Regulation on rooftop solar panels on hold due to internal dispute
Energy and Mineral Resources Ministerial Regulation (Permen ESDM) No. 26/2021, which was meant to expediate public investment in the national rooftop solar panel system, has recently been put on hold. Halted by an internal government dispute, the freezing of the Permen has left many rooftop solar panel investments in limbo.
The implementation of Permen No. 26/2021 was hampered by Presidential Regulation (Perpres) No. 68/2021 on presidential approval of any Permen drafts, which was issued just two weeks prior to the ratification date of Permen No. 26/2021. Causing confusion, the Perpres that was suddenly issued requires any drafts of Permen to be approved first by the President before being taken into effect.1 2
Many believe the enactment of the Permen was deliberately postponed, given its potentially costly implications for the already debt-ridden PLN. The initially progressive intention to boost the development of Indonesia’s solar energy capacity turned sour as the government became less confident about what would happen to PLN’s finances if the firm was obliged to purchase a large fraction of exported electricity from solar panel owners across the country. If and when PLN’s finances are compromised, the state budget will have to take the pain once again.
It was the Finance Ministry that raised the alarm about the possible burden on the state budget if PLN had to absorb all electricity from rooftop solar panels, considering that PLN’s reserves margin or excess capacity now stays at 50 percent, compared to 30 percent before the pandemic. Moreover, more coal-fired power plants would come on stream next year.
Permen ESDM No. 26/2021, which was signed on Aug. 13 before being ratified a week later on Aug. 20, is the ministry’s latest solution to accelerate the growth of national solar rooftop capacity, which has been sluggish after 3.5 years into its nationwide campaign (only 25 MW out of the targeted 3.6 GW by 2025).3
The new regulation was supposed to revise its predecessor—Permen ESDM No. 49/2018—which previously oversaw a feed-in-tariff (FIT) on electricity produced in a grid-connected rooftop solar panel system up to 65 percent of the total produced kilowatt hours (kWh) to the state-owned power provider PLN. Unlike its predecessor, Permen ESDM No. 26/2021 allowed solar panel owners to “sell” or “export” their excess electricity power to PLN up to 100 percent of the total kWh produced.4
Energy experts are quite divided on this matter. Some see the government as being inconsistent, saying that its half-hearted attitude in supporting energy transition is unnecessary and only deters positive sentiment in the market.5 Some others, in fact, proactively asked the government to postpone Permen No. 26/2021 and modify it to make sure it will not burden the state budget.6 7
Under such a mechanism, owners of rooftop solar panels can export their excess electricity (mostly produced during the day, when sunlight is present) to PLN while still importing electricity from the firm (mostly during the night). Their exports will result in a deduction from their electricity bills. Such a mechanism gives mandates to PLN to purchase solar power from customers at Rp 1,500 per kWH—much more expensive than PLN’s in-house power from coal-fired plants at only Rp 600 per kWH.8
Such a wide margin triggered criticisms, questioning how PLN would be able to afford it, especially when the number of small-scale solar panel systems is growing—especially when it coincides with the awaited carbon trading mechanism.9
Meanwhile, the central government’s hesitation regarding this matter has been proven as taxing for customers who are willing to invest a fortune to shift to renewable energy. A number of global companies with operations in Indonesia have turned to solar panels as part of their carbon neutral commitment. Coca-Cola Europacific Partners Indonesia, for example, has built a 7.13-megawatt rooftop solar panel system at its plant in Cibitung, Bekasi, West Java. It plans to build another rooftop solar panel array at its plant in Pandaan, Pasuruan, East Java. But the latest turn of events in Jakarta has put the plan in limbo.10
Several sources in the government mentioned that the cancellation of the energy ministry regulation overseeing rooftop solar panels was brought about by the Finance Ministry, which was nervous of PLN’s potentially burdensome financial situation if the regulation was enacted. The Finance Ministry was afraid that PLN’s worsening financial performance would manifest in its inability to pay its debts—including to the state.
Not only that, another source mentioned that the Finance Ministry did not want PLN’s financial issues to push the government to provide an additional injection of resources into the state-run power company.
The Finance Ministry’s altered stance was also affected by PLN’s lobbying. Before Finance Ministry officials, PLN officials said that the regulation would burden the company even more. PLN has always claimed that opening the solar panel business would result in PLN’s losing its market.
PLN was scared of losing its market as many solar panel players made an offer for monthly payments instead of in one installment. Under this model, customers can pay 10 percent less than for PLN’s industrial rate. However, that applies under one condition: the subscription contract is for 15-20 years. Apparently, many customers found the offer attractive and began leaving PLN.
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