Experience in Conducive RE & EC Policies for

Project Implementation from Various

Countries

EBTKE CONEX 2012

INDONESIA

17TH JULY 2012

RAVI KRISHNASWAMY

VICE PRESIDENT

ENERGY PRACTICE

FROST & SULLIVAN

2

Annual Power and Energy Outlook

Agenda

• Top 10 Global Energy Trends for 2020

• Global and Asia Pacific Renewable Energy Trends

• Global Policy Primer

• Policy and Regulations in various countries including

Malaysia, Thailand, India and China

• Status and Outlook for Indonesia

3

The 10 Most

Critical Trends

that Will

Shape the

Global Power

& Energy

Industry till

2020

Source: Frost & Sullivan

Power Demand

Growth

New Age for

Natural Gas

Clean Coal

Commercial-

isation

Power Plant Decommissioning

Smart Energy Nuclear Power?

Energy

Efficiency

Energy Storage

Continued Investment in Renewables

Market

Liberalisation

Annual Power and Energy Outlook

Top 10 Energy Market Trends for the Decade

4

China Leads the World in terms of Renewable Energy

Investments

• Global investment in

renewable energy increased

17% in 2011 to $257 billion,

which is 94% higher than

the pre-crisis levels in 2007

• China was still the market

leader in 2011 with US$52.2

billion investments even

though US closed the gap

at US$50.8 billion

• India was the fastest

growing market at 62% year

on year 2011, with a total

investment of US$12 billion

New Investments in Renewable Energy 2007-2011

Source: UNEP

20…

20…

20…

20…

20…

0

20

40

60

80

100

120

USA Rest of Americas

Europe MEA India China Rest of Asia

2007 2008 2009 2010 2011

5

Whilst wind and hydro will still be the leading

technologies, the growth in solar will be dramatic

North America Asia Pacific Europe

2009 2015 2009 2015 2009 2015

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan

34 127 73

153 37

198

2 15 13 80 3 23

9 16 21 10 15

Rest of the World

2009 2015

2 12

2 10

18 25

Wind

Power, GW

Solar Power

(PV + CSP),

GW

Biomass

Power, GW 11

Note: The graph is illustrative and is not drawn to scale.

*- Islandsbanki estimates based on data by IGA, Bertani, GEA

^- Geothermal Energy Association

**- Frost & Sullivan estimates

171 174 178 190 237 308 299 329

Large

Hydropower,

GW

Outlook for the Energy & Power Industry: Evolution of Renewable Installed Capacity (World), 2009 and 2015

6

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

1990 1995 2000 2005 2010 2015 2020 2025 2030

MT

OE

Asia Pacific

Europe

NA

LA

ME

Africa

Clean Energy Consumption by Region

Asia will lead in clean energy consumption by 2020

Source: BP Statistical Review of World Energy

7

Global Policy Primer

Source: Frost & Sullivan analysis.

Renewable Energy

Financial Incentives Incentive Provided

Applied in

Europe Asia USA

Capital cost rebates Provide money to customers based on

the size of a customer‟s solar power

system

Italy Taiwan,

China

California

Feed-in tariffs Utilities to pay customers for solar

power system generation based on

kilowatt hours produced, at a rate

generally guaranteed for a period of

time.

Germany,

France,

Italy,

Spain, UK

Japan,

South

Korea,

China,

Malaysia

California

(Performance

Based

Incentives),

Hawaii

Tax credits USA

Net metering Power generated by the solar power

system in excess of a consumer‟s

power consumption will spin the existing

home or business electricity meter

backwards by such excess amount,

effectively reducing the customer‟s

electricity bill.

Thailand California,

Oregon

8

JAPAN – Policies and Regulations

Japan has introduced its FiT scheme effectove July 2012. Proposed rates for the program are $0.53/kWh (JPY 40/kWh) for PV plants larger than 10 kW, and $0.52/kWh (JPY 42/kWh) for residential PV plants smaller than 10 kW. PV plants larger than 10 kW would be eligible for 20-year contracts, and smaller than 10 kW would be eligible for 10-year contracts, with the FIT paid for excess power production in smaller systems

Renewables Portfolio Standards is a special measures law on the Use of New Energy by Electric Utilities. Introduced in April 2003, this law obliges electric utilities to use a fixed amount of new energy toward the aim of promoting the introduction of new energies. Utilization target (electricity to be produced from new energy) was established for the fiscal year 2014 at 16.00 billion kWh.

The country has set a target to improve EE by 30.0 percent relative to 2003 levels by 2030. To achieve this, the government offers diverse incentive mechanisms for both the industrial and commercial sector through the National Energy Plan, Government Direct Transfers, financial incentives, and voluntary measures.

