Government policy to accelerate renewable energy development in Indonesia

Paul ButarbutarRegional Director SEA South Pole GroupHead of Policy, Regulation & Advocacy IRES

Page 1

Overview

Current energy condition

National energy policy

Renewable energy potentials

RE policy and regulation

Page 2

Current energy condition

South Pole Carbon · 30. Juni 2016 Page 3

Current energy condition IndonesiaPage 4

1. Economic growth about 5 – 6% per year;; population growth 1.2% per year à need to grow energy supply by 7 – 8% / year

2. Energy mix is still dominated by fossil-­based energy3. Indonesia is a net oil importer, importing crude oil as well as diesel and gasoline to meet energy demand, while on the other side exporting coal and gas

4. National electrification ratio 2015 was 88.5%, target for 2016 is 90%;;

5. Province with lowest electrification ratio:1. Papua (44,40%);;2. East Nusatenggara (57,74%)3. South-­East Sulawesi (66,78%)4. Central Kalimantan 68,27%;;

Page 5

0

20

40

60

80

100

120

Supply, of,primary,energy

Oil, Coal, Gas, Hydropower, Geothermal, Biofuel,

43.03

34.16

18.62

2.62 1.11 0.46

Supply. of.primary.energy.2014

Oil.

Coal.

Gas.

Hydropower.

Geothermal.

Biofuel.

Supply of primary energy Indonesia (without biomass)

Source: 2015 Handbook of Energy & Economic Statistics of Indonesia, Ministry of Energy and Mineral Resources

Note: Oil Including Crude Oil, Petroleum Product and LPG Coal Including Coal and Briquette.Gas Including Natural Gas and LNGBiomass Including Firewood and Charcoal Biofuel Shows Pure Bio Energy (not Blending Product)

© DJK – 2015

3

3

Aceh 92,31%

Sumut 91,03%

Sumbar 80,14%

Riau 84,54%

Sumsel 76,38%

Bengkulu 83,47%

Babel 95,53%

Lampung 81,27%

Jakarta 99,61%

Banten 92,93%

Jabar 86,04%

Jateng 88,04%

Jambi 80,70%

DIY 82,26%

Jatim 83,55%

Bali 85,17%

NTT 58,91%

Kalbar 79,77%

Kalsel 83,75%

Kaltim 91,71%

Sulut 85,53%

Sulteng 75,58%

Sulsel 85,05%

Malut 90,52%

Maluku 82,22%

Papua 43,46%

KATEGORI

> 70 %

50 - 70 %

< 50 %

Sulbar 74,11%

Kepri 74,06%

Sultra 66,78%

Papua Barat 77,81%

Kalteng 67,23%

NTB 68,05%

Gorontalo 74,65%

REALISASI TARGET BERDASARKAN DRAFT RUKN

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

67.15% 72.95% 76.56% 80.51% 84.35% 87.35% 90.15% 92.75% 95.15% 97.35%

Kaltara 69,64%

RASIO ELEKTRIFIKASI 2014

Electrification ratio

GHG emission and energy security, main drivers for the development of RE & EE in IndonesiaUpdated baseline emission Indonesia

12

Source: Bappenas 2015 Simulation of Indonesian baseline emission 2010 – 2045 (in thousand tCO2e)

Source: Bappenas 2015 Against this background, Indonesian government has committed to reduce greenhouse gas emission by 26% using domestic resources, and if supported by international community, the emission reduction could reach 41%, to be achieved by 2020. Further, Indonesia also commits to reduce emission between 2020 – 2030 by 29% compared with the baseline. The general business plan of PLN for the supply of electricity for 2015 — 2024 foresees the development of 55 hydro power plants with the total installed capacity of 2,438 MW. These are hydro power plant with the capacity of > 10 MW each. Power plants < 10 MW are not included in this business plan, since this category is as well accessible for Independent Power Producers (IPPs). PLN is obliged to buy electricity from IPPs generated by renewable energy sources with this installed capacity. The following table shows the government plan to develop renewable energy between 2015 - 2019:

Hasil simulasi jangka panjang menunjukkan trend emisi GRK meningkat cukup signifikanterutama berasal dari sektor energi hingga tahun 2015-2030. Pasca 2030, emisi diperkirakanstabil pada seluruh sektor, kecuali di sektor Energi. Peak Emisi Indonesia diperkirakan berada

pada tahun 2045 dengan tingkat emisi sebesar 3.48 Gg ton CO2e pada 2045Sector 2010 2015 2020 2030 2045

