Akuo Energy, an independent renewable power producer, and Perusahaan Listrik Negara (PLN), Indonesia’s state-owned vertical integrated energy utility have signed a Letter of Intent to set up a power purchase agreement (PPA) for a 50 MW solar PV project.
Upon completion, the so-called Melaya plant will be located in the northwest of the island of Bali.
The project will cover an area of 55 hectares of uncultivated farmland secured from the Government of Bali. Construction is expected to start in the second half of 2018, while it is slated to come online in 2019.
“General Electric is the project’s preferred technology supplier,” said Akuo Energy in a statement.
Eric Scotto, chairman of Akuo Energy, commented that this major deal leads “the way for the development of utility-scale solar PV energy in Bali, and already makes Melaya the largest-ever solar project developed on the island.”
Earlier this year, the French firm, which established a subsidiary in Bali in 2012, and PLN, also signed a memorandum of understanding (MoU) concerning the feasibility study of 500 MW of hybrid energy systems, comprising solar PV, wind, energy storage and genset.
Of this capacity, Akuo Energy told pv magazine, about 250 MW will comprise solar PV installations developed on small to medium Indonesian islands.
Akuo Energy is also currently also developing a leading community-owned 1.2 MW off-grid solar PV. As previously reported, the project offers a model for Indonesia’s archipelago, which consists of 17508 islands.
The dispersed geography of the country makes it a challenge to establish on-grid power to its population, of which around 30% do not have access to electricity.
The Melaya project is a sign that Indonesia’s new law on renewable electricity might have very well fulfilled the government’s intentions.
In January, Indonesia’s Ministry of Energy and Mineral Resources (MEMR) issued the Minister Decree (MD) No. 12/2017 on the utilization of renewable resources for electricity, altering the calculation method for feed-in tariffs (FITs) for renewable power projects.
According to the MD No. 12/2017, FITs for renewable power projects will no longer be set by the government, but rather will be the result of negotiation between PLN and independent power producers (IPPs).
The second most important element of the new law is that it provides a FIT cap based on the electricity generation costs of the region where the renewable power project will be developed.
This is the cost state utility, PLN needs to cover for generating each kWh in the region’s electricity system and sub-systems, including investment, fuel and O&M expenses. Costs for transmission and electricity distribution are excluded.
When a region has electricity generation costs above the national average, the FIT will be capped at 85%. If a region has an electricity generation cost lower than the national average, then the renewable energy project will receive a FIT equal to the regional cost.
Many analysts have argued that the rationale behind the new law is to convince the PLN to sign more PPAs with independent power investors.
Under the old regime, where tariff prices were higher and fixed, the PLN was unwilling to sign renewable power contracts. However, the new law makes some regions more attractive to investment than others.
One example is the case of the Lampung and Bali regions. According to the ministry’s national electricity generation cost estimates for the year 2016, the national average cost for the generation of electricity was USD 7.39 cents per kWh.
Similarly, Lampung’s electricity generation cost in 2016 was USD 7.77 cents per kWh, and Bali’s was USD 6.62 cents per kWh.
Based on the new law, a PV project in Lampung will receive USD 6.60 cents per kWh, which corresponds to 85% of the regional costs. On the contrary, Bali’s regional electricity generation cost is less than the national average, therefore a potential PV project will have to receive a FIT equal to the regional average.
This leads to a PV project in Lampung receiving less than a PV project in Bali, even though the Lampung electricity generation cost is actually 17% higher.