Sunpower and Indonesia

Prepared for Global Business CapstoneTaught by Professor Stefan Lippert

Steven Locorotondo

Temple University Japan, Summer 2015

Table of Contents

1 Introduction.........................................................................2

2 Market Analysis....................................................................2

2.1 Overview..................................................................................................................................2

2.2 Current Energy Market.............................................................................................................3

2.2.1 Energy Mix...........................................................................................................................3

2.2.2 Electrification rate................................................................................................................5

2.2.3 Electricity consumption........................................................................................................7

2.2.4 Installed Solar Capacity and Potential..................................................................................8

2.2.5 Key players...........................................................................................................................8

2.2.6 Regulations, Feed in Tariffs, and Subsidies...........................................................................9

2.3 General Conditions for Solar...................................................................................................10

2.3.1 Environmental Conditions..................................................................................................10

2.3.2 Grid Parity..........................................................................................................................11

2.3.3 Grid Structure.....................................................................................................................12

2.4 Trends and projections...........................................................................................................12

2.5 Concluding remarks................................................................................................................14

3 Sunpower Company Analysis...............................................14

3.1 Value Chain.............................................................................................................................14

3.2 Market segmentation.............................................................................................................15

3.3 Technology.............................................................................................................................16

3.4 Production Facilities...............................................................................................................17

3.5 Financial Assessment..............................................................................................................17

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3.6 Concluding remarks................................................................................................................18

4 Feasibility..........................................................................19

5 Financial projections...........................................................19

6 Risks and Uncertainties......................................................21

7 Conclusion.........................................................................22

8 Appendices........................................................................23

9 Works cited........................................................................24

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1 Introduction

Sunpower Corporation (Sunpower) is a technology company established in 1985. The

company is headquartered in San Jose, California, and is engaged in designing and

manufacturing of solar panels and other solar related equipment, as well as installing and

monitoring of solar plants. The company, today, has operations in Africa, Asia, Australia,

Europe, North America and South America. Total S.A., the French multinational oil company,

has been the majority shareholder since 2011. As the company’s footprint becomes larger it

is forced to look at new markets for expansion. This report will analyze the attractiveness of

the Indonesian market in order to determine if Sunpower should enter. The report will

begin with an extensive analysis of the Indonesian energy market. This will be followed be

an analysis of Sunpower. These analyses will allow to determine the feasibility of Sunpower

setting up operations in Indonesia. Finally, the report will discuss risks and uncertainties

surrounding an entry and conclude with a plan of action for Sunpower.

2 Market Analysis

2.1 Overview

The Republic of Indonesia (Indonesia) is an archipelago comprised of thousands of

islands. Its central location in Southeast Asia makes it a valuable hub for companies seeking

easy access to surrounding countries. Indonesia is a founding member of the Association of

South East Asian countries (ASEAN), which was formed in 1967 to promote economic

cooperation and political stability (“Association of Southeast Asian Nations“ n.d.) as well as a

member of the G20. The country has vast natural resources including natural gas, coal and a

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variety of metals and minerals and much biodiversity (Henstridge, Sourovi, and Jakobsen

2013).

In 2014, the country had a population of 249.9 million, making it the fourth most

populated country in the world (“OECD Data Indonesia” n.d.). GDP for the same year was

$2.674 trillion. This makes Indonesia the largest economy in Southeast Asia and the 16th

largest economy in the world. In Asia, only China, Japan, India, and South Korea have larger

economies. Since 2005, GDP has grown at an annual rate of 5% and is expected to continue

growing at 5.2% through 2017 (“Indonesia Data”). Despite having the such a large GDP, per

capita income lags behind countries such as Thailand and Malaysia ("Asia: GDP per Capita").

The biggest contributors to GDP growth in Indonesia are the industry and services sectors

with the latter becoming the largest contributor to GDP at over 50% (Henstridge, Sourovi,

and Jakobsen 2013).

2.2 Current Energy Market

2.2.1 Energy Mix

19951996

19971998

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20110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Coal Hydroelectric sources Natural GasOil Renewables

4

Figure 1. Indonesia’s energy mix from 1995 to 2011. Source: World Bank.1

Indonesia has seen great changes in its energy mix (see Figure 1). In 1995, natural

gas, which was abundant, provided 42% of the nation’s energy supply. The second most

prominent source of energy for the same year was coal with 24.7%. Surprisingly, oil and

hydroelectric sources accounted for an almost equal percentage of energy at around 16%.