Feed-in

Tariff

RPS

EE

Policies

9

MALAYSIA – Policies and Regulations

In April 2011, Malaysia adopted a system of Advanced Renewable Tariffs and renewable energy targets differentiated by technology by year on a first come basis. For instance, 2011 Malaysia's quota for solar PV is 29 MW and in 2012 the target is an additional 46 MW. A lot of interest is shown for Solar PV and biomass projects in Malaysia.

• Pioneer Status - Tax exemption of 100.0 percent of statutory income for 10 years.

• Investment Tax Allowance (ITA) -ITA of 100.0 per cent on the qualifying capital expenditure within a period of five years

• Import duty and sales tax exemption are provided for equipment used in such RE activities. For locally produced equipment, sales tax exemptions are given.

Green Technology Financing Scheme (GTFS) is a fund amounting to RM1.5 billion set up as an effort to improve the supply and utilization of Green Technology in Malaysia. The scheme is managed by Malaysian Green Technology Corporation (MGTC) and aims to benefit companies who are producers and users of green technology.

Advanced

Renewable

Tariffs

Renewable

Energy

Incentives

GTFS

10

MALAYSIA – Growth Forecasts

Feed-in Tariff Rates

RM 1.23 (US cents 40.5)/kWh for solar (up to 4 kW);

RM 0.31 (US cents 10.2)/kWh for biomass (up to 10 MW);

RM 0.32 (US cents 10.5)/kWh for biogas (up to 4 MW).

Tariffs reduce for higher capacity

BIOMASS FORECAST

SOLAR FORECAST BIOGAS FORECAST

11

CHINA – Policies and Regulations

Golden Sun

Feed in Tariff

12

CHINA – Policies and Regulations

Feed in Tariff

• First nationwide feed-in tariff incentive scheme for photovoltaic (PV) solar installations introduced in Aug 2011

• Solar PV projects approved before 1 July 2011 or completed by the end of 2011 will receive 1.15 yuan per kilowatt hour

• Those approved after the above date will be paid 1 yuan per kilowatt-hour

• China has set a new target of 21 GW of solar installations by 2015

Golden Sun Program

•In July 2009, the PRC Ministry of Finance announced the Golden Sun Program to support the demonstration and application of the PV industry in China.

•Under this program, on-grid PV systems will be subsidized at 50.0% of total investment costs while off-grid PV systems installed in remote regions with no access to grid will be subsidized at 70.0% of total investment costs. However the government has been making changes to the program to make it viable based on current market conditions

•The tariffs will be reduced to 5.5 yuan ($0.87) a watt, down from the 7 yuan set in February, because of the huge drop in module prices

•Developments under this year‟s (2012) programme had to be a minimum size of 2MW compared with 300kW in previous years

•The government has approved 1.7GW of solar projects, well above 600MW approved in 2011

13

China Market Forecasts

14

China Market Forecasts

15

India

INDIA - Policies and Regulations

National Solar Mission

The National Solar Mission (NSM) under India‟s National Action Plan (NAP) for climate change aims to

make the country a leader in the field of solar energy. The targets or outlays, according to the plan, are in

three phases:

•Phase one: 2009 – 2012

•Phase two: 2012 – 2017

•Phase three: 2017 – 2022

Primary Goals Application Funding Requirements till 2030

Increase installed solar power

capacity to 20 GW by 2022, 100

GW by 2030 and 200 GW by

2050.

Increase solar PV domestic

production to 4 GW – 5 GW per

year by 2020.

Achieve grid parity by 2022

Achieve parity with coal-based

power in 2030.

• Utility scale grid connected ground

mounted systems – 12,000 MW.

• Off-grid, on-grid building mounted –

3,000 MW.

• Off-grid rural and industrial – 5,000

MW.

• Solar lighting for 20 million

households and 20 million square

meter for solar heating applications

• Incentive for 18,000 MW of solar power

– INR 819,830 million.

• Grant for demo projects – INR 45,000

million.

• Grant for R&D and R&D capacity

building – INR 48,000 million.

• Grant for rural electrification/ solar

lighting – INR 12,000 million.

16

INDIA - Policies and Regulations

National Tariff Policy, 2006

Grid-interactive renewable power projects based on wind power, biomass, small hydro and solar are mainly

private investment driven, with favourable tariff policy regimes established by State Electricity Regulatory

Commissions (SERC), and almost all-renewable power capacity addition during the year has come through

this route.

State Electricity Regulatory Commissions (SERCs) to fix minimum percentage for purchase of energy from

renewable energy sources taking into account availability of such resources in the region and its impact on

retail tariffs.

Rural Electrification Policy, 2006

The policy recognized that non-conventional energy sources can be appropriately and optimally utilized to

make reliable supply of electricity to each and every household.

