From pv magazine 07/2021
By all accounts, Indonesia has massive capacity for renewable energy. As the most populous country in the region, “its young population, abundant natural resources, vast untapped renewable energy potential … put Indonesia in a prime position to become a major player in the future of global energy,” writes the International Energy Agency (IEA).
But just because it can, doesn’t mean it will. “Even though the market is big … the whole thing is a little bit nascent,” said Sujay Malve, founder of Singapore-based microgrid startup Canopy Power.
However, Indonesia’s neighbour Malaysia is proving that being slow off the blocks does not make finishing last a foregone conclusion. In 2018, Malaysia “barely had any renewables,” said Wood Mackenzie consultant Xin Zhang. Today, by contrast, solar curtailment is cited as one of the country’s looming complications.
Malaysia and Indonesia have key similarities: Both have vast fossil fuel stores, both have electricity markets dominated by a single government-backed utility, and both prove potential is ultimately at the mercy of politics. But over the past three years, the two countries’ paths have begun to diverge, leaving one wandering in the wilderness, and the other hooked in a positive feedback loop.
At the heart of this divergence is regulation. “Indonesia has been dabbling in [energy market reform] for around 10 years and things are moving forward very slowly, many times they move forward and come back,” said Malve. “Everything is made very difficult and sometimes it feels like it’s by design.”
The Indonesian government has tried to grow its renewable penetration through subsidies, but in Malve’s experience, most remain inaccessible. “A few things are there on paper, but not helpful.” As for national programs, Indonesia’s now-abandoned rooftop solar scheme bizarrely attached a charge proportionate to the solar system’s savings.
While evasive incentives might fail to attract projects, protectionist policies hamstring them. Indonesia mandates a quota of local products be used in projects, which is proving problematic given the local industry’s size.
Public figures show that Indonesia has an annual module manufacturing capacity of some 500 MW. However, market insiders report that these are running at extremely low utilisation rates. Despite this, there are plans for some 3 GW of new fabs through government programs, while the private sector is planning 1 GW to 2 GW of production facilities – including solar cell production.
For the time being, Indonesia’s regulatory framework has proven so convoluted and unstable that developers like Canopy Power have opted to sidestep the whole bureaucratic nightmare. In Indonesia, the startup doesn’t do grid-connected projects at all, focusing solely on the commercial and industrial (C&I) segment. It mainly installs microgrids on private islands that previously used diesel generators.
Thousands of Indonesia’s islands still run on diesel generator sets, many of which are only switched on for a few hours in the evening. Recognising the market as ripe for renewables, Malve naturally investigated. “Island electrification is, we believe, actually the bigger market than commercial,” said Malve. “On paper it absolutely makes sense.”
In reality, things are far from straightforward. Indonesia’s electricity market is run by the state-owned generation and distribution company Perusahaan Listrik Negara, known simply as PLN. It controls all electricity sales. On the islands, Malve said PLN officials are receptive to the idea of solar-powered microgrids. The trouble comes when queries reach head office. This, said Malve, is where things get tied up “with the other interests.”
Old King coal
Indonesia is one of the world’s largest thermal coal exporters and one of the few countries where coal reliance is on the rise, propped up by substantial subsidies. Heeding its neighbours’ recent climate rhetoric, in May Indonesia said that new coal projects will stop from 2023 and gave a timeline for gradual retirement of its coal plants, culminating in “ultra-supercritical” stations closing by 2056. As the nation still plans to build 20 GW of coal plants before then, Climate Action Tracker deems its targets “highly insufficient.”
Indonesia’s centralised, coal-rooted system has dulled solar’s economic appeal, too. With just one offtaker, Malve describes feed-in tariff negotiations as “underhanded,” dragging projects into economically unviable territory. Despite the promise of island electrification, Canopy now only does engineering consultancy with major players targeting the market. “They can develop a project with PLN for five years, we can’t,” said Malve.
Recognising the need for a jump-start, the IEA has been working with Indonesia’s government to launch new “presidential priorities on renewable power” and a national energy roadmap. The agency has implied that the reform package could be ready before 2022, when Indonesia will hold the G-20 presidency.
One of the most important expected reforms, according to Wood Mackenzie’s Zhang, is the shift to build-operate-own models (BOO) in renewables projects. “The previous build-operate-transfer (BOT) model limited solar asset expansion, especially for foreign investors. The new BOO model is much more friendly,” she told pv magazine. The establishment of a feed-in tariff system to simplify negotiations is also anticipated in the new suite of reforms.