IPPU 37,749 37,717 47,876 78,205 130,658 Energy 414,786 560,282 806,081 1,438,629 1,712,274 Waste 108,156 133,432 182,027 284,886 491,897 AFOLU (no peat) 339,804 367,130 379,803 436,171 625,235 Peat decoposition 245,411 249,546 251,093 254,047 257,230 Peat fire 314,467 288,445 137,171 385,709 266,998 Total emission (without peat fire) 1,145,906 1,348,107 1,666,880 2,491,938 3,217,294 Total emission (including peat fire) 1,460,373 1,636,552 1,804,051 2,877,647 3,484,292

Emission from the energy sector will increase significantly after 2020

National energy policy

South Pole Carbon · 30. Juni 2016 Page 8

23%

2014 20202025

290MTOE

215MTOE

450MTOE

Bussiness As Usual

TARGET 2025

400Juta TOE

PRIMARY ENERGY CONSERVATION 11%

NRE

Coal

Gas

Oil

30%

22%

25%

EBT

Coal

Gas

Oil

17%

29%

22%

32%

NRE

Coal

Gas

Oil

6%

29%

24%

41%

TODAY

§ TOTAL NATIONAL PRIMARYENERGY 215 MTOE

§ PRIMAY ENERGY FROM RE:13 MTOEü GEOTHERMAL: 6 MTOEü BIOFUEL : 4 MTOEü BIOMASS : 2 MTOEü HYDRO : 1 MTOE

National Energy Policy (Gov Regulation No. 79/2014)

Current 2025Power generation 51 GW 115 GW

Energy consumption 0,8 TOE/capita 1,4 TOE/capita

Electricity consumption 776 KWh/capita 2.500 KWh/capita

Under the National Energy Policy, government combines RE + EC

Mandatory Primary Energi MixPower generation (National Energy Policy)

Oil25% ~ 96 MTOE

Natural Gas 22% ~ 76,75 MTOE

Coal22% ~ 113,45 MTOE

RE 23% ~ 84,15 MTOEPr

imar

yE

nerg

iM

ix(P

P 79

/201

4)

Power generationcomposition

60% Fosil 40% RE

46,8 GW

2025: 115 GW

68,2 GW

46,75

Capacity gap ± 5GW, still in series ofdiscussion on how to fill in this gap

20,74 GW

41,89 GW

Optimazing RE power generation

RE development plan based on National Electricity Development Plan

Page 12

Power&plant Capacity 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 TotalGeothermal MW 85&&&& 350& 320&&&&& 590&&&&& 580&&&&& 450& 340&&&&& 935&&&&& 1,250& 1,250& 6,150&&&&Large&hydro MW 45&&&& 57&&&& 175&&&&& 1,405& 147&&&&& 330& 639&&&&& 2,322& 2,031& 5,950& 13,101&Minihydro MW 32&&&& 78&&&& 115&&&&& 292&&&&& 81&&&&&&& 86&&&& 196&&&&& 26&&&&&&& 257&&&&& 201&&&&& 1,364&&&&PV MW 26&&&& 122& 70&&&&&&& 50&&&&&&& 118&&&&& 11&&&& 10&&&&&&& 17&&&&&&& 10&&&&&&& 10&&&&&&& 444&&&&&&&Wind MW E 70&&&& 190&&&&& 165&&&&& 195&&&&& 10&&&& E 5&&&&&&&&& E 5&&&&&&&&& 640&&&&&&&Biomass/MSW MW 125& 142& 135&&&&& 11&&&&&&& 21&&&&&&& 11&&&& E 21&&&&&&& 15&&&&&&& 6&&&&&&&&& 487&&&&&&&Ocean MW E E E E E E E E E E E&&&&&&&&&&&&Biofuel Thousand&kL 812& 594& 365&&&&& 261&&&&& 230&&&&& 170& 173&&&&& 179&&&&& 189&&&&& 191&&&&& 3,164&&&&Total MW 313& 819& 1,005& 2,513& 1,142& 898& 1,185& 3,326& 3,563& 7,422& 22,186&

Note: only power plants with installed capacity > 10 MW needs to be registered in the National Electricity Development Plan