Combining the 3.5% of other renewables in that same year put Indonesia at a total of almost

16% of its total power generation by renewables, a percentage that puts developed nations

to shame today. Unfortunately, this energy mix was not sustained over the years. In 2011,

the last year reliable data could be found, the share of renewables (including hydroelectric

sources) declined to less than 12%. Power generation by coal and oil have increased to

44.4% and 23.25% respectively while power generation by natural gas has declined to

20.3%. This represents a 87.9% share of energy production derived from fossil fuels.

CO2 development

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100000

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CO2 emissions (kt) CO2 emissions from gaseous fuel consumption (kt)CO2 emissions from liquid fuel consumption (kt) CO2 emissions from solid fuel consumption (kt)

CO2

emiss

ions

in k

t

1 Renewables include electricity generated from Solar, Wind, Biomass, Biofuel, Geothermal, and Nuclear.

5

Figure 2. CO2 emissions in Indonesia from 1995 to 2011. Source: World Bank.2

Indonesia’s increasing dependency on fossil fuels has not come without problems.

Extensive use of fossil fuels for energy generation have caused a severe rise in CO2 emissions

(see Figure 2). In 2011, CO2 emissions from solid fuel consumption, which include coal, made

up 44% of the countries total emissions. This represents an annual growth rate of 5.9% from

1995 to 2011. These high levels of CO2 emissions could become a severe problem for

Indonesia in the future. High levels of CO2 emissions are the primary cause of human

induced climate change and could impact temperature, rainfall, sea-levels, and be a threat

to local food security (Measey 2010).

In 2006, the Indonesian government passed a presidential regulation supposed to

make the country’s energy mix less dependent on coal. The policy states that the country

will reduce its coal consumption to 33% by 2020. The target ratios for oil and natural gas are

set at 20% and 30% respectively. The remaining 17% are to be supplied by renewable

sources such as biomass, biofuel, hydropower, nuclear, geothermal, solar, and wind power

(Government of Indonesia 2006).

2.2.2 Electrification rate

Despite being the largest economy in the Southeast Asia, Indonesia has low

electrification rates.3 The country being made up of thousands of small islands makes the

task of central energy distribution very difficult. Electrification rates vary greatly across the

different regions of Indonesia with Jakarta, Aceh, and Bangka having electrification rates of

2 Includes CO2 emissions from the burning of fossil fuels and the manufacture of cement.3 Electrification rates describe the percentage of households with access to electricity.

6

around 90% while less fortunate regions such as Papua, and East and West Tenggara see

rates of around 40% (Sakya 2015).4

2005 2006 2007 2008 2009 2010 2011 2020*0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

0.00%

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6.00%

8.00%

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12.00%

14.00%

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18.00%

20.00%

electrification rate poverty rate

Figure 3. Average electrification and poverty rate in Indonesia from 2005 to 2011 and

electrification target for 2020. Source: BPS, World Bank.

Indonesia has neverhtless made substantial efforts to improve access to electricity.

From 2005 to 2011, the average electrification rate increased from 62% to 73.7% (see Figure

3). As made clear in the previous section, the country’s electrification is driven by fossil

fuels, with coal being the most prominent source. The increased electrification is a result of

the governments commitment to provide electricity to 90% of all households by 2020

(Syrantoro n.d.). The same figure displays an additional interesting point. Poverty rate has

been on a constant decline since 2005.5 While passing the poverty threshold does not imply

an immediate increase in energy demand it indicates demand for energy will keep climbing

as quality of life improves in Indonesia.

4 See Appendix 1 for a map of Indonesia. 5 Percentage of people below poverty line. Indonesian poverty line set at $24.4 per month.

7

2.2.3 Electricity consumption

19951996

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0%2%4%6%8%

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Share of renewables in energy production (% of total)Share of wind and solar in energy production (% of total)Energy production in TWh

TWh

Figure 4. Energy production, share of renewables, and share of wind and solar from 1995 to

2014. Source: Enerdata.6

As expected, Indonesia’s energy production has increased with the country’s

electrification (see Figure 4). Total energy production reached 227TWh in 2014. The increase

in production has, however, outpaced the electrification rate from 1995 to 2011.

Electrification has increased at an annual rate of 2.9% from 1995 to 2011 while production

increased at an annual rate of 7.3% for the same period. Energy production has also

outpaced population growth rates which stood at 1.4% from 1995 to 2011. This indicates

that the increase in production is not only driven by an increase in electrification but also by

a general increase in demand.

