New MEMR regulation has reduced the capacity charge that has hindered installation of behind the meter rooftop solar photovoltaic projects.
New regulation MEMR 16/2019
On 23 October 2019, the Minister of Energy and Mineral Resources (MEMR) published Regulation No. 16 of 2019 (MEMR 16/2019), amending Regulation No. 49 of 2018 on the Use of Rooftop Solar Power Generation (MEMR 49/2018). MEMR 16/2019 reduces capacity charges and eliminates the emergency energy charges payable to PLN for on-grid industrial consumers who use behind the meter solar rooftop photovoltaic power plants (Solar PV), which will lead to better project economics for Solar PV.
Background: unclear regulation on capacity charges for Solar PV
PLN requires that industrial customers pay a capacity charge and emergency energy charge if installing on-grid, behind the meter generation. Regulation No. 1 of 2017 on Parallel Operation of Power Plants with Power Grids of PLN (MEMR 1/2017) set out the formula for the calculation of the capacity charge:
Capacity Charge = total Net Power Capacity of plant (MW) x 40 hours x electricity rate
This capacity charge applied to all industrial consumers (Industrial Users). For Solar PV, this calculation was cost prohibitive and significantly damaged the economics of such projects, as Solar PV projects, unlike thermal generation, only generate power when the sun is shining.
MEMR 49/2019 was potentially inconsistent with respect to the applicability of capacity charges to Solar PV. Article 17 of MEMR 49/2019 provided that MEMR 1/2017 no longer applied to Solar PV Industrial Users. However, Article 14(2) of MEMR 49/2019 provided that Solar PV Industrial Users are subject to capacity charges and emergency energy charges.
In practice, MEMR’s view was that MEMR 1/2017 still regulated capacity and emergency energy charges for Solar PV Industrial Users. With MEMR 16/2019, MEMR has now provided regulatory certainty to such Industrial Users, and made the capacity charges proportional to Solar PV generation.
MEMR 16/2019: new calculation of capacity charges
MEMR 16/2019, which became legally effective on 14 October 2019, provides a lower capacity charge calculation for Industrial Users that install Solar PV, by lowering the amount of hours that Solar PV is charged, and basing the capacity charge on the inverter capacity of the Solar PV project, rather than net power capacity:
Capacity Charge = total inverter capacity (kW) x 5 hours x electricity rate
Solar PV Industrial Users must still pay the capacity charge monthly, however the applicable pricing is now more manageable. Furthermore, Solar PV Industrial Users now no longer need to pay any emergency energy charge. MEMR 16/2019 also adds a new obligation for Solar PV Industrial Users to report their Solar PV operation plan to PLN, but does not specify the timing in respect of such report. MEMR 16/2019 applies to both existing Solar PV Industrial Users and new Solar PV Industrial Users.
The publication of MEMR 16/2019 at this time is a hopeful signal that MEMR, under new minister Arifin Tasrif, may be moving in a positive direction in regulating renewable resources.