Indonesia: Auctions to award solar projects

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According to Bloomberg, Indonesia will now follow in the footsteps of India and Brazil and embark on the competitive bidding system for solar power projects. Developers will bid at a discount to the state-set top price of US$0.25 for one kWh of electricity production as Alihuddin Sitompul, director for new energy and renewable energy at the Ministry of Energy and Mineral Resources told Bloomberg.

Winners of the auctions will sign a 20-year contract with state utility PT Perusahaan Listrik Negara for power sale as Sitompul added. The projects also have to be apparently completed in 18 months. 172.5 MW of capacity at 72 locations are said to be up for auction. The details of the first auction have not been released yet.

Recently Indonesia announced that the government is planning to develop 36 new solar plants across the country and a higher budget has been allocated as well for solar development. Sitompul added the federal government and its provincial counterparts have set aside Indonesian Rupiah (IDR) 1 trillion (US$103 million) for solar development this year. This will be a significant increase from last year’s IDR 700 billion budget.

The auction system has worked in countries like Brazil, India and South Africa. With the JNNSM bidding or reverse auction for example in India, the solar tariff rates have been driven down to some of the lowest worldwide. However such a bidding system is not without challenges as severe price pressure can also lead to developers taking short cuts.