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‘C&I key to rooftop solar development’: experts on Indonesia’s PV potential and obstacles

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Local content requirements could hamper the growth of Indonesia’s solar capacity. Image: Sun Energy.

In June 2024, Indonesia issued rooftop solar PV system development quotas for state electricity company PLN between 2024 and 2028, aiming to add 5.75GW of capacity in the country. 

Indonesian think tank Institute for Essential Services Reform (IESR) says the total rooftop solar PV quotas in 11 power systems between 2024 and 2028 consist of 5,746MW of new capacity, which can be divided into annual quotas of 901MW for 2024, 1,004MW for 2025, 1,065MW for 2026, 1,183MW for 2027, and 1,593MW for 2028.

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It adds that the newly issued quota is still not in line with the National Strategic Program target of reaching 3.6GW of rooftop solar capacity by 2025, which was set in 2021. According to research firm Rystad Energy, the installed rooftop solar capacity in Indonesia was only 0.192MWp as of May 2024.

Is the goal achievable? 

Indonesia has previously set a renewables target, hoping that it will cover 23% of its national energy mix by 2025.

According to Mada Ayu Habsari, chairperson of general affairs at the Indonesian Solar Energy Association, the size of the rooftop solar PV quotas offers “a positive sentiment” to the solar industry in Indonesia as it provides certainty to domestic developers, making it easier to formulate their business plans. 

Fabby Tumiwa, executive director of the IESR, said that the quotas can play a part in the target of 23% in Indonesia’s national energy mix by 2025, although an additional power generation capacity of up to 10GW is needed from renewable energy power plants.

The rooftop solar PV system development quotas present an ambitious target, but there are some challenges to reaching this goal. As of 2023, renewables only accounted for 13.1% of Indonesia’s energy mix, below the target of 17.9% by 2023, according to the country’s Ministry of Energy and Mineral Resources (MEMR).

Nevi Cahya Winofa, renewables and power analyst at Rystad Energy, says Indonesia has the potential to meet the rooftop solar installation quotas, as the main driver will lie in the commercial and industrial (C&I) sector. 

“This growth is supported by a positive internal rate of return (IRR) for C&I sectors ranging from 3% to 5%, attributed to high rates of self-consumption and efforts toward achieving decarbonisation goals,” she says. 

However, Winofa adds that this IRR must increase to at least 15% to ensure sustainable growth of rooftop solar, which could be facilitated by introducing additional financial incentives. 

Obstacles to increase solar capacity in Indonesia

Indonesia needs to tackle several obstacles to increase rooftop solar capacity. Winofa says low retail electricity prices, coupled with weak financial incentives, result in slow rooftop development in Indonesia. 
“The heavy subsidies for retail electricity stabilise the prices at US$0.068 per kWh for C&I and US$0.1 per kWh for residential. These tariffs are relatively lower than top performers in rooftop PV in Southeast Asia, such as Vietnam, with US$0.1 per kWh for C&I and US$0.12 for residential,” Winofa says.

The low retail electricity price reduces the potential for significant bill savings, which is a key incentive for installing rooftop PV systems. 

Recently, the Indonesian government removed the net metering scheme for solar rooftops under MEMR Reg. 2/2024. Winofa says this decision is expected “to hurt the economic viability of rooftop solar PV installations, particularly residential solar PV systems”. 

Moreover, solar developers can build solar PV plants only if they meet the 60% local content requirement. This stringent requirement and the reliance on imports hinder the implementation of solar PV systems in Indonesia. 

Winofa adds: “The immaturity and constrained scalability of domestic production have led to higher costs compared to import ones.”

Last year, Indonesian state utility PLN and UAE state-run renewables developer Masdar inaugurated the 145MWac (192MWp) Cirata floating solar PV (FPV) plant in the West Java province of Indonesia. According to Winofa, the project also faces power purchase agreement delays due to necessary waivers for relaxed local content requirements. 

Excessive construction of coal generators and demand overestimation have also delayed the connection of renewables to the grid. As a result, PLN needs to wait two to three years for additional demand to absorb the excess capacity.

Indonesia’s potential to increase solar capacity

Despite the challenges, Indonesia still boasts potential to increase its installed solar capacity. Based on Rystad Energy’s analysis, the cost of utility-scale solar projects in Indonesia has fallen from around US$2.6/MWp in 2013 to US$0.8/MWp in 2024, which is within the range of global total solar costs between US$0.5 and US$1.8/MWp.

Lastly, the Indonesian government published a draft of its Comprehensive Investment and Policy Plan last year, estimating that Indonesia has the potential to install 3.3TW of solar capacity, based on the amount of sunlight the country receives. This is the most of any renewable energy source by a considerable margin, with offshore wind accounting for the second-highest potential of 94.2GW.

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