6 Share of renewables includes energy produced by wind and solar.

8

2.2.4 Installed Solar Capacity and Potential

Indonesia had a total power generation capacity of around 40000MW at the end of

2012 (PWC 2013). At the end of 2013, the total installed solar capacity was believed to have

reached 59MW (“80 Solar Power Projects” 2013). Those 59MW of installed capacity include

on-grid and off-grid installations. Assuming that total power generation capacity increased

by 5.2% through 2013 (projected GDP growth rate), power generation capacity by solar

represented a mere 0.1% of total generation capacity for that same year. Indonesia’s solar

capacity also stands in stark contrast to leading nations such as Germany, China, and Italy,

which have installed solar capacities of 35500MW, 18300MW, and 17600MW respectively

(Locorotondo 2015). The minister for Energy and Mineral resources, Jero Wacik, is on record

saying that he believes Indonesia’s solar potential to be 50000MW (“80 Solar Power

Projects” 2013). At these levels, Indonesia would be one of the leaders in solar.

2.2.5 Key players

One of the key players in the Indonesian energy market is undoubtedly Perusahaan

Listrik Negara (PLN). The government owned electricity provider dominates the energy

market and owns and runs the electrical grid. As of March 2012, the company’s energy

portfolio had a cumulative capacity of 32000MW and included power plants on all major

islands in Indonesia.7 PLN’s energy portfolio relies heavily on fossil fuels with 83.5% of its

capacity coming from the latter. Coal is the most dominant source with 42% followed by oil

and natural gas with 24% and 23% respectively. With this capacity, PLN has roughly 80% of

the market share. The remaining 20% of power generating capacity is held by independent

7 See Appendix 2 for a detailed description on PLN’s energy portfolio.

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power producers (IPP), which have entered the market since 2009 after Indonesia passed a

new regulation allowing them to begin generating and selling electricity (Sonal 2013).

An additional key player in the Indonesian energy market is the current president

Joko Widodo, who assumed office in October 2014. He is a member of the Indonesian

Democratic Party of Struggle. Before his election, the Indonesian government had voted a

policy in 2006 to reduce its dependency on fossil fuels and increase its share of renewables

to 17% (Government of Indonesia 2006). Unfortunately, the previous government was slow

at triggering change, which resulted in an increased dependency on coal. The situation is

likely to improve as the new president has pledged to direct significant resources to energy

infrastructure (Tsagas 2015).

The Indonesian solar market has historically been dominated by Chinese and

Japanese manufacturers. There are, however, six local players that have attempted to gain

ground in the Indonesian solar market. Persero, Adyawinsa Electrical & Power, Surya Utama

Putra, Swadaya Prima Utama, Azet Surya Lestari, Wijaya Karya Inatrade Energi have a

combined production capacity of 90MW (“Solar Panels in Indonesia” 2014).

2.2.6 Regulations, Feed in Tariffs, and Subsidies

In an attempt to encourage the development of the local solar industry the

Indonesian government introduced a new regulation to provide companies with an

incentive to use locally sourced components. The Ministry of Energy and Mineral Resources

Regulation No. 17, which was introduced in 2013, offered varying solar power feed-in-tariffs

(FIT) depending on the project’s use of locally sourced components. For example, solar

power project using at least 40% of components from local manufacturers will receive $0.30

per kWh fed back into the grid. On the other hand, solar projects using less than 40% of

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components from local manufacturers will receive only $0.25 per kWh fed into the grid

(“Solar Panels in Indonesia” 2014).

Indonesia has a long history of paying energy subsidies. The subsidies were initially

introduced in the 1970s to provide underprivileged households with energy. Since a lot of

underprivileged households do not have access to electricity and little or no need for

gasoline most of those subsidies go to middle class people that can afford homes with

adequate access to power and cars. In 2013, the Indonesian government paid a total of $27

billion of energy subsidies. This represented around 2.5% of GDP. Although the subsidies are

viewed as a form of social assistance they have, in the case of Indonesia, led to artificially

low energy prices that have encouraged wasteful energy consumption and prevented the

alternative energy sources to compete on a level playing field (“Indonesia Energy Subsidy

Review” 2014). As stated above, this situation is likely to improve with the election of the

new president who has pledged to reduce energy subsidies. The reduction in energy

subsidies will improve the outlook for renewable energy sources (Tsagas 2015).

