Emerging opportunities in the solar sector in Indonesia
A new regulation has established a framework in Indonesia for the allocation of significant solar capacity to developers on a first come first served basis.
What you need to know
The Indonesian Government has recently issued Ministry of Energy and Mineral Resources (MEMR) Regulation No. 19 of 2016 on Purchase of Power by PLN from Solar Photovoltaic (Regulation 19).
In accordance with Regulation 19 the Government has established a process for pre-approval of developers and quota allocation for the development of solar PV projects in Indonesia.
Capacity will be offered in stages by the relevant authority, the Directorate General of New and Renewable Energy and Energy Conservation (EBTKE), across different regions of Indonesia with indications in the market that the first allocation will be for a total 250MW of capacity.
There will be no bidding process for the capacity, which will be allocated to approved developers on a first come first served basis. This will be subject to the below limits on allocation to individual developers in any region in any stage.
| Limits on allocation of capacity in any region per stage to an individual developer |
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Regulation 19 specifies tariffs of between USD 14.5 – 25.0 cents per kilowatt hour for the offered capacity depending on region with higher tariffs applying in the eastern regions of Indonesia. These tariffs may also be varied between offer stages at the discretion of MEMR. The tariff will be fixed for the 20 year term of the PPA (that may be extended) and will not be subject to any adjustment for inflation. The tariff may also be reduced for non-compliance with local content requirements and delays in achieving commercial operation. Invoices for the tariff will be paid in Indonesian Rupiah based on the Jakarta Interbank Spot Dollar Rate at the time stipulated in the PPA.
One time approval process
The Government will pre-approve developers to apply for offered capacity as follows:
- EKBTE will issue one month advance notice of the registration window for lodgment of documents required from developers online
- The registration window will remain open for seven days for developers to upload relevant documents setting out the developer’s corporate profile (including company registration certificate, principle investment licence, Indonesian tax registration number and any PV experience) and financial capability (as certified by an auditor or credit rating entity)
- EKBTE will verify documents and notify approval or rejection of candidates within a further six days
Allocation of offered capacity
EBTKE will provide four months’ advance notice of any capacity offer and then allow a two month window for applications from approved developers for allocation.
Approved developers will need to submit project specific documents (including local content calculation, panel and invertor certification along with feasibility and interconnection studies in the forms set out in the Regulation) as part of their application for capacity. These will be reviewed by EBTKE, PLN and the Directorate General of Electricity.
Subject to approval, the developer will be designated a “Solar PV Developer” and required to sign a PPA with PLN within one month.
Development of plants
The Solar PV Developer must achieve financial close within six months of signing the PPA and thereafter obtain its electricity generating licence (IUPTL).
Commercial operation must be achieved within:
- 12 months of obtaining the IUPTL for plants of up to 10MW capacity
- 24 months of obtaining the IUPTL for plants with a capacity greater than 10MW.
What you need to do
Based on the requirement to provide an Indonesian tax registration number and principle investment licence, it appears that a foreign developer would need to establish an entity in Indonesia for approval as a solar developer under the scheme. In setting up such an entity, developers will need to structure the vehicle to comply with restrictions on foreign investment in power projects in Indonesia as set out below.
| Project type/capacity | Limit on foreign ownership |
|---|---|
| 10MW or less | 49% |
| > 10MW | 95% |
| PPP project (unlikely to apply) | 100% |
The actual process of setting up a foreign invested entity in Indonesia (a PMA company), and obtaining the taxpayer registration number, is quick and can be undertaken in a matter of days. The process for obtaining the principle investment licence however is more involved and could take a couple of months. Important to bear in mind is that PMA companies are subject to a minimum paid-up capital requirement of Indonesian Rupiah 2.5 billion (USD190,000) payable at the time of establishment.
While Regulation 19 is currently only available in Indonesian language, a link to the law is here.
