After 4-month freeze, solar panel regulation finally passed
After it was frozen for four months because of an inter-ministerial dispute, Energy and Mineral Resources Ministerial Regulation (Permen ESDM) No. 26/2021 on rooftop solar energy finally came into force this month when the Finance Ministry backed down on its demand to revise the regulation it considered as a potential burden on the state budget. The new regulation is expected to attract more investments into rooftop solar panels to reach up to Rp 63 trillion (US$4.4 billion) per annum.
Director General of New and Renewable Energy and Energy Conservation Danan Kusdiana revealed that the decision to enforce the new regulation was taken following a meeting hosted by Coordinating Economic Affairs Minister Airlangga Hartarto on Jan. 18. During that meeting, all stakeholders, including the Finance Ministry, expressed their support for implementing the Permen ESDM. Wahyu Utomo, who heads the Finance Ministry’s Fiscal Policy Center, said the ministry simply wanted to ensure that the new regulation would not burden the state budget.1
Permen ESDM No. 26/2021 was signed on Aug. 13, 2021 and ratified a week later on Aug. 20 before it was put on hold until this month. The regulation is the ministry’s latest solution to accelerate growth in the nation’s installed solar capacity, which has remained sluggish 3.5 years into its nationwide campaign, generating only 25 megawatts (MW) amid the government’s aim to generate 3.6 gigawatts (GW) by 2025.2
The new regulation was intended to amend its predecessor, Permen ESDM No. 49/2018, which regulated a feed-in tariff (FIT) policy on electricity. The previous regulation guaranteed up to 65 percent of the total kilowatt-hours (kWh) generated by a grid-connected rooftop solar system to state electricity company PLN. Under the new regulation, solar panel owners may “sell” or “export” up to 100 percent of their surplus electricity to PLN, a scheme known as net metering.3
In addition, Permen ESDM No. 26/2021 also offers an opportunity for rooftop solar developers to participate in carbon trading, expands coverage to include non-PLN customers, and accelerates the application process for rooftop solar panels to between 5 and 12 days. It also mandates mobile application-based services and the establishment of a complaints center for stakeholders in the rooftop solar sector.
Renewable energy players and experts have welcomed the regulation’s enactment, saying that it would drive more investment from individual homeowners. According to the Indonesian Solar Energy Association (AESI), the new regulation, especially its adoption of 100 percent net metering, would cut the payback period of rooftop solar investments from more than 10 years to between seven and eight years. AESI chairman Fabby Tumiwa noted that solar energy costs outside Java and Bali would be lower than PLN’s basic rate and would therefore benefit the utility firm.4
According to the energy ministry, the projected impacts of the new regulation on electricity consumption in 2021 indicates that investments would grow between Rp 45 trillion and Rp 63.7 trillion and absorb around 121,500 workers. In addition, it will contribute to reducing greenhouse gas emissions by 1.05 tons per annum.5
The enactment of the new energy regulation was hampered by Presidential Regulation (Perpres) No. 68/2021, issued just two weeks prior to the planned ratification of Permen No. 26/2021, as it required any draft ministerial regulations to obtain presidential approval prior to enactment, which caused confusion.6 7
Many believe that the enactment of the new energy regulation was deliberately delayed, given its potential costs for the already debt-ridden PLN. The initially progressive intention to boost Indonesia’s solar energy development languished as the government became less confident about the fate of PLN’s finances if the firm was obligated to purchase a large portion of its electricity from private owners of rooftop solar systems across the country. If and when PLN’s finances were compromised, the state budget would have to shore up the difference yet again.
The Finance Ministry thus raised the alarm over the possibility of burdening the state budget if PLN had to absorb all electricity generated by rooftop solar systems. Contributing to the issue was the fact that PLN’s reserve margin and surplus output was hovering at around 50 percent, compared to 30 percent before the pandemic, and that more coal-fired power plants would be coming onstream in 2022 and beyond.
A business player in the renewable energy sector said that PLN was still not happy with the new Energy and Mineral Resources Ministerial Regulation No. 26/2021. Several other sources have confirmed PLN's dissatisfaction.
PLN’s main concern with the regulation is a clause that allows users or customers of rooftop solar power plants (PLTS) to export or sell 100 percent of the electricity they produce into the PLN network—up from the previous 65 percent.
The export of electricity from the customers to PLN can compensate or reduce the electricity bills of customers who use rooftop solar power plants. This regulation has the potential to increase the number of PLN customers who will install rooftop PLTS. With this regulation, the cost of compensating for electrical energy storage in PLN's infrastructure is eliminated.
PLN is upset because not only could the policy reduce PLN's potential revenue from electricity sales caused by declining consumer demand, but also the electricity exported from rooftop solar panels could increase the oversupply in PLN's generators. Meanwhile, the selling of electricity from rooftop solar panels to PLN refers to the take or pay scheme, the same as the electricity sales scheme for coal-fired power plants from independent power producers.
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