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Analysis of Indonesia's Photovoltaic Market

2014-07-29 00:13:39

The Republic of Indonesia, a sovereign state in Southeast Asia and Oceania, lies in a tropical zone very close to the equator; as a result, it enjoys an annual average insolation of about 4.8KWH/m2/day. The country’s highest radiation is in the states of Sulawesi, Jayawijaya, and Bari, most of which have radiation values of 6~6.5KWH/m2/day, while the mountainous areas have 4.5~5.5 KWh/m2/day. In low topography regions such as Kalimantan, Sumatra, and Java the radiation is about 4-5 KWH/m2/day.

In order to meet its growing energy demand, the Indonesian government has begun to introduce supportive legislation and to actively promote the expansion of its solar industry. Indonesia is a vast archipelago of 13,466 islands with 33 provinces and one Special Administrative Region, and with over 238 million people, is the world's fourth most populous country. However, 50% of Indonesia's energy needs are met by fossil fuels, and few people have access to electric. Because the country’s demand for energy is far greater than its supply, there is a rapidly increasing need for more power, and to meet this shortfall the government wants to use photovoltaic power plants.

Indonesia has selected 80 locations for IPP projects, for a total project capacity of 145MW. So far seven projects have been awarded, but to date PPAs have not been signed with any companies.

The current Indonesia solar plant capacity is about 14MW, most of which are either household systems in remote areas, or small municipal demonstration projects.

Although Indonesia is still in the early stages of solar plant development, the market already has the basic development values needed for investors:

Policy-support:The 2009 Electricity Act still allows and encourages private and foreign companies to invest into the Indonesia power sector. The main focus on inviting investments into Indonesia’s power construction is for independent power plants (IPP) and as an EPC contractor.

Environment: Currently, the Indonesia government is stable and the investment environment is flexible and protected by the rule of law. The annual radiation is impressive: close to 5KWh/m2. Furthermore, most of the country’s islands have blackout conditions, so they urgently need small solar plants to supply their energy. Finally, at about 0.25~0.3 USD/KWh, the FIT price is very attractive for investors, yielding a high IRR.

The Indonesia government plans to complete 1GW of installed capacity by 2017.

For the short term market, Indonesian solar projects can be divided into the following categories:

Government Tender Projects (IPP or BOO):

The Indonesia government has selected 80 project sites with a projected capacity of 145MW. These projects are first-round government tenders.

Currently seven projects sites have been confirmed, but none of them have signed PPA’s.

Indonesian IPP projects still start slowly, however; even by the end of 2014 the IPP and PLN projects may still not have signed PPAs.

Government EPC Projects: Mostly focused on small rooftop projects.

Private investment projects: Because Indonesia is a country of so many islands, the economic development of all regions is not balanced; as a result some of the islands often suffer power shortages or blackouts. Because of this, private and commercial rooftop projects are more marketable in Indonesia, and the generous FIT of 0.25~0.3USD/KWh should motivate these private solar plant investments.

Government public sector projects are generally based on a large number of small-capacity project packages (0.25 ~ 1MW/package), and because of this the project process is very slow. Private investment projects are very small, but the project process is relatively faster.