Is Feed-In-Tariff Policy Effective for Increasing Deployment of Renewable Energy in Indonesia?

Dewi Yuliani


Indonesia is an archipelago rich in renewable energy resources including geothermal, hydro, biomass, solar, and wind energy. Due to its location in the ‘Ring of Fire’, geothermal energy is its main potential source of renewable energy, amounting to 29 GW—40 per cent of the world’s total. Of the total potential, up till now only 1,340 MW (less than 5 per cent) has been installed for electricity generation, with another 1,500 MW at various stages of development (DGNREEC 2015). Hydropower is another major source of potential in Indonesia and is estimated to be around 75,000 MW. At present, some 6,000 MW has been installed as large Hydro Electric Power, mostly in Java. Included in this category is small hydro (up to 10 MW). 217.16 MW of small hydropower plant has been installed in 2015, a large portion of which is used not for profit but for electrifying remote areas (DGNREEC 2015).

For a country on the equator, solar energy is considered the most underutilized source of energy in Indonesia. Only around 71 MW is installed but mostly belongs to the state-owned electricity company (SEC or Indonesia’s PLN) for electrifying remote islands in the eastern parts of Indonesia. At present, the imported amount of solar photovoltaics (PV) is still considerably high, so the Government of Indonesia (GOI) has attempted to boost the local production of PV systems and encourage investors to build PV manufacturers. As an agricultural country, biomass is the other major potential source of Indonesia’s renewable energy. This is thought to have a potential 32,000 MW, of which 1,740 MW is planned to be installed in the near future (DGNREEC 2015). Biomass sources include palm oil, cassava, sugar cane, and so on, which can be the source of bioethanol and biofuel production.

Despite this abundant potential, the development of renewable energy in Indonesia still faces a hard battle, mostly because of the long legacy of the government’s energy subsidies for fossil fuels. According to the Ministry of Energy and Mineral Resources (MEMR), Indonesia’s energy demand has been increasing faster than its economic development growth, which amounted to 7 per cent in 2014 (DGNREEC 2014). This demand is currently met largely by fossil fuels, which in turn bleeds the country’s finances as Indonesia has become a net importer of both crude oil and refined products since 2004.

As a response to the increasing demand for energy and for cleaner energy due to climate issues, in January 2014 The National Energy Policy was adopted by the House of Representatives in the form of Government Regulation No 79/ 2014 (Government of Indonesia 2014), in which the GOI projected that renewable sources would supply at least 23 per cent of Indonesia’s energy needs in 2025. The GOI is also committed to reducing greenhouse gas emissions by 26 per cent by 2020 to combat global climate change (MEMR 2015).

Many efforts have been undertaken to increase the deployment of renewable energy (RE), especially to support the increasing electricity demand. These include: obligating the SEC to buy generated electricity from small- scale producers, prioritizing the use of RE, tax incentives, tax holidays for exported equipment, and simplifying the procedure for licences. Lastly, since around 2010 the GOI has implemented its feed-in-tariff (FIT) policy in order to encourage the private sector to develop renewable electricity. The FIT policy ensures that developers get a relatively fair price for electricity generation from renewable energy resources, which are now being used widely in many countries.

This study undertakes exploratory research that aims to evaluate whether the implementation of the FIT policy is effective for the purpose of increasing deployment of renewable energy in Indonesia. A number of official documents and supporting policies set out the plans for renewable energy development in Indonesia. However, no critical study has been carried out into the real outcome of policy implementation in the field. Data analysis is expected to show whether the FIT policy is sufficient, and if not, what are the reasons for this and what can be done to improve it.

This chapter is organized as follows. After the introduction, which describes Indonesia’s renewable energy situation and outlines the purpose of the study, Section 8.2 briefly reviews the FIT policy, its principles, case studies, and barriers to implementation. Section 8.3 outlines the methodology used for data collection and the locations covered by the site survey for the purpose of data verification. Section 8.4 provides the data findings and undertakes data analysis to identify factors that hinder the deployment of renewable energy. Section 8.5 offers conclusions and recommendations for better implementation of FIT policy in the future.

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