What is the BPP?
The BPP figures represent the cost to PLN of procuring power from the different systems/sub-systems listed in the 2020 BPP Decree. PLN's cost of procuring power is a combination of (i) the cost of PLN generating this power itself through its own power generation plants, and (ii) the cost of PLN procuring power from third party suppliers (such as Independent Power Producers (IPPs) and power rental companies). Given their importance in the energy mix, these costs are heavily weighted by coal power production prices.
The BPP figure is critical in that it feeds into how the tariff for IPP projects is set. For example, for solar projects, if the local BPP is higher than the national BPP, the tariff will be capped at 85% of the local BPP. If the local BPP is equal to or lower than the national BPP, the tariff will be based on mutual negotiation between PLN and the IPP. Although this does not necessarily mean that the negotiations will conclude that the tariff will be set at the local BPP, presumably the negotiations will be on the basis that the tariff will be lower than the local BPP.
The MEMR is required to publish BPP numbers for systems and sub-systems across the country each year. However, the MEMR did not publish the 2019 BPP numbers in 2020. Although no reason was given, this was likely due to the COVID-19 pandemic, which resulted in a decline in power demand. As PLN has not issued a tender for new IPP projects since the beginning of the COVID-19 pandemic, there was no real urgency to update the numbers.
The figures in the 2020 BPP Decree are to be used to determine the tariff ceilings for the period from 8 September 2021 to 31 March 2022 (by which time a new set of BPP numbers for 2021 should be published).
How do the 2020 BPP and 2018 BPP numbers compare?
The average national BPP decreased to USD 7.05 cent/kWh or IDR 1,027.70/kWh (a 10.3% decrease from the USD 7.86 cent/kWh specified in the 2018 BPP Decree). We have set out in Annex 1 a comparison of the 2018 and 2020 BPP numbers.
The local BPP in most parts of the country also decreased (including throughout most of Java, Bali and Sumatra), with the exception of a few relatively remote areas in Kalimantan, Sulawesi, Papua and Nusa Tenggara (for which a significantly higher BPP has been set).
As with previous BPP decrees, the 2020 BPP Decree provides that the BPP for any particular area not yet supplied with electricity by PLN, or that does not yet have an average BPP determination, will be equal to the highest average BPP provided in the 2020 BPP Decree (i.e., USD 19.25 cent/kWh or IDR 2,805.50/kWh).
Conclusion
Although the decrease in the BPP numbers may be challenging for developers, the MEMR recently published the latest PLN business plan (RUPTL). This has been dubbed as the "green RUPTL" due to the significant increase in the renewable target and the scrapping of future coal projects. Hand in hand with this, the Government has also been preparing a draft presidential regulation on renewable tariffs, which is expected to re-introduce "feed-in-tariffs" and set a "tariff ceiling" mechanism. Despite the decline in the BPP, hopefully these new initiatives will provide a much needed boost to renewable projects development and will help to drive investment in this area.
This publication was issued by HHP Law Firm (Hadiputranto, Hadinoto & Partners), a member firm of Baker McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner or equivalent in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome."
