Indonesia and solar energy seem like an ideal match – and yet, it looks Indonesia has much to learn on how they can tap into this potential of solar energy in a significant way.
With over 300 million people, Indonesia is the largest energy consumer amongst all the ASEAN members, and the country’s demand for energy is growing by leaps and is expected to do so in the coming years. It’s a known fact that Indonesia has long been dependent on fossil fuels, but lately, they have started to add more sources of renewable energy to their repertoire.
According to Benny Bernarto, a corporate and commercial lawyer based in Jakarta, who pointed out in an interview that Indonesia is a rich source of solar power, with some 207 GW worth and the good news is that the Indonesian government is giving their full priority to the development of renewal resources – they have set a target of renewable energy and is hopeful that they will be able to provide 23 percent of a generation of electricity by 2025 and 31 percent by 2030. Nationally, as of now, 13 percent of a generation of power comes from renewable energy resources such as geothermal and hydroelectric power production.
However, compared to the neighbouring countries of Indonesia, the 13 percent is not much, at best, it can be said that the country is lagging much behind. As per the data taken from the ASEAN Centre for Energy (ACE), the solar installation has risen from a mere 0.003 GW to a whopping 9.1 GW in 2010 – and much of the growth can be contributed to solar power plants that are installed in Malaysia, Philippines, Thailand, and recently in Vietnam.
The solar power plants that are installed in these countries are a result of well-designed incentives for renewable sources of energy, and which is undertaken by the Feed-in-Tariff, also known as ‘FiT’ system. After the installation of FiT system in these countries, the solar industry has undergone a massive change, so much that, only after two years of launching FiT in Vietnam, 4.5 GW have been recorded as of June 2019, thus making Vietnam as ASEAN’s largest solar PV installer, with Thailand taking the second place.
Indonesia can learn from Vietnam as to how they have succeeded in boosting the solar energy industry. Both countries are rich in coal reserves and they still use it in their power generation mixes – plus, both Indonesia and Vietnam are developing countries with high demands for energy in response to their economic growth. Furthermore, these two countries have a similar market structure for electricity (a single-buyer model with one state-owned utility) – taking all of these similarities, it can be said that for Indonesia, it won’t be hard for them to replicate Vietnam’s success.
Taking the success of Vietnam, Indonesia needs to focus on the four major points.
Price incentive and financial support
Vietnam launched the FiT rates for solar at around $0.0935 US Dollars, and even though the rates were set much higher as compared to the average retail rates (and which was $0.0803 US Dollars in 2017), it turned out to be effective – as it provides incentives to the developers of renewable energy plus, it can also attract investment (and which it did). It’s also seen that this price turned out to be an easy rate that EVN (Vietnam Electricity) can pay without any worries.
While in Indonesia, they have set the rates to around $0.07 US Dollars – this nether provides incentives to the developers of renewable energy nor is this attractive for investors, as renewables are high in Indonesia.
The Indonesian government needs to at first invest in incentives and only then, they should reduce the price of renewable energy when the market matures.
Apart from the above, the financial sector should also have to support the solar industry. In Vietnam, the financial industry is well aware of what the solar industry is trying to achieve and hence, the banks are quite supportive and thus, they are known to provide loans to the developers so that they can get ahead with their solar projects.
In the case of Indonesia, sadly, the case is not the same – the financial sector needs to be aware of what the solar industry is trying to achieve, and as such, credit guarantee to the bank should be available as only then the Indonesian government can support the projects of the solar industry.
Mature local industry
In order to support the demand for solar energy, the availability of a mature local industry is a must – in the case of Vietnam, when FiT was launched and to meet the high demands, a mature local manufacturing unit was there to support them. Before FiT was launched, the manufacturing unit was still there, but it was mostly used for export, but with the establishment of FiT, the renewable energy developers can now use local solar panels as they are much cheaper than the imported ones.
However, in the case of Indonesia, the price of the local solar panels are high than the imported ones, and this discourages the developers to invest in solar projects – this is further discouraging to know that the Indonesian government has put forward a regulation that 40 percent of local products have to be used in solar projects.
Indonesia can learn from Vietnam in this regard – the Indonesian government should support the local manufacturing units so that they can increase their production capacity.
Helping the PLN
EVN has long been improving their capabilities of how can they welcome the technology of solar and renewable energy in their grid system – they know that an increase in the grid capacity and flexibility is needed to ensure intermittency from solar energy, and they see this intermittency as a challenge, thus, prompting them to improve their grid capacity.
Solar energy and wind are intermittent by nature, though many countries solve this issue by thorough planning and forecasting of renewable energy resources, and as a result, instead of depending on the generation of fossils, the reliability of the grid system is enhanced by renewable energy. This renewable energy can help the PLN (State Electricity Board, Indonesia) to upgrade their planning and monitoring systems and can pave the way for PLN to embrace the adoption of solar PV.
That said, the local authorities of Vietnam have developed a regional solar roadmap that pinpoints the places that are allowed for solar projects along with the available capacity, so that the developers can submit their projects without having them to go through the lengthy process of getting permits.
Indonesia can transform their scheme to a friendlier option – the ‘build-own-operate-transfer’ or BOOT scheme to a ‘build-own-operate’ scheme, and also known as BOO scheme, plus the local government authorities too need to lend a hand in creating solar roadmaps.
Six years – give Indonesia these years, and if they take note of the above lessons from Vietnam, then, they can achieve the impossible – provided the right actions and strategies are taken at the right time.