What our company, PT Inovasi does is to empower rural communities through

innovation. We do this through four activities: Engage community members, design a

plan for growth, manage the implementation, and monitor progress
Enough about us and what we do, let’s talk minigrids in Indonesia, its policies and
possible business models
Three success factors are required for a successful rural minigrid project.
Unfortunately the factors lie with different stakeholders. By success I mean that the
investment in the minigrid can be sustained, the community receives the electricity
that is fit for purpose and at a cost they can afford, and the system continue to provide
the infrastructure for growth to the community. Three success factors are required for
this.
In Indonesia there is not a single entity tasked with planning AND have the authority
to execute the plan for rural electrification. Especially not one that is an integrated
plan to bring in economic activity, social acceptance, and sustainability
The second thing to consider is what kind of technology do we want to bring in. At the
same time, how do we plan to pay back the investment and plan for growth and
sustainability. Both go hand in hand, because the technology will affect capital
expenses, operational expenses, cost of additional power and energy.
Lastly, who’s paying for it? And for what portion. In the capital expenses we have 3
components: the power plant, distribution network and reticulation, and building
installations. Is the investor responsible to pay for all of these? Or can the burden be
shifted somewhere else? What about the utility company for the distribution network?
What about the homeowners for the building installation and meters? For future
growth, who will pay for additional power? Batteries if needed? For repairs and parts
replacement? Are these included in the revenue stream? How will the community
pay for the electricity? Is it a simple utility company model? Or is there a different
model?
Enough light talk, let’s get serious now. What are the applicable policies, permits and
licenses in Indonesia?
The Indonesian Constitution, Article 33 Paragraph 3 states: “Bumi dan air dan
kekayaan alam yang terkandung di dalamnya dikuasai oleh negara dan dipergunakan
untuk sebesar-besar kemakmuran rakyat”. Which translates to the earth, water and
natural resources within it are under the authority of the state and to be used for the
maximum prosperity of the public. What this means, and it has been argued in the
constitutional court that the government should be in charge of providing electricity to
the public. The electricity law number 30/2009 had been challenged in court and the
government lost the case.
The Indonesian Electricity Law number 30/2009 is the most current law governing the
electricity business in Indonesia. It covers: Power generation, transmission,
distribution and sale of electricity.
Oops sorry that was the wrong electricity law. This law governs the licenses required
for the various electricity business. Largely, what this law does is set PLN,
Indonesia’s state owned electricity utility company at the same level as the private
sector. They are required to hold the business area license to sell electricity. The
same as anyone else who want to sell electricity to the public. You can see the map
of the other license holders at the end of this presentation.
For the business area license for electricity, there are two implementing regulations
issued by the Indonesian Ministry of Energy and Mineral Resources. One is a
general license for all companies who want to sell electricity: MEMR regulation
28/2012. The other one is specific to rural minigrids with the procedures for tariff
setting and subsidy requests. Don’t get excited now… due to political pressures, it is
not easy to go through this procedure and get the subsidy. So far there has been
ZERO companies who have been successful. One company with a EUR 67 billion
annual revenue in 2016 took 18 months to request for the license in one tiny island in
Papua (an area of about 160km long and 12.5km wide)
The other license you will need to get is the license to operate your power generation.
The Indonesian term for it is IUPTL : Business License for Electricity Generation.
Guess who governs the implementation regulation for this process?
Yep, Ministerial regulation. It is MEMR regulation 35/2013.
For the actual generation, distribution and building installation, each will require their
own certificate of operational readiness (called SLO) in Indonesia. Guess who
governs this process?
Yep, Ministerial regulation. It is MEMR regulation 10/2016.
So, knowing those regulations, how do we make a business out of it? We’re not
going to look at risks and benefits, we don’t have time for that. But simply the
business models that can exist without navigating away from existing regulations.
Let’s go back to the initial issues, starting with planning. Since there isn’t a central
agency doing the planning for the country, and have the authority to execute the plan,
the private sector will have to be involved. This is a two edged sword where the
private sector can be generous and actually provide what the community needs. I’ve
not seen one company do this yet. Typically the other edge of the sword is
applicable. A plan based on the technology controlled by the company and/or the
business model they want to implement. For example, why install solar systems
when there is abundant hydro power available? Why provide pay as you go solar
home systems if there is high economic activity that can use the electricity? Or the
reverse, why provide a full capable grid when the household energy demand is low?
The key here is that the private sector will have to develop the project, they won’t
appear out of nowhere. You’re the one who has to visit the communities and figure
out which area is feasible for your business model and technology.
Speaking of technology and business model, let’s look at what’s available out there
starting with technologies. Let’s limit it to minigrids. What’s the market size, and how
can we navigate through the regulations. We need to make sure that we are
separating: ownership, revenue stream, funding source, and technology
Funding: this is an important detail on how to make this sustainable. We need to
understand the various little bits of where the sources of investment, grants,
incentives, subsidies and income can come from. The capex can be split between
the generation (private sector), distribution (utility company), and building installation
(building owner). Various grants and subsidies for rural communities can be available
for the capex as well. For the opex, consider a model where the local government
can be involved in some of the funding for operational and maintenance (village fund
for example), repair, and growth. This is a highly dynamic condition and will need to
be revisited often.
There are 2.424*) unelectrified villages across Indonesia
(Based on BPS/Indonesian Statistic Agency)
• Status up to December 2016