Renewable energy potentials

South Pole Carbon · 30. Juni 2016 Page 13

NO NEW RENEWABLE ENERGY RESOURCES INSTALLED CAPACITY (IC) RATIO OF IC/RESOURCES (%)

1 2 3 4 5 = 4/31 Hydro 75,000 MW 7,572 MW 10.1 %2 Geothermal 28,910 MW 1,403.5 MW 4.9 %3 Biomass 32,654 MW 1,717.9 MW 5.4 %4 Solar 4.80 kWh/m2/day 48.05 MW -5 Wind 3 – 6 m/s 1.87 MW -6 Ocean 49 GW ***) 0.01 MW ****) -7 Uranium 3,000 MW *) 30 MW **) -

*) Only in Kalan – West Borneo**) As a center of research, non-energy

***) Source: National Energy Council****) BPPT’s Prototype

RE resources

Indonesia blessed with huge RE potentials that can be utilized to meet government target

Biomass/biogas potentials: oil palm and utilization of

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Oil palm sector has huge potentials that has not been well utilized so far

Government has agreed to allocate millions of hectare of degraded land for energy forests as part of strategy for the forest rehabilitation and improving energy access

Palm oil mills in Indonesia

Around 10% -­ 20% of the palm oil mills are located up to 5 km to the grid;;

Each ton of FFB processed produces:-­ Around 22% of EFB-­ Around 19% of palm kernel shell and fiber

-­ Around 60 – 70% of POME

No Province No*of*POM*Processing*capacity

tons*of*FFB/h*1 Aceh 25 980*******************************2 North*Sumatra 92 3,815***************************3 West*Sumatra 26 1,645***************************4 Riau 140 6,660***************************5 Riau*Island 1 40*********************************6 Jambi 42 2,245***************************7 South*Sumatra 58 3,555***************************8 Bangka*Belitung 16 1,235***************************9 Bengkulu 19 990*******************************10 Lampung 10 375*******************************11 West*Java 1 30*********************************12 Banten 1 60*********************************13 West*Kalimantan 65 5,475***************************14 Central*Kalimantan 43 3,100***************************15 South*Kalimantan 15 770*******************************16 East*Kalimantan 29 1,545***************************17 Central*Sulawesi 7 590*******************************18 South*Sulawesi 2 150*******************************19 West*Sulawesi 6 260*******************************20 SouthTeast*Sulawesi 3 260*******************************21 Papua 322 West*Papua 4 360*******************************

608 34,140*************************Total

Mass balance in palm oil mill

Energy inputs for process:-­ 20 – 25 kWh/t-­ 0.73 ton steam

1 ton of FFB

Palm oil mill

Waste

190 kg fiber and palm kernel shell

600 – 700 kg POME

230 kg EFB

Renewable energy policy and regulation

South Pole Carbon · 30. Juni 2016 Page 18

1. Improving energy security

2. Adding capacity of energi production and power generation,in particular hydro power and geothermal

3. Improve access to energy, in particular in the remote area,utilizing microhydro, solar PV, biomass and biogas

4. Reducing fuel subsidy, converting diesel genset withmicrohydro, solar PV, biomass/biogas

5. Reduce GHG emission by using more renewable energy

6. Implement energy conservation program

Gov. policies in the renewable energy development

1. Government has limited budget to meet the RE targetaccording to NEP and GHG emission reduction target

2. Government needs support from the private sector todevelop RE projects as part of the implementation of thepolicy

3. To encourage private sector involvement, Governmentprovide some incentives for the development of REprojects, in form of FiT for projects < 10 MW and fiscalincentives

4. For project with installed capacity > 10 MW, some hasalready ceiling tariff (geothermal and large scale hydro), therest, B2B approach

