barriers must be addressed before rapid growth is likely to occur.
About the Speaker
Dr. James Prest is an environmental lawyer at the ANU College of Law, conducting research and writing on climate change law and renewable energy law. He is currently in residence at RegNet whilst on sabbatical from the ANU College of Law. James has been a staff member at the Australian Centre for Environmental Law since 2006. He is a member of the Executive of the ANU Energy Change Institute and has a professional background in private legal practice and public sector legal practice, and joined the ANU College of Law in 2006.
His research has a strong focus on comparative environmental law, with an emphasis on renewable energy and climate change law, examining the legal and policy barriers to increased investment in renewable electricity generation. His work critically analyses key policy choices and legislative models in domestic energy and climate law, drawing upon Australian, EU, Indonesian, and Japanese experience in the last decade.
For more information about James, visit his RegNet profile.
This research is supported by a grant from the Australia Indonesia Centre, “Regulatory and Policy transformation for Microgrid enablement”.