State Policies

Several states in India have RE policies that focuses either on one renewable energy technology or a

combination of RE technologies and these are revised on a periodical basis.

17

India Energy Demand to Grow to 429 GW by 2020;

Renewables to account for 72 GW

18

THAILAND – Policies and Regulations

ADDERS

Thailand market offers tariffs that

are called „adders‟ that are paid

over the retail price of the

electricity. The eligible

participants enter into long-term

contracts with the local utility to

sell renewable electricity at a

pre-specified tariff for a pre-

specified period of time. The

program is implemented through

Thailand‟s three electric utilities:

EGAT, MEA, and PEA.

• Very Small Power Producers

(VSPP) regulations: for generators

sized less than or equal to 10 MW

• Small Power Producers (SPP)

regulations: for generators sized

greater than 10 MW and less than

90 MW

The existing adder for solar in

Thailand is $0.3 per Kilowatt hour

(kWh) (8.0 baht/kWh) for 10 years.

However, currently, the government

is contemplating on introducing a

new conservative FiT with an adder

of $0.2/kWh (5.94 Baht/kWh) for 20

years. It is estimated that this new

tariff would be effective for a number

of new application proposals.

What are Adders? Incentive Programs

19

South Africa - Policies and Regulations

South Africa

South Africa's (SA) National Energy Regulator (NERSA) introduced Renewable Energy Feed-In Tariffs

(REFITs) in 2009. SA aimed to produce 10 TWh of electricity per year by 2013. However, in 2012, a new

REFIT was introduced with significant cuts. The tariffs for all technologies are proposed to be reduced,

and in some cases the reduction is more than 40 per cent (landfill gas and photovoltaic).

2009 REFIT and 2011 Revised REFIT with project consumer price index adjustments for years 2012-13 for solar

PV:

REFIT

2009

REFIT

2011

REFIT

2012

REFIT

2013

Percentage change

2011/20091

Technology R/kWh R/kWh R/kWh R/kWh

Photovoltaic ≥ 1 MW

ground mounted 3.94 2.311 2.325 2.338 -41.3%

Although this project is large and shows initiative within South Africa to harvest the great amount of sun

energy it receives, it is actually the first major solar project in this country. Up until recently solar energy

had been neglected as the economy uses coal to generate 90% of its power.

South Africa is therefore waiting for the technology to advance to the stage where the price of PV

equipment, installation and purchase is much lower, and the price of coal is much higher. This will make

solar electricity a much more attractive proposition in the country in comparison to coal.

20

GERMANY

Source: Deutsche Bank Group

21

Germany - Policies and Regulations

Germany

The German parliament passed the bill for revised solar feed-in-tariff (FIT) at the end of March 2012.

The policy went into effect on April 1, 2012.

Decrease %age FIT 2012 (EUR/kWh)

Rooftop solar PV Systems

Less than 10 kW 20% 0.195

10 kW to 1 MW 25-30% 0.165

Above 1 MW 0.135

Ground-Mounted Systems 0.135

• From May-October 2012, FITs for all systems will be reduced by 1% every month.

• The new policy includes limits to the FITs. For systems smaller than 10kW, only 80% of the electricity

generated can obtain subsidies. For systems larger than 10kW and smaller than 1MW, only 90% of

electricity generated can be eligible for subsidies. All electricity generated by systems larger than

1MW is eligible for subsidies.

• The policy indicates that the target for new installations in 2012-2013 is 2.5-3.5GW. After 2013, the

targets for new installations are to fall by 400MW every year. By 2017, the annual new installation

target is 900-1,900MW.

22

Germany - Policies and Regulations

• The amended Renewable Energy Sources Act (EEG) entered into force in January 2009, including an

increased initial tariff for onshore wind energy - EUR 9.2 cent/kWh (USD 12.5 cent), up from 8.7

cent/kWh. The basic tariff was set at 5.02 cent/kWh. There is an annual digression of 1% for new

installations. Hence, since 1 January 2010, the initial tariff for onshore wind was 9.02 cent/ kWh.

• The tariff for offshore wind energy was increased to 13 cent/ kWh, plus an additional “sprinter bonus” of

2 cents/kWh for projects which start operation before the end of 2015. The initial 15 cents/kWh will be

paid for a period of 12 years, and then decreased to 3.5 cent/kWh. There is an additional prolongation if

the offshore site is located in deep waters and at a large distance from the coast. Offshore tariffs will

annually decrease by 5% for new installations starting in 2015

• The new government announced that it will shorten the periods between EEG amendments from four to

three years, and a new amendment is now expected in 2012.

23

USA

USA - Policies and Regulations

• The country does not have a national feed-in-tariff (FiT) policy for renewable energy but has state-wise

renewable portfolio standards and other state specific programs.

