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          08/2003 - issue 6
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 Policy Instruments to Promote RE Projects  Interconnected to National Grids: The Case of Indonesia, Malaysia, Philippines and Thailand
By: Tjarinto S. Tjaroko, ASEAN Centre for Energy (ACE), Jakarta, Indonesia and
Marites I. Cabrera and Thierry Lefevre, CEERD, Bangkok, Thailand


The ASEAN region has a huge potential for renewable energy (RE) such as hydro, biomass and wind. Among its member countries, Indonesia, Malaysia, Philippines and Thailand have initiated policies and programs to promote grid-connected renewable energy projects. This follows as the power sector in these countries are undergoing reforms, in addition to their policies to promote the increased use of local energy sources and enhanced energy security.

Indonesia

In 1998, the Indonesian government issued the legislation on Small Power Generation from Renewable Energy (PSK) covering procedures for small private power generation from renewable energy interconnected to the grid of state-owned power company, PLN. The purchase tariff is negotiated between PLN and the investor. With this legislation no single RE was interconnected to the grid. However, many off-grid RE projects, mainly microhydro, were developed by private enterprises for rural electrification. The off-grid arrangements are based on the mutual benefits between the investors and the consumers, such as cooperative scheme, and affordable tariffs are applied to the consumers based on the agreement between the investor and the consumers. The investor is usually from local non-profit NGO.

The RE policy was greatly strengthened by a new legislation issued in June 2002, in which RE power plants up to 1 MW can be interconnected with the grid*. Institutions eligible to participate are cooperatives, private and government companies. The purchase tariffs will be calculated at 80 and 60% of PLN�s announced "electricity base price" for interconnection at medium and low voltage (20kV and 220V). Since then many RE projects in the pipeline�mainly mini-hydro power plants located out of Java and Bali islands�have requested to be interconnected with the national grid. The electricity base price differs between systems in PLN�s grid. The Java-Bali grid system is the most advanced and efficient compared to other grids, consequently it has the lowest electricity base price. The Indonesian government expects to have at least 20 RE projects interconnected to the grid 5 years after the issuance of the new legislation. These projects are expected not only from mini-hydro power but also from geothermal, biomass, solar power and wind energy in view of RE potential in the country (see Table 1).

Table 1: Renewable Energy Potential and Installed Capacity in Indonesia, 2003

RE Resources

Potential

Installed Capacity (MW)

Hydro power

75,674 MW

3,854

Mini/Micro hydro

460 MW

64

Geothermal

19,658 MW

802

Biomass

49,807 MW

302

Solar power

4.8 kWh/sq.m/day (1,203 TW)

5

Wind energy

3-6 m/sec. (9,287 MW)

0.5

The flow of procedures for investment in the RE project as follows:

    a. Electricity base price announced by PLN for each region is different in accordance with the size and system applied in the region.

    b. Proposal submitted by investor to PLN

    c. Evaluation of the proposal by PLN

    d. Agreement letter issued by PLN to the investor

    e. Contract signing between PLN and the investor

    f. Investor requests license from the Minister of Energy and Mineral Resources

    g. Minister of Energy and Mineral Resources issue license to the investor

    h. Investor constructs RE project

    i. Commissioning by the certified and eligible institute for certification

    j. Operational certification issued by the eligible institute for certification

    k. Commercial operation by investor, and PLN to purchase the electricity generated from the commissioned RE project.

The Minister of Energy gives a certificate for approved projects. This certificate, which is cannot be transferred to other developer or investor, is dedicated only for an RE project that generates electricity and sells to the consumers on a business-as-usual basis for on- and off-grids. The certificate has no value and not tradable, and the government of Indonesia will not provide any financial support. The certificate is proof that the RE project scheme is allowed to sell electricity to PLN based on the announced base tariff. PLN will not issue the certificate, but will sign a power purchase agreement contract with the investor.

 

Malaysia

Malaysia's Ministry of Energy, Communications and Multimedia is coordinating a number of activities on renewable energy for power generation. Foremost of which is the Small Renewable Energy Power Programme (SREP), which it is managing, that was launched in May 2001 with the major goal of enhancing the use of renewable energy resources for power generation. The objective of SREP is to facilitate the implementation of grid-connected renewable energy resource-based small power plants. Malaysia produces huge amounts of wastes particularly from the palm oil industry; hence, SREP is focusing on biomass for electricity generation. The target of SREP is to install and connect to the national grid a total of 500 MW from RE-based power generation plants within the framework of the Renewable Energy Power Purchase Agreement (REPPA).

REPPA is a legislation issued by the Malaysian government dealing with the power purchase agreement between power utility TNB and private investors mainly for RE projects. REPPA allows independent power producers to sell electricity to the grid, and the selling price for electricity for renewable sources was capped at a ceiling of RM17 cent/kWh or 4.5 cent USD/kWh. To date, more than 60 project proposals have been approved by the Special Committee on Renewable Energy (SCORE) chaired by the Ministry of Energy Communications and Multimedia. Three of these proposals have been awarded power generation licenses.

Meanwhile, the Malaysian government through SREP introduced the Biomass Based Power Generation and Cogeneration for the Palm Oil Industry (BioGen) Project. The RM56-million project, which is funded by UNDP/GEF and the government of Malaysia, aims to reduce GHG emissions from fossil fuel-fired combustion processes through the Clean Development Mechanism (CDM). The 5-year project is being implemented in two phases. The first phase (2002-2004) is a technical assistance focusing on the removal of barriers that hinder the widespread application of biomass-based power generation and cogeneration plants. By the end of this phase, 15% of the palm oil mills in the country are expected to have initiated plans to implement biomass-based power generation or combined heat and power generation (CHP). The second phase (2005-2008) will implement an innovative financing mechanism through the Malaysian banking sector. This financing mechanism will provide special loan arrangements�e.g., lower interest rates, special grace periods and possible guarantee by the MESITA fund�for RE projects.

