Policy flip-flops, overcapacity dull Indonesia’s ambitious solar energy goals

Regulatory flip-flops and overcapacity woes are straining Indonesia’s ambitious plans to scale up its solar resources to decarbonize its energy sector.

Industry experts say that inconsistent regulations – on the back of policy U-turns – are a major obstacle, dampening investor confidence and hindering the country from reaching its net-zero target.

“The rules often change and have confused people,” Fabby Tumiwa, executive director of Jakarta-based think tank Institute for Essential Services Reform (IESR), tells The Business Times.

In March, the government officially revoked a regulation allowing net-metering schemes for rooftop solar installations. These schemes, which were first introduced six years ago, allowed households or small businesses to exchange surplus solar energy for bill offsets.

Financial constraints faced by state-owned utility company PLN was the reason the regulation was reversed, a move that could challenge the country’s renewable energy targets.

The introduction of net metering significantly boosted the economic viability of solar power, leading to 7o megawatts of rooftop solar systems being connected to PLN’s grid by the end of last year, which came primarily from industrial installations.

Despite strong public interest and enthusiasm for adopting solar panels, the regulation has undergone several amendments since inception.

With the latest regulation, the installed capacity of new rooftop solar systems is determined by a quota set by the government and based on PLN’s proposals every five years.

This has raised concerns among investors, as the elimination of net metering will increase costs and reduce the economic viability of solar installations, says Tumiwa, who is also an advisor to the Indonesian Solar Energy Association.

“This quota system originated from PLN’s objections (to net metering). If consumers generate their own electricity, it would lead to energy savings and a decrease in demand for PLN’s electricity,” he says.

This is essentially a setback to the previous policy, which had effectively promoted rooftop solar installations.

Stealing the sunshine

Indonesia relies heavily on domestic fossil fuels, chiefly coal, to power its electricity, despite holding the largest potential for renewable energy in the region.

With year-round sunny weather, the country boasts an estimated 3,294 gigawatt-peak of solar energy resources. Southeast Asia’s largest economy also plans to add almost 2 gigawatts of new rooftop solar capacity by the end of 2025.

However, data from the Ministry of Energy and Mineral Resources reveals that the current installed capacity has only a 314.8 megawatt-peak, a mere fraction of its massive potential.

Critics have warned that unless the government and PLN cut the dominance of coal power plants in the electricity mix, it will be difficult to expand the renewable energy potential.

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