Rooftop Solar in Indonesia Further Progress and Clarity in Regulatory Framework

Overview

On 20 August 2021, the Minister of Energy and Mineral Resources (MEMR) enacted a long awaited new regulation on rooftop solar which revokes an earlier attempt at regulating this critical resource and industry through MEMR Regulation 49 of 2018 (MEMR 49/2018). The new regulation (MEMR 26/2021) governs "Rooftop Solar Systems" that are connected to the networks of holders of an Electricity Supply Business Licence for Public Interest which have a business area (wilayah usaha) (IUPTLU Holders) which includes PLN. The new regulation has a wider scope than the previous regime which only applied to rooftop power systems of PLN customers.

MEMR 26/2021 makes further strides at improving some of the key features of the applicable regulatory regime such as:

• the net metering multiplier which is finally increased to 100% (or "1 for 1" up from 65% previously); 
• increasing the accumulation period of net metering credits, from 3 to 6 months;
• providing for the creation of an "App"-based reporting system which is to be implemented by MEMR and PLN;
• allowing rooftop solar customers to engage in carbon trading schemes in relation to such rooftop systems.

Despite these improvements, MEMR 26/2021 may also be perceived by certain investors and participants as confirming some of the current limitations of the business models which can be deployed in the rooftop solar space such as:

• the limitation on the size of the installations to the applicable grid connection of the relevant customers, which is therefore impacting the possibilities to scale-up; and
• a confirmation of the prohibition on the sale of electricity from rooftop solar systems which fall within the scope of the regulation, which limits the structures and business models which can be implemented.

This brief focuses on the key changes introduced by MEMR 26/2021 against the previous regime which prevailed under MEMR 49/2018.

Key changes introduced by MEMR 26/2021

MEMR 26/2021 introduces a number of key changes to the regulatory provisions on rooftop solar power systems which prevailed under the previous regime of MEMR 49/2018. We set out below the most notable changes with a more detailed comparative table between the two regulations in appendix.

1. Scope of the new regime

Under MEMR 49/2018, a "Rooftop Solar System" was defined as a power generation process using photovoltaic modules that are installed and placed on the roof, walls, or other parts of building(s) owned by PLN customers and the distribution of electricity through the connected electrical system of PLN customers. The limitation in the scope of the regulation to customers of PLN in this definition is now broadened by MEMR 26/2021 to extend to "customers who are connected to the electrical system of IUPTLU Holders" (Rooftop Solar Customers) which refers to customers of PLN as well as other IUPTLU holders which have their own business areas, such as certain integrated industrial estates. It is worth noting that such privately owned business areas remain fairly limited across Indonesia with only about 40 of them having been awarded to date (including certain large single site industrial plants or mining facilities). This widening of the scope of coverage of the regime may therefore only have a limited impact in unlocking the market, especially in the commercial and industrial (C&I) space unless more private power business areas are carved out and awarded in the coming years.

2. Improvements to the net metering factor and set off period

An important improvement for Rooftop Solar Customers and investors alike is the increase of the export-import multiplier from 65% under the previous regime to now 100% under MEMR 26/2021. This change addresses the concerns that have been voiced by many participants on the lack of attractiveness of the previous discount that applied between the export of excess power from Rooftop Solar Systems to the grid and the import credit given to the Rooftop Solar Customers (which is generally referred to as "net metering"). 

These net metering credits are valid for a certain period of time and will be used to offset any intake of power by the Rooftop Solar Customers from the relevant grid (from PLN or private business area owners) until the balance is reset to zero within a certain timeframe. 

Previously, the credits were accumulated for a maximum of three months for the calculation of the electricity bill period from January to March, April to June, July to September, or October to December. MEMR 26/2021 now extends the calculation and set-off period to six months to be carried out from:

(a) January to June, with a reset in July of the current year; and
(b) July to December, with a reset in January of the following year.

Although the extension of the net metering credits accumulation period should be welcomed, the reset principle and mechanism at a fixed point in time rather than on a rolling 6 month basis appears somewhat artificial and could lead to situations where credits accumulated in the later months of the 6-month accumulation period are lost because of the reset depending on the generation and grid intake profile of the relevant Rooftop Solar Customers in June and December.

3. Capacity of the solar power system

As per the previous regime, the capacity of Rooftop Solar Systems owned by the customers of PLN (or other state owned enterprises holding an IUPTLU), remains limited to a maximum of 100% of the connected power of the customers as calculated based on the total capacity of the inverters. 

As an implementation of the broader scope of the current regime, MEMR 26/2021 now also provides that the capacity limit of Rooftop Solar Systems for prospective customers in private business areas is limited by the local electricity system as declared by the relevant IUPTLU Holder. Such declaration shall be carried out every December and must be reported to the Directorate General of New and Renewable Energy and Energy Conservation (DGNRE).