Private sector involvement for policy implementation

NO REGULATION POLICY

1 MEMR Regulation No. 17/2013Feed-in Tariff for Solar PV Power Plant ( UnderRevision)

2 MEMR Regulation No.17/2014 Ceiling Price for Geothermal Power Plant

3 MEMR Regulation No. 27/2014 Feed-in Tariff Biomass and Biogas Power Plant

4 MEMR Regulation No. 3/2015 Ceiling tariff for hydro power plant > 10 MW

5 MEMR Regulation No. 19/2015 Feed-in Tariff for Hydro Power Plant

6 MEMR Regulation No. 44/2015 Feed-in Tariff for MSW Power Plant

7 Presidential Regulation No.. 18/2016Acceleration for the utilization of municipality solid waste in to energy

7 Being prepared Feed-in Tariff for Wind Power Plant

8 Being prepared Incentive for Roof Top Solar PV

FiT to encourage private sector involvement

FiT and ceiling tariffPage 22

Voltage Tariff,(IDR),x,FMedium'x'FBiogas 1,050'''''''''''''''Biomass 1,150'''''''''''''''Low'x'FBiogas 1,400'''''''''''''''Biomass 1,500'''''''''''''''

Location'factor FJava 1.00Sumatra 1.15Sulawesi 1.25Kalimantan 1.30Bali,'Bangka'Belitung,'Lombok 1.50RiaumIslands,'Papua'and'other'islands 1.60

Biomass -­ biogas

Geothermal*tariff*based*on*MEMR*Regulation*No.17/2014

Region*I Region*II Region*II2015 11.8 17.0 25.42016 12.2 17.6 25.82017 2.6 8.2 26.22018 13.0 18.8 26.62019 134.0 19.4 27.02020 13.8 20.0 27.42021 14.2 20.6 27.82022 14.6 21.3 28.32023 15.0 21.9 28.72024 15.5 22.6 29.22025 15.9 23.3 29.6

COD Ceiling*tariff*(US*cent/kWh)

Geothermal

FiT and ceiling tariffPage 23

Voltage River,flow,or,water,fall Existing,irrigation AdjustmentMedium'x'FYear'1'.'8 12.0 10.8 9.3Year'9'.'20 7.5 6.8 9.3Low'x'FYear'1'.'8 14.4 13.0 11.0Year'9'.'20 9.0 8.1 11.0

F1.01.11.21.31.31.6

Location'factorJava,'Bali,'MaduraSumatraKalimantan'and'SulawesiEast'and'West'NusatenggaraMolucca'and'North'MoluccaPapua'and'West'Papua

Mini-­hydro < 10 MW

No. Generator*CapacityCeiling*tariff*(Cent*USD*/*kWh)Availability*Factor

Contract*Period

1 >#10#%#<#50#MW 92 50#–#100#MW 8.53 >#100#MW 8

60% 30#years

Large hydro > 10 MW

Income Tax

FINANCIAL INSTRUMENTS SUPPORT

Value Added Tax

• Reduction of net income for total 30% of total investment for 6 years• Accelerated depreciation and

amortization• Imposition

of Income Tax on dividend paid to Foreign Taxable at 10%• Compensation for losses for 5

– 10 years

Exemptions of VAT for Taxable Goods, machinery and equipment for RE utilization (not included spare parts)

Regulated in State Annual Budget Law and its implementing

regulations

Import Duty Tax Borne by Government

Exemptions for Import Duty ofq Goods and Machinery for

development and capital investment

q Capital Goods Imports for construction and development of electricity industry

How to invest in RE in Indonesia?South Pole Group · 14/01/16 Page 25

An example of investment model on hydro power plant in Indonesia

Page 26

Swedish investorProject developer

Int. Financial institutionLocal Financial Institution

Role of South Pole as PMU:-­ Deal flow-­ Initial due diligence-­ Coordination with other third party

support, incl. contractors, consultants

-­ Supervision during construction

El & Mec

Civil

Technical

Legal

Tax

Foundation for implementationof health, social and env.

O&M Cont.

Summary

• Government encourage the development of renewable energy as part of the effort to improve energy security, access to energy in the remote area and reduce GHG emission;;

• Indonesia is blessed with the abundant renewable energy resources;;

• Government encourage private sector to actively involve in the investment of renewable energy

• To encourage private sector, government provides incentives in the form of FiT and fiscal

• The opportunity is open for international investors to invest in renewable energy in Indonesia, however, there is some limitation in share ownership (only 49% for project < 10 MW)

Page 27

Thank you for your attention!

thesouthpolegroup.com

Paul Butarbutarp.butarbutar@thesouthpolegroup.com

Offices worldwideAddis Ababa, Bangkok, Beijing, Hanoi, Hong Kong, Jakarta, London, Medellín, Melbourne, Mexico City, New Delhi, São Paulo, San Francisco, Stockholm, Sydney, Zurich

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