Mini-Hydro Feed-In-Tariff in Indonesia
By: Hadiputranto, Hadinoto & Partners (www.hhp.co.id)
Tuesday, October 14 2014 - 01:24 AM WIB
Together, Reg.12/2014 and Reg. 22/2014 (collectively the Mini-Hydro FIT Regulation) stipulate among other things:
? the tariffs applicable for the purchase of power by the State-owned utility - PT Perusahaan Listrik Negara (Persero) (PLN) - of power generated from mini hydro power plants; and
? the procedure for signing Power Purchase Agreements (PPAs) relating to purchasing power from mini hydro power plants.
Feed-in Tariff
New Tariff
The following are the tariffs now applicable to mini-hydro projects:
| Voltage/Capacity | Feed-In-Tariff (Rp./Kwh) | F Factor, depending on the location | |
| General Mini Hydro Projects | Mini Hydro Projects utilizing multipurpose dams and/or irrigation | ||
| Medium Voltage (up to 10MW) | Year 1 - 8 : 1.075 x F | Year 1 - 8 : 967.5 x F | ? Java, Bali and Madura: 1 ? Sumatera: 1.1 ? Kalimantan and Sulawesi: 1.2 ? West Nusa Tenggara and East Nusa Tenggara: 1.25 ? Maluku and North Maluku: 1.3 ? Papua and West Papua: 1.6 |
| Year 9 - 20 : 750 x F | Year 9 - 20 : 675 x F | ||
| Low voltage (up to 250kW) | Year 1 - 8 1.270 x F | Year 1 - 8 : 1.143 x F | |
| Year 9 - 20 770 x F | Year 9 - 20 693 x F | ||
No Indexation
The Mini-Hydro FIT Regulation explicitly states that the prescribed feed-in-tariffs, as set out above, are not subject to any escalation. The existence of this provision arguably will prohibit parties to agree any tariff escalation/indexation in the PPA. Consistent with this restriction, the standard PPA as published by PLN does not provide for any escalation mechanism.
Transmission Responsibility
The feed-in-tariff includes costs of procuring the transmission lines connecting the plant to the PLN grid. Accordingly, mini hydro plants which are located close to an adjacent grid will be at a significant cost advantage and enjoy less exposure to land acquisition risks as compared to plants which have longer transmission distances.
Tariff Adjustment for Existing Projects
The Mini-Hydro FIT Regulation opens the possibility for existing hydro power projects with a capacity of up to 10MW to propose a one-off tariff adjustment. For this tariff adjustment, the developer must first obtain a stipulation from the Directorate General of Renewable Energy and Energy Conservation (EBTKE) as a hydro power developer for power plants (as explained below).
The tariff adjustment will be calculated based on agreement with PLN by considering certain prescribed weighted average tariffs mentioned in the table below. The weighted average tariffs must be used as the ceiling benchmark in tariff adjustment negotiations. The Mini-Hydro FIT Regulation states that once the tariff adjustment is agreed, it becomes a fixed tariff (i.e. not subject to any further escalation).
The Mini-Hydro FIT Regulation limits the tariff adjustment process to 90 working days after the stipulation from EBTKE as a hydro power developer for power plants. If the tariff adjustment cannot be finalized within this period, PLN must report the result to EBTKE. It is not clear however what EBTKE must do or is authorized to do with respect to this failure to reach agreement on this tariff adjustment (i.e. does EBTKE act as an arbiter and determined the tariff?).
The following are the weighted average tariffs that form the framework of the tariff adjustment negotiations:
| Voltage/Capacity | Weighted Average Tariff (in Rp/kWh) | F Factor, depending on the location |
| Medium Voltage (up to 10MW) | 880 x F | ? Java, Bali and Madura: 1 ? Sumatera: 1.1??????????????? ?Kalimantan and Sulawesi: 1.2 ? West Nusa Tenggara and East Nusa Tenggara: 1.25 ? Maluku and North Maluku: 1.3 ? Papua and West Papua: 1.6 |
| Low voltage (up to 250kW) | 970 x F |
New Procedures and Mandatory Milestone
New Procedures for PPA Signing
The Mini-Hydro FIT Regulation also introduces new procedures for the purchase of power by PLN from mini-hydro power projects:
? The developers must first obtain a stipulation from EBTKE as a hydro power plant developer. For this application, the developer must submit to EBTKE among other things, (i) a pre-feasibility study which has been technically verified by PLN - The Mini-Hydro FIT Regulation requires that PLN's verification to be completed within 30 working days after receipt of the prefeasibility study; (ii) estimation of total investment needed for the hydro power plant construction; (iii) construction schedule until the commercial operation date; and (iv) a statement on availability of land. The Mini-Hydro FIT Regulation also requires the developer to submit a statement letter confirming the understanding and ability of the developer to perform the PPA as published by PLN. This requirement seems to suggest that there will not be much room to negotiate the PPA to deviate from the standard PPA that has been published by PLN1.
? EBTKE's decision on whether to accept or reject the application must be issued within 30 working days after receipt of application documents.
? Within 30 days after the stipulation as a hydro power plant developer, the developer must submit to EBTKE a deposit certificate in the amount of 5% of the total investment amount required for the construction of the project. After the developer obtains a permanent Electricity Supply Business Permit ("Permanent IUPTL"), the developer can use the deposit amount for construction of the project (although typically, a Permanent IUPTL is only obtained after completion of construction - i.e. when all the project funding has been expended).
? After submission of this deposit, the developer must process the temporary Electricity Supply Business Permit ("Temporary IUPTL"). A copy of the Temporary IUPTL must be submitted to EBTKE within three working days after issuance of the Temporary IUPTL.
? Within 90 working days after issuance of the Temporary IUPTL, the developer must submit the feasibility study and other documents required for PPA signing to PLN.
? The PPA must be signed within 30 working days after complete submission. Otherwise (i) the hydro power plant developer stipulation will be revoked; (ii) the developer cannot apply for the hydro power plant developer stipulation within two years; and (iii) 25% of the deposit amount will be retained by the State.
Mandatory Milestones
The Mini-Hydro FIT Regulation sets some non-negotiable mandatory milestones and consequences for failure to achieve those milestones:
| N0 | Stages | Deadline | Consequence for Failure to Meet the Deadline |
| 1 | Financial Close | Within 15 months after PPA signing | - The stipulation as a developer is revoked
- The developer cannot apply for the hydro power plant developer stipulation for two consecutive years. - 50% of the deposit amount will be acquired by the State. |
| 2 | Starting of physical construction | Within three months after issuance of a Permanent IUPTL (note: a Permanent IUPTL can only be processed after the financial close) | Imposition of a tariff reduction for the first eight years of production in the amount of: ? 1%, if the delay is up to three months. ? 2%, if the delay is more than three months up to six months. ? 3%, if the delay is more than six months. ? If the delay exceeds 15 months after issuance of the Permanent IUPTL: ? the stipulation as a developer is revoked. ? the developer cannot apply for a hydro power plant developer stipulation for two consecutive years. ? 100% of the deposit amount will be acquired by the State. |
For further information please contact
Luke Devine
Foreign Legal Consultant
+62 21 2960 8600
luke.devine@bakernet.com
Kirana D. Sastrawijaya
Senior Associate
+62 21 2960 8541
kirana.d.sastrawijaya@bakernet.com
Fanny Kurniawan
Senior Associate+62 21 2960 8527
fanny.kurniawan@bakernet.com
Mesianti Tobing
Associate
+62 21 2960 8551
mesianti.tobing@bakernet.com
Jeremia Purba
Senior Associate
+62 21 2960 8592
jeremia.purba@bakernet.com
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