With only 600 Wh daily consumption per household, there is a need for almost 1GWp
of off-grid solar systems.
Microgrid Business Model #1
Mini Utility – Typical way we would do things: a mini utility company for off-grid areas
selling to the community members. This will require the investor to navigate within
MEMR Regulation 38/2016
Microgrid Business Model #2
Anchor tenant – Basically still a mini utility who sells electricity to an anchor tenant at
a higher cost so subsidize the electricity sale to the rural households. Ideally the tariff
to the households is the same as the utility company to ease permitting process. This
will require the investor to navigate within MEMR Regulation 38/2012
Microgrid Business Model #3
Mini IPP– sell electricity to PLN, the state owned utility company for off-grid
applications. Not connected to any existing grid, but provide electricity to the off-grid
clients. The IPP will charge the utility company for the energy produced where the
utility company (PLN) claim these off-grid clients as their own.
Microgrid Business Model #4
Multi service utility – Identify what the community needs and provide multiple services
such as water and electricity.
Microgrid Business Model #5
Community owned – Work with the community to provide a way for them to own a
part of the system. What this allows is for the permit requirements to now be under
the self-use electricity generation. Once the investment is paid back, it is possible for
the community to reduce the tariff to the connected households to be lower than that
of the utility company’s. Especially if the utility company’s tariffs continue to increase.
Microgrid Business Model #6
Lease to Own – identify the community’s ability to lease the electricity system to the
project. This will require an additional institution to supervise the process, which is
the national financial authority (OJK).
Microgrid Business Model #7
Other ideas – Work with PLN to operate any of their isolated mini and microgrids
across Indonesia. B2B agreement with other private sector companies.
So remember that putting together a minigrid that is sustainable is a complex process.
Regulations change. Behaviors change. Without the proper planning, without the
understanding of both the technical issues and the human stakeholders, and without
taking into account the community’s real needs, the project will fail. It may not be in
the first year, but it will happen.

This is why we spend our resources to ensure that we can engage with the
community, we create a plan based on their needs, technically, economically and
socially. The technologies we implement are fit for purpose within the context of the
community’s needs and resources.

I’ve seen projects with good productive use of energy planning, a good community
based payment system, and other success factors in place to still fail. 80% of the
electricity clients stopped paying regularly. Once the pattern of non payment is
started, it will increase until nearly everyone will also stop paying.
31
Yep, Ministerial regulation. It is MEMR regulation 10/2016.
Map and list of business area license holder for electricity
Source : Ministry of Energy and Mineral Resources of Indonesia
Yep, Ministerial regulation. It is MEMR regulation 10/2016.
38
This is a typical minigrid system we find throughout the world. How long do we keep
them separated?
When designed properly, they can be connected together as needed and as the
logistics make sense
Even when the utility grid comes in, they all can still be connected
A better idea, especially if the minigrids have reached their payback period and have
a low cost of operations, the utility grid can be used only for a backup.
43

This is the system that our founder and team members designed and implemented in
Papua. It worked well within its limitations and our team members are currently
designing newer versions of this design for various power levels, complexity, and
reduced expenses (investment cost and operational cost)