The Malaysia Electricity Supply Industry Trust Account (MESITA) fund has been providing financial assistance to rural electrification, energy efficiency and renewable energy projects. IPPs and Malaysian utility TNB Generation voluntarily contribute 1% of their annual audited revenue to this fund. The studies funded by MESITA include grid-connected power generation from landfill gas, photovoltaic systems and palm oil residues. The ongoing MESITA-funded RE projects coordinated and managed by the Malaysian Energy Centre (PTM) are as follows:

    a. Six grid-connected rooftop solar PV systems undertaken by TNB Research

    b. One stand-alone hybrid diesel power generation and solar photovoltaic system at the Education and Research Centre, Endau Rompin National Park, Johore, Malaysia

    c. Ten thousand units of solar home system (SHS) for rural electrification scheme

    d. A solar water pumping system for Milky Stork Breeding at Kuala Selangor Nature Park

Philippines

The Philippines has a number of laws and regulations promoting the commercialization of grid-connected RE power projects. The issuance in 1987 of Executive Order (EO) 215, which allows the private sector to participate in electricity production and interconnection to the national grid, paved the way for independent power producers (IPPs) and, expectedly, the commercialisation of RE power projects. In addition, the Build-Operate-Transfer (BOT) Law also allowed the government to assume undertakings specific to IPP projects. The BOT route encouraged further investments mainly by setting up a minimum level of government regulations and offering a host of incentives to investors. However, investors then were not interested in mini-hydro and RE power projects, which they found financially unattractive compared to larger conventional power projects. Further incentives were needed to attract investors.

In 1991, the mini-hydro law was enacted covering hydro projects below 10 MW. This law stipulates special incentives and privileges as well as provisions for the sale of electricity to the national grid. To serve as a vehicle for the purchase of power from mini-hydro power plants and commercialise other renewables for power generation, the government created the Renewable Energy Power Program (REPP) in 1993. REPP was designed to provide up to P750 million in financing for private power projects using solar, wind, biomass, and small hydro resources. It aimed to acquire as much as 300 MWe of capacity from renewable sources, up to 50 MW annually over a period of six years. Under the terms of this program, small (<10 MW) power plants could apply to sell electricity to the NPC at a rate negotiated in a power purchase agreement (PPA). The Department of Energy (DOE) would guarantee the purchase of power generated by REPP projects. However, NPC suspended the REPP program due to various reasons including NPC�s reluctance to acquire additional take-or-pay liabilities given the pending power sector restructuring and lack of need for new capacity, the serious program design flaws that deterred serious private sector interest, etc. Only two mini-hydro projects have reached the point of accreditation and construction.

In 1997, EO 462 was enacted enabling private sector participation in the development and commercialization of ocean, solar and wind (OSW) energy resources for power generation and other energy uses. However, EO 462 has been perceived by some to raise barriers to NRE and discouraged private investment. In April 2000, EO 232 was enacted amending EO 462. Now, OSW projects below 1 MWe of rated capacity, in private lands and in lands and offshore areas of the public domain, are considered to be private power projects and not subject to production sharing requirements.

Aside from mini-hydro power projects, grid-connected projects on wind energy are also currently underway. Two projects on wind energy�the 42-MW wind farm in Ilocos Norte and the 600-kW wind project in Batan Island, Batanes province�are under different stages of development.

Thailand

Thailand actively supports and is at the forefront in the commercialisation of grid-connected RE as part of its overall goal of developing its indigenous energy resources.

In 1992, the Thai government launched the small power purchase (SPP) programme to promote the utilization of RE projects interconnected to the grid. As of November 2002, SPPs using renewable energy have been selling 178 MW of electricity to the national grid. The Energy Conservation Promotion Fund (Encon fund)� which has supported RE projects by providing grants for project plan preparation, project management as well as financial assistance for investment since 1995�has awarded 31 SPP proposals with a total capacity 511 MW, of which 300 MW will be interconnected to the grid in 2005.

To further support the use of RE for electricity generation, the Thai government has approved regulations for the purchase of power by distribution companies from small renewable energy power producers generating less than 1 MW capacity per unit. This regulations allow for net metering arrangements and simplified procedures to minimize the costs of connecting the generators to the distribution systems. v

References

10th Annual Meeting of New and Renewable Sources of Energy Sub-sector Network (NRSE-SSN), ASEAN held in Manila, Philippines on 27-30 May 2003

Energy Policy and Planning Office, Thailand <http://www.eppo.go.th/power/pw-spp-purchpower-E.html>

Roxas, F. "The Importance and the Changing Role of the Independent Power Producers (IPPs) in the Proposed Competitive Power Market in the Philippines", Proc. Clean and Efficient Use of Fossil Energy for Power Generation (Bangkok, Thailand, Oct. 30-Nov. 3, 2000). <http://apec-egcfe.fossil.energy.gov/Thai%20Seminar_2000/8-4-1%20Roxas_Paper.pdf>

Terrado, E., C. Rovero, J. Weingart and D. Hertzmark. Strengthening the Non-Conventional and Rural Energy Development Program in the Philippines: A Policy Framework and Action Plan. A report for UNDP/World Bank ESMAP. New York, August 2001. <http://www.worldbank.org/html/fpd/esmap/publication/243-01philippines.html> (12 December 2002).

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