4. Approval and licensing regime

MEMR 49/2018 required Rooftop Solar Customers to obtain an operational license (izin operasi). This requirement was changed earlier this year through the reforms of the general licensing regime brought about by Law No. 11 of 2020 on Job Creation. MEMR 26/2021 now implements these changes by requiring that an electricity supply business license (IUPTL) for own interest (issued by the MEMR or the relevant governor in accordance with their respective authority) be obtained with respect to Rooftop Solar Systems with a capacity of more than 500 kW. This also entails the obligation to report to the MEMR or the relevant governor about such installation.

In addition, while the requirement to have an operation worthiness certificate (sertifikat laik operasi or SLO) remains the same to that under the previous regime, MEMR 26/2021 contains new provisions on SLO in that Rooftop Solar Systems with a capacity of up to 500 kW with "technical specifications of the control panel as one integral part" will be declared to have complied with the SLO requirement provided that the Rooftop Solar Customers have obtained the approval from the relevant IUPTLU Holder. Further, such systems must obtain a registration number from MEMR which requires a statement letter of responsibility for the electricity safety aspects from the Rooftop Solar Customer and the contractor to be submitted along with other required documents to the MEMR.

It is worth noting that MEMR 26/2021 also shortens the timeframe for the approval by the relevant IUPTLU Holder (including PLN) of the installation of Rooftop Solar Systems from 15 to 5 business days.

5. New integrated Solar PV services and reporting application systems¹

MEMR 26/2021 reforms the reporting regime for Rooftop Solar Systems by introducing an integrated Rooftop Solar System services and reporting application (or "App") which is to be developed by MEMR. This App will serve as a platform for, among others, (i) the declaration of each system's capacity limit, (ii) the submission and issuance of approval or rejection of Rooftop Solar Systems applications, (iii) the fulfilment of licensing requirements and (iv) the reporting requirements. MEMR 26/2021 mandates that the App be available "within six months" (presumably from the issuance of the regulation, i.e. by 20 February 2022).

In addition, the MEMR also assigns SOEs holding an IUPTLU (i.e. which in practice means PLN) to develop a digital solar power plant application system which shall be integrated with the Supervisory Control and Data Acquisition (SCADA) or smartgrid distribution to (i) maintain the stability and reliability of the relevant electricity system, (ii) maintain the efficiency of electricity distribution, and/or (iii) monitor the energy production of Rooftop Solar Systems in real-time. MEMR 26/2021 requires this App to be available within six months from the assignment of PLN by MEMR to develop such App². 

6. Carbon trading

In line with Indonesia's conditional target to lower greenhouse gas emission of up to 41% by 2030 and the setting up of a national carbon trading regulatory regime pursuant to a presidential regulation which is currently under preparation, MEMR 26/2021 allows Rooftop Solar Customers and IUPTLU Holders to engage in carbon trading in relation to the reduction of greenhouse gas emissions deriving from the relevant Rooftop Solar Systems³. The details of this scheme, including the ownership of the carbon credits as well as the proposed carbon trading scheme, are to be further regulated in a separate MEMR regulation.

7. Weather forecast

One of the new requirements brought in by MEMR 26/2021⁴ relates to customers from the industrial tariff group having or hosting a Rooftop Solar System with a capacity greater than 3 MW which are now required to provide a weather forecast database that is integrated with the SCADA system or smartgrid distribution owned by the relevant IUPTLU Holder.

8. Restriction to sell electricity

Article 29 of MEMR 26/2021 now expressly prohibits customers to sell the electricity generated from the Rooftop Solar System. Even though MEMR 49/2018 did not contain any similar provisions, such prohibition was already governed under the Electricity Law where captive power generation is only for self-use and not for sale, thus restricting the ability to sell power to end consumers to IUPTLU Holders.

Closing Remarks

With only about 31.32 MW of installed rooftop solar generation capacity, Indonesia has been lagging behind other regional economies in the deployment of distributed sources of energy, including rooftop solar. To illustrate this, current approximate data indicates that Singapore has 384 MW of rooftop solar installed capacity, Vietnam 9,300 MW, Thailand 10,000 MW and Malaysia 500 MW. 

Despite substantial market interest to invest in C&I solar infrastructure and solutions, the archipelago has so far only seen limited capacity come online (see MEMR press release 277.Pers/04/SJI/2021 dated 15 August 2021)  and similar constraints have affected the residential rooftop solar market. The main cause for this hold up has been the weaknesses and lack of clarity of the regulatory regime which was not perceived as sufficiently attractive, especially due to the discounted net metering factor as well the (initial) level of the capacity and emergency charges for industrial customers which prevailed under the previous regime. 

MEMR 26/2021 is undoubtedly a sign of the Government's conscious attempts at incentivizing the deployment of rooftop solar (both C&I and residential) in Indonesia. Time will tell whether this commendable aim is indeed fulfilled or whether further regulatory adjustments are required for Indonesia to benefit from the exponential growth of rooftop solar which has been seen in many countries around the world.

Appendix

The following table sets out the differences between the provisions under MEMR 49/2018 and MEMR 26/2021.

[1] Article 24 of MEMR 26/2021.
[2] Article 25 of MEMR 26/2021.
[3] Article 28 of MEMR 26/2021.
[4] Article 30 of MEMR 26/2021.