Sustainable Infrastructure Assistance Program for Indonesia

In this project, feed-in tariff and other incentives for wind energy and solar PV rooftop for both utility- and small-scale was developed using a benefits based approach.  Consultations were conducted with all stakeholders including government, developers, utility and others.  Advice to the government of Indonesia on implementation of the feed-in tariff and scaling up renewable energy was provided.

The recommended pricing mechanism is based on the principle that tariff paid to wind/solar PV projects should not exceed the benefits to Indonesia. Such benefits include the avoided economic cost of fossil fuel displaced by the renewable technology, and the avoided cost of greenhouse gas emissions. The scope of the project was limited to wind generation in Java, Sulawesi and eastern islands, and rooftop solar PV in Jakarta. Benefits in other locations and benefits of other renewable energy technologies may be computed using the same methodology. 

The recommended approach and methodology are based on international practice, economic reasoning, and MEMR’s 2014 approach to development of geothermal tariff ceilings. The highlights of the approach are:

• Estimate the economic benefits of wind and rooftop solar PV, which are specific to the main thermal fuel displaced on the island in question. The primary benefit is the avoided economic energy cost of thermal generation; the next most important benefit is the value of avoided GHG emissions. Other benefits such as energy security, local environmental benefits and local economic development are also estimated. The benefits are adjusted for any incremental system integration costs (in the case of wind) and avoided T&D losses (in the case of PV). These benefits were established for the short, medium and long term (2016, 2020 and 2024) using a detailed production cost model (ProSym) of the relevant grids.
• Propose a tariff ceiling for each technology for a specific island based on benefits to Indonesia. The purpose is to ensure that any competitively bid tariff is below the economic benefit and therefore in the economic interest of Indonesia to implement.
• Establish the likely range of wind and PV developers’ production costs, and assess whether the technology can be delivered at or below the benefits – in which case the technology can be considered economic.
• Assess the implementation issues, especially the need for competition for large projects and a fixed feed-in tariff (FIT) for small projects.

Project is funded by the Asian Development Bank.