Renewable Portfolio Standards (RPS)

State-level renewable portfolio standards (RPS) mandate utilities to generate a certain percentage of their

electricity generation from RE sources by a certain time period. Currently, 29 states have an RPS in place

and 6 additional states have non-binding state level renewable portfolio goals. Some states have a solar

“carve-out” that requires a certain percentage of a utility‟s generation is derived from solar power. RPS

policy designs vary significantly among the states. RPS allows flexibility to choose whichever RE sources

are most appropriate for their states.

11 states undertook several modifications to their RPS programs in 2007 mainly to strengthen pre-

existing RPS requirements by increasing RE targets, removing supplier exemptions, or adding resource–

specific set asides. RPS is the major driver for utility scale solar power plants in the USA.

Investment Tax Credit (ITC)

The solar tax credits were originally enacted in 2005. In Oct 2008, the ITC for solar got an extension for a

8-year period till the end of 2016, providing a medium-term deadline to invest. The 30.0 percent tax credit

on the capital cost of a PV project installation applies to both residential and commercial solar

installations. The solar ITC provisions will -

24

USA - Policies and Regulations

•· Eliminate the $2,000 monetary cap for residential solar electric installations, creating a true 30-percent

tax credit (effective for property placed in service after December 31, 2008);

•· Eliminate the prohibition on utilities from benefiting from the credit;

•·Allow Alternative Minimum Tax (AMT) filers, both businesses and individuals, to take the credit;

•·Authorize $800 million for clean energy bonds for renewable energy generating facilities, including solar.

California Solar Initiative (CSI)

• The CSI program has a total budget of $2.167 billion between 2007 and 2016 and a goal to install

approximately 1,940 MW of new solar generation capacity.

• The CSI-Thermal portion of the program has a total budget of $250 million between 2010 and 2017, and

a goal to install 200,000 new solar hot water systems.

• The CSI program is funded by electric ratepayers and the CSI-Thermal portion of the program is funded

by gas ratepayers. The CSI program is overseen by the California Public Utilities Commission and

rebates are offered through the Program Administrators.

25

Indonesia Per Capita Electricity Consumption – Way to Go!

The power consumption per capita is the lowest in the region despite the abundant

natural resources present

0

2000

4000

6000

8000

10000

12000

14000

Indonesia Vietnam Philippines Thailand Malaysia Singapore India China USA

kWh per capita

Source: World Bank

26

Indonesia - Geothermal dominates RE sourced power

electricity production and will continue doing so up to 2016

Source: Frost & Sullivan

78% 76%72% 72% 69%

65% 62%

9% 11%12% 12%

13%15% 16%

12%14% 13% 15%

16% 17%

1% 1% 1% 2% 2% 2% 2%1% 1% 1% 2% 2%1% 1%12%

2010

Solar 100%= 1537 1728 1932 2390 2608

2011 2012 2013 2014 2015 2016

Geothermal

2914 3256

Electricity Generation Mix Using Renewable Energy:

Total Installed Capacity (MW)

Biomass

Biogas

Co-

generationl

Wind

• Geothermal usage is

expected to increase and

would become the

Indonesia‟s largest

renewable energy electricity

source that connected to

the main grid

• Biomass and cogeneration

is in second and third place

providing significant

electricity renewable energy

source to Indonesian main

grid

• Wind ,Solar and Biogas is

not yet connected to main

grid and each capacity is

below 2 % of total national

RE capacity as it is in early

stage of development.

27

The interconnection will drive more efficiency into the system and help to better

manage the discrepancies in demand supply with the anticipated growth

Java Bali

Sumatra

interconnection

Indonesia - Implications for Market Participants

Since it is impossible to extend the grid to all far flung regions of Indonesia, small

scale off grid renewable energy generation should form a key part of Indonesian policy

Disbursed

Renewables

With average project cost at $2.4 to $3.2 per MW, which is lower than the

international costs, Indonesia can attract significant investments with more favorable

government policy support

Geothermal

power

development

Other regional markets like Vietnam and now Myanmar are vying for international

financing in power sector. Without more liberalization of the power sector Indonesia risks

loosing out to other countries.

Other

Regional

Markets

28

Summary of Opportunities for Indonesia

2 Capital expenditure on T&D expansion

about US$11.1 billion

3 Increasing bilateral cooperation for

renewable energy development (i.e.

Finland and New Zealand)

4

With a 30% renewable energy

objective by 2030, the medium term

opportunity us about US$12.4 billion by

2020

5 Country investment rating upgrades

generating more interest among global

investors

1 Potential investment for power

generation is about US$33.5 billion by

2017

Source: Frost & Sullivan analysis.

29

Q&A

Ravi Krishnaswamy

kravi@frost.com