How not to design energy feed-in tariffs: a look at Indonesia and the Philippines
By James Guild According to the International Energy Agency, Indonesia has the potential to develop 75,000 megawatts (MW) of hydropower, 32,000 MW of biomass, 28,000 MW of geothermal and 4.8 kilowatt-hours (kWh) per day of solar power. Despite being endowed with a wealth of potential renewable energy sources, the country has struggled to accelerate growth in the sector.
In 2012, the total installed capacity of grid-connected solar, wind, and biomass energy was 31 MW. By 2017, it had grown to only 68 MW.
The neighbouring Philippines, by contrast, has seen rapid growth in its renewable energy sector over the same time period, with installed capacity of solar, wind, and biomass energy increasing from 153 MW to 1,537 MW.
Both countries used feed-in tariffs – a policy tool whereby the buyer agrees to purchase renewable energy for a period of 20 to 30 years, typically at above market rates – to promote investment in the sector. But only in the Philippines did this lead to accelerated growth.
The gap between the two countries can be explained by several factors. The Philippines has a friendlier regulatory environment for private capital, whereas foreign firms seeking to develop renewable energy projects in Indonesia often struggle in navigating a cumbersome bureaucracy.
The policy-making process has also been much more consistent in the Philippines, where the framework for feed-in tariffs was developed and tendered in a methodical and consistent way.
In Indonesia, feed-in tariffs have changed often and suddenly, and a wave of overlapping and confusing regulations have been instituted in an ad-hoc manner. This inconsistent policy-making has pushed down investor confidence.
There are also deeper structural forces at work. For one, Indonesia has large domestic coal reserves and a powerful extractive industry lobby, whereas the Philippines relies on imported coal. Indonesia therefore has access to ample cheap coal, …read more