Indonesia Ramping Up Solar Capacity to Meet 18 GW Target For 2025: Report

Indonesia is considering how to reduce its growing greenhouse gas emissions. A moratorium on new coal power plants bodes well for growth of solar power in Indonesia. Yet harnessing solar power requires government action such as improving transparency around power purchase agreements and revising long- term power plans.

A new report, jointly produced by BloombergNEF, Bloomberg Philanthropies and Indonesia’s Institute for Essential Services Reform (IESR), explores the potential contribution from solar power in meeting Indonesia’s renewable energy targets. Some highlights of the report are given below:

Solar holds the key to power sector decarbonization

• Accelerating solar build to meet 2025 targets: Indonesia wants renewable energy to account for 23% of primary energy by 2025. The power sector could achieve this level of renewable energy generation by installing 18GW of photovoltaic (PV) systems alone by 2025. While that would amount to a 100-fold increase in solar capacity from 154MW installed today, the target is achievable as PV can be deployed quickly. PV is the most economic clean energy technology that Indonesia can rapidly deploy.
• Installing 18GW of PV would require $14.4 billion of investments: This amounts to more than 50 times the $287 million invested in Indonesian PV deployments over 2005-20. The “pipeline” of PV projects in Indonesia under development today currently totals 2.7GWac. This translates to an estimated $3 billion investment if all projects are developed. Access to capital is not the primary challenge. Rather, Indonesia’s current regulatory framework and power market have made it hard to develop projects that can secure financing. A better enabling environment is crucial to attracting capital and accelerating PV build.
• Raising solar ambition beyond 2025: The Indonesian government is considering a possible long-term net-zero emissions target. Whatever the timeframe, achieving that target will rely heavily on deploying solar to reduce reliance on fossil-fueled power generation. Concrete policy commitments – turning talk of new targets such as a coal moratorium, or carbon pricing into reality – can accelerate the pace of decarbonization and attract investors.

Regulatory reforms would help solar overcome obstacles impeding growth

• Levelling the playing field for PV: Existing regulations hinder uptake of renewable energy generation technologies such as PV. Current power purchase tariff regulations force clean energy to compete with subsidized coal power. Reforms needed include removing subsidies for coal-fired power, lifting caps on payments to renewables developers and removing constraints on behind-the-meter PV net-metering revenues. Moreover, plans to open access to PLN’s networks for power wheeling could potentially boost corporate solar procurement.
• Enhancing transparency through a clear PV procurement program: Indonesia currently carries out tenders to procure power capacity, primarily through state-owned utility, Perusahaan Listrik Negara (PLN). The current power procurement process is opaque, limiting competition and price discovery. This increases costs to the public purse. Greater policy stability and transparency would help attract investment. A clearly defined long-term solar procurement program would encourage growth of a local solar manufacturing and deployment value chain. Standardized power purchase contracts would also help.
• Addressing over capacity: The country’s main grids host a surplus of generation capacity, primarily due to an earlier over build of coal-fired power plants. Generation capacity on the country’s largest grid exceeded net demand by 37% in 2019. While a moratorium on plans for new coal plants is under consideration, the country plans still to move ahead with the new coal capacity it previously approved. The country must reconsider adding more fossil-fueled power plants to reduce overcapacity. That would also rein in the state utility’s ballooning payments to private fossil fuel plant operators. Any future growth in power demand can likely be met economically with clean energy sources such as PV.