Like a racehorse with a second wind, Malaysia has managed to emerge from the back of the pack to command a real solar presence in a few short years. Its success comes down to policy, namely its large-scale solar (LSS) procurement program launched in 2016. From a benchmark of virtually nil, Malaysia installed 1.5 GW of clean energy in 2020. It’s targeting 20% renewable generation by 2025, with its ambitious decade of transformation to be supported by a renewables-focused National Energy Policy coming in the second half of the year.
Not only has Malaysia’s large-scale solar scheme given the nation a bulging solar pipeline, it has attracted experienced international solar developers to the country – one of which is Spain’s Solarpack. Javier Arellano, the head of corporate development at Solarpack, said that the company chose Malaysia as its first Southeast Asian venture because it had the “fundamentals that solar PV needs to boom,” coupled with a suitability for long-term investment. Its freer market is yet another advantage Malaysia has on its more populous neighbour. Malaysia today ranks 12th in the World Bank’s Ease of Doing Business scale, while Indonesia’s routinely complex regulatory framework has it at 73.
According to Arellano, Solarpack’s experience in Malaysia – though not without hiccups – has indeed been overwhelmingly positive. Like virtually all foreign companies with fingers in the Malaysian solar pie, Solarpack’s position came through competitive tenders.
The company was one of five to be awarded in the program’s third round, with 113 companies making bids for a total committed capacity of 500 MW. “I think the process was very clearly set out,” said Arellano. “The milestones and the timings for getting the permits and the way everything was set up to try to have a clear path to obtain the permits, to do the environmental studies – I think the process has been pretty transparent.”
Being involved in the third round likely contributed to this ease, Arellano said, noting that the program had a chance to smooth its edges. “I think [tendering] is also an efficient way to bring solar because it’s a competitive process so whoever is launching these tenders is making sure the new capacity is coming with the most competitive prices possible,” he said.
Solarpack’s Suria Sungai Petani project is one of the largest commissioned in the program at 116 MW. The company has a power purchase agreement (PPA) with the government-linked Tenaga Nasional Berhad (TNB) for the full 180 GWh expected to be generated by the solar plant per year. While Wood Mackenzie’s Zhang noted that the scheme’s low bid price can make profitability challenging for developers, Arellano described Solarpack’s PPA as “bankable,” given the need for long-term financing and a non-recourse process.
The project is expected to be operational in the fourth quarter, with construction now half completed after being delayed by the pandemic. Malaysia’s closed borders meant Solarpack was forced to develop its first Southeast Asian project without any of its core construction team assisting local staff. The hiccup proved a teachable moment for the company, said Arellano, noting that it unexpectedly aligned with its vision.
“We don’t want to have expats, we want local teams. In many countries that has worked very well. In the case of Malaysia, it has worked fantastically,” said Arellano.
From its five years in Malaysia, Solarpack now knows how to finance projects, including in the local currency, the ringgit. “It is a very useful experience for future projects in that country. It’s also an experience that might prove useful for other countries [in Southeast Asia],” he added.
Having won one bid, Solarpack is now keeping an eye on the program’s fifth round, expected to be announced this year. The company was unable to participate in the scheme’s fourth round, which wasn’t open to foreign developers, in order to foster homegrown companies.
Which brings us to perhaps the most important lesson Southeast Asia has taught the company: resolve.
“We’ve learned to be patient. We entered Malaysia in 2016, at the very beginning there was no clarity as to which round was going to be available for us to participate or even how to finance the projects,” said Arellano.
One project across five years hardly seems like an enviable return, but Arellano noted Solarpack is looking to secure lifelong attachments with the still-infant market. “For us, Southeast Asia is a region of the world where we want to be, strategically.
“It’s an area of the world [where solar] hasn’t been that mainstream, at least up until now, therefore early comers will have a chance to do some projects before the very big guys come.”
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The most important thins missing in these “South East Asia” (and other nation worldwide) are National Plans that .. LEAD THEIR NATIONS… in Eliminating Pollution by.. say 2050 (latest)… rather than myopic “knee-jerk” reactions to …. Solarize.
Once these Plans are in place and backed-up by the Govt’s… can Solar Facility Owners/Developers, Manufacturers, Elec Grids, Industries, Transportation, Commercial, Residential Sectors etc…. ALL ramp up the Elimination of Pollution by Solar Energy… with AgriVoltaics (AV) READY TO MEET ANY CHALLENGE IN SUPPLY OF CLEAN, SUSTAINABLE SILAR ELECTRICITY FOR ALL ENERGY USERS…
I say…. WHERE ARE THE PLANS…???
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