Indonesia state-owned enterprises throw weight upon solar power

Indonesia wants to increase the share of renewable energy in power generation. For this purpose, state-owned companies have agreed to use solar systems on their own land.

According to the Indonesian Ministry of State-Owned Enterprises, 30 state-owned companies have agreed to use their available space – office buildings, factories, airports or gas stations – to generate solar energy. According to calculations by PT LEN, the state-of-the-art manufacturer of electronic components, this could generate 1.426 megawatts (MW) of generation capacity.

This value represents about 2% of the generation capacity available today. In ten years, that would be – in view of the planned expansion – hardly more than 1%. However, the value only bears a theoretical context because it would not be realistic to cover all the available areas with solar panels even within the foreseeable future.

The Institute for Essential Services Reform (IESR) argues for the project of "at least 300 megawatts" as an expansion potential in the next two years. As an advocacy group for the renewable energy industry, the IESR naturally issues optimistic targets. Given the generation capacity available so far, the addition of 300 megawatts would already be a big step.

Because the solar industry is so far only a small niche in the Indonesian energy industry. It is estimated that no more than 100 megawatts of corresponding generating capacity are installed today. By 2028, according to the ten-year plan of the state electricity monopoly PLN, some 900 MW is to be added. Even so, photovoltaic power under the renewable energies is subsumed under "Other".

Lack of incentives
So far, there is little incentive for solar project developers to invest in Indonesia. This is because PLN pays only a maximum of 85% of the (regionally determined) purchase price per-megawatt compared to other forms of solar power generation. As a result, sector companies mostly focus on smaller rooftop and off-grid projects – and are waiting for more favorable legislations.

Nevertheless, the project could certainly provide orders to foreign project developers. After all, state-owned companies operate at least partially outside of the market mechanisms and could offer better conditions. However, whether they grant subsidized contracts to foreign companies on a larger scale seems doubtful.

Another obstacle to the expansion of solar energy is the import dependency. Due to the lack of local production, most of the components have to be imported – mostly from China with companies finding innovative ways to fulfill the 40% local-content requirement. Thus, even if the same applies to coal and gas-fired power plants, this non-base-loadable technology per megawatt-hour generation is considered to be relatively economically expensive, at least when used in larger power grids.

Furthermore, the fact that many Indonesian state-owned companies are heavily in debt (their total liabilities amount to 5.3 quadrillion rupiah, which is equivalent to about 380 billion US dollars) would also make such commitment to solar projects non-conducive because they would incur further costs. There are just over 100 state-owned enterprises. They have tremendous economic importance with an estimated 35 to 40% share of the Indonesian economic output.

Climate protection goals can hardly be achieved
So why is politics pushing ahead with this solar project? Under the Paris Agreement on Climate Change, Indonesia has committed to generating at least 23% of its electricity from renewable sources by 2025. Hardly more than half of them have been achieved to date, and industry experts do not believe in the timely fulfillment of this goal.

However, environmental protection is also gaining more and more media importance in Indonesia. The country generates more than 60% of its electricity from coal and it will not substantially reduce this share in the next ten years. But green power generation is considered a progressive and worthwhile goal – one that is worth highlighting.