Solar power companies in Indonesia are struggling to maintain their margins.

The Indonesian authorities have announced a renewable energy mix target of 23% by 2025. To push installations of renewable energy, the government has introduced various regulations through different ministries. But, companies are protesting against some of the regulations as they feel these are not conducive for national solar power development.

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData
Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.


The Energy and Mineral Resources Ministry has introduced regulations on licensing of rooftop solar PV systems and feed-in-fees for exporting excess power into the grid of the state utility company PT Perusahaan Listrik Negara (PLN).

In 2017, the government introduced the regulation, MEMR Regulation 50/2017, through which a new mechanism was introduced to determine the tariff at which PT PLN will purchase electricity from Independent Power Producers (IPPs). This provided PT PLN greater control over prevalent tariffs in the sector through negotiations and benchmarking against the applicable Electricity Generation Basic Cost (Biaya Pokok Penyediaan Pembangkitan or BPP).

The BPP reflects the cost for PT PLN in generating power and in procuring it from third-party suppliers but does not include the cost for transmitting it. The tariff calculation for solar PV technology is done as:

  • If local BPP > national BPP from the previous year, the tariff shall be set at a maximum 85% of the local BPP
  • If local BPP <= national BPP from the previous year, the tariff shall be based on a mutual agreement between the IPP and PLN

This regulation presented a challenge to solar PV investors since their offer price to PT PLN was no longer tied directly to their respective production costs but rather to the cost of producing energy generally, from whatever source, in a given region. Also, the annual calibration of BPP gave rise to fluctuations in the price at which the companies sold power to PT PLN.

Rooftop solar installations

In November 2018, the Ministry introduced the MEMR Regulation 49/2018 for rooftop solar PV installations. Under this, all rooftop solar PV installations require prior verification and approval from PT PLN’s local distribution company and the process of verification and approval should be completed within 15 days.

The verification required information on PT PLN customer identification number, installed capacity of the planned rooftop PV system, specifications of the equipment to be installed, and a one-line diagram of the planned PV system. The regulation also introduced the calculation for electricity bills for customers of PT PLN with rooftop solar PV installations. The bills are to be calculated monthly, which is based on the kilowatt per hour (kWh) import value minus the kilowatt per hour (kWh) export value.

The export value will be calculated at 65% of the applicable PT PLN tariff. The rooftop solar PV developers have concerns around the additional requirement for approval as well as the 65% multiplier. In the earlier regime, the multiplier was not in place, so the difference between import value and export value was considered for calculating the customer bills. In the present regime, if the import value is same as earlier then the difference between import value export and 65% of export value is considered for calculating the customer bills, thereby making the bills more inflated. As a result, customer interest in setting up rooftop solar PV is reduced.

Currently, all renewable energy projects in Indonesia are developed under the build, own, operate and transfer (BOOT) scheme where PT PLN is the sole off-taker of the electricity produced. The independent power producers (IPPs) own and operate the production facilities for a limited period as mentioned in the power purchase agreement (PPA) with PT PLN.

Risk and force majeure

In 2017, through the MEMR Regulation 10/2017, the government introduced certain mandatory requirements for PPAs which had bankability provisions around risks related to government force majeure (GFM) and natural force majeure (NFM) which can affect the grid and the relevant parties to the PPAs. Before the introduction of this regulation, the GFM events were divided into two scenarios, namely the unjustified government action or inaction (eg, revocation of permits without valid or legal cause) and changes in laws & regulations. The government risks were passed on to PT PLN.

PT PLN was able to manage the risks through various provisions. The company used to either make deemed dispatch payments to cover revenue loss in case the plant stops its operations due to GFM events or make tariff adjustment to compensate for the cost impacts loss. PT PLN also adjusted the payments-of-termination amount which is equal to outstanding project debt plus lost future equity returns if the PPA is terminated due to prolonged GFM events.

So the insecurity around constant income for solar developers prevailed in the market. In 2018, the government amended the regulation with MEMR Regulation 10/2018 where parties to the PPA have the freedom to negotiate terms in case of any GFM. But in case of NFM, the PT PLN has the provision to pay deemed dispatch if there is disruption in PT PLN’s grid due to any NFM events such as flooding or lightning etc. There was no provisioning for NFM under MEMR Regulation 10/2018 for PPA bankability. This meant that in case of NFM clarity whether the developers would be getting paid by PT PLN for the units they are sending to the grid was unavailable. So this is creating a state of dilemma amongst solar developers whether to go ahead with investments.

Local content requirement

The Ministry of Industry (MOI) has also implemented a regulation which says that companies can build solar plants only if they meet the 60% local content requirement (LCR). Since most of the equipment is being imported it is becoming difficult for investors to meet the LCR.

According to GlobalData, at the end of 2018, Indonesia reported a cumulative capacity installation of 65,101.42 MW. The country is mainly driven by fossil fuels and more than 85% of the country’s cumulative capacity came from thermal technology, mainly coal. The country reported 30, 393.86 MW of coal power installations at the end of 2018.

The country has set a renewable energy target of 23% of its energy mix by 2025 but at the end of 2018 it has just installed 105.81 MW and 85.07 MW of solar PV and wind installations respectively. To increase contributions from renewable energy technologies, the country has to come up with incentives and regulations that can improve investments in the renewable energy sector.

Source: GlobalData 

Policy missteps

Indonesia has strong solar energy potential. But a series of policy missteps it has retarded the growth of the technology. The country has launched its Electricity Supply Business Plan (RUPTL) 2019-2028 as per which, the focus on solar has reduced. PT PLN has reduced its solar plan by 137 MW as compared to the earlier plan. Looking at the successful experience of solar in several countries worldwide, Indonesia, which is currently dominated by coal-based capacity, must devise regulations to have a strong solar set up to tap its potential so that the technology can contribute more to the country’s generation mix.

Related reports:

Indonesia Renewable Energy Policy Report 2019–indonesia-renewable-energy-policy-report-2019/

Asia Pacific Renewable Energy Policy Report 2019-–asia-pacific-renewable-energy-policy-report-2019/