Indonesia plans to replace fossil fuel plants with renewable energy plants to meet renewable target, says GlobalData

Indonesia has set a renewable energy target of 23% in the energy mix by 2025. The country has renewable energy potential of more than 400 GW but is actually utilizing much less for power generation. The country is mainly dominated by thermal power generation. Around 85% of the total power mix is contributed by thermal technology, says GlobalData, a leading data and analytics company.

As per GlobalData, the country is expected to witness cumulative installations of 68.3 GW at the end of 2019 out of which 58 GW (85%) would be from thermal related technologies. Coal fired plants is estimated to have cumulative installations of 32.3 GW contributing around 47.3% to the power mix followed by gas with 21.2 GW (31%) and oil with 4.5 GW (6.6%) respectively. Wind and solar PV together are estimated to contribute around 0.3% to the power mix.

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Currently, all renewable energy projects in Indonesia are developed under the build, own, operate and transfer (BOOT) scheme where PT Perusahaan Listrik Negara (PLN) is the sole distributer of the electricity produced. In 2017, the government introduced certain mandatory requirements for power purchase agreements (PPAs) which had bankability provisions around risks related to government force majeure (GFM) and natural force majeure (NFM) which can affect the grid and the relevant parties to the PPAs.

In the case of NFM, whether the developers would be getting paid by PT PLN for the units they are sending to the grid is unavailable and this is creating a state of dilemma amongst renewable energy developers whether to go ahead with investments or not. So, in order to accelerate the renewable energy investments, the government has to amend existing regulations on renewable energy and renegotiate the renewable energy electricity prices with the developers.

The government has also announced to make changes to its existing thermal power fleet to meet the renewable energy target of 2025. The government will convert existing fossil-based power plants that produce CO2 emissions with more environmental friendly renewable energy plants.

As part of replacement mechanism, 2,246 units of diesel power plants aggregating 1.8 GW, 23 units of steam power plants aggregating 5.6 GW and 46 gas-fired power plants aggregating 5.9 GW would be replaced by renewable energy units. Diesel-fired plants, which have been in operation for more than 15 years and, coal and gas- fired plants operating for more than 20 years have been included under the replacement mechanism.

Mohit Prasad says: “The under-utilized renewable energy market of Indonesia has huge investment opportunities. The country requires investment of $41.2bn to achieve additional renewable energy target of 17.4 GW by 2025. The government has two options to achieve its 2025 target either by having more of renewable energy installations or reduce the dependence on fossil fuelled generation. “The acceleration in renewable energy installations will happen only if the government amends existing regulations for which it has already started renegotiations on the renewable energy electricity prices with the developers. The country being major coal exporter with around 50% of its electricity needs being served by coal-fired plants will have to have a make a tectonic shift in its generation fleet. So, with this announcement, the government has adopted two pronged approach to achieve its renewable energy target by 2025.”

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