2.3 General Conditions for Solar

2.3.1 Environmental Conditions

Located along the equator, Indonesia has a tropical climate. Coastal areas have a

yearly average temperature of 28°C while the mountainous inland regions average a yearly

temperature of 26°C. The country averages 2975 hours of sunshine per year, which

represents about 8 hours per day (“Jakarta, Java Climate & Temperature.” n.d.). Average

annual irradiation is estimated to be between 1460 to 2000 kWh/m2 (Jacobs 2012).

Humidity ranges from 70% to 90% (“Indonesia – Climate.” n.d.). The country has two

seasons: a dry season (May to September) and a rainy season (October to April) (“Indonesia:

Weather & When to Go.” n.d.). Western regions such as Java, Bali, Kalimantan and Sulawesi

11

have rainfall of 2000 millimeters per year while eastern regions such as Tenggara, Maluku,

and Papua have rainfall of 1000 millimeters per year (“Indonesia – Climate.” n.d.).

2.3.2 Grid Parity

Figure 5. Grid parity in Asia and the Middle-East as of 2010. Source: Q-Cells.

As can be seen in Figure 5, Indonesia’s solar produced energy is far from reaching

grid parity. This is largely due to the energy subsidies paid by the Indonesian government.

These subsidies keep energy prices artificially low, making it difficult for solar to reach grid

parity with current technologies.

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2.3.3 Grid Structure

The geography of Indonesia presents a challenge for power distribution. Therefore,

the country’s power distribution has not yet been able to reach the most remote corners. As

stated earlier, Indonesia’s electrical grid is controlled by government owned PLN. The

company plans to develop a 500kV power transmission grid in eastern Sumatra, a region

that has so far been under connected (“PLN Will Develop the 500 KV Transmission Grid”

2014). Almost all small islands as well as large parts of east Indonesia rely on independent

local grids for electricity.

2.4 Trends and projections

The solar industry in Indonesia is seeing an upward trend. The trend is noticeable in

three main areas. First, as previously stated, the government has pledged support to local

PV manufacturers. Solar plants will have to use a specified minimum amount of locally

sourced equipment and FITs for solar plants using above certain percentage of locally

sourced equipment will be higher than others. Second, and also mentioned above, the

newly elected president will reduce energy subsidies, which will make solar plants more

attractive to investors as energy prices converge to their natural equlibrium. Third,

25000MW of the 35000MW power development program by the Indonesian government

will be open to IPPs with the rest being developed by PLN (“PLN Eyes Extra Capital” 2015).

This will present ample opportunity for solar companies.

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2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 20250

50

100

150

200

250

300

Solar capacity (conservative) Solar capacity installed (intermediate)Solar capacity installed (optimistic)

in M

W

Figure 6. Installed solar capacity projections from 2015 to 2025. Source: author’s estimates.

In order to include potential uncertainties when making projections about future

installed solar capacity, three scenarios were calculated. The initial installed capacity was

calculated by taking the installed capacity for 2013 an applying a 2.9% growth rate.8 The

installed capacity for 2015 was estimated at 62MW. The conservative estimate projects an

installed capacity of 104MW for 2025.9 The intermediate estimate projects an installed

capacity of 126MW.10 The optimistic estimate projects an installed capacity of 253MW.11 If

total energy capacity reaches 75000MW by the end of 2025, the share of solar is estimated

to be between 0.14% and 0.33% of total capacity.

2.5 Concluding remarks

Overall, the analysis of Indonesia’s energy market has shown that the country

presents good opportunities for solar, albeit with a couple of difficulties. The country’s GDP

8 This growth rate represents the electrification rate from 1995 to 2011.9 5.2% growth rate represents the expected GDP growth rate through 2017.10 7.3% growth rate represents the energy production growth rate from 1995 to 2011.11 15% growth rate represents a third of the Japanese solar adoption rate from 2008 to 2013.

14

is projected to grow at a fast rate compared to other developed nations. Additionally, the

economy is shifting towards the industrial and services sector. The environmental conditions

are also favorable for solar with good yearly irradiation and a temperature range that allows

efficient use of solar panels. The key driver for adoption will undoubtedly be the country’s

high electrification rate, which will increase demand, and the favorable policy development

of the new government. The difficulties will lie in the countries archipelago disposition and,

for foreign companies, the stipulation that solar plants will require a certain percentage of

locally sourced equipment. Additionally, the fragmented grid will present a challenge as it

will drive initial investment costs.

3 Sunpower Company Analysis

3.1 Value Chain

Figure 7. Solar industry value chain. Source: author.

Figure 7 displays the value chain of the solar industry. Colored in blue are the

activities covered by Sunpower. As can be seen, Sunpower is vertically integrated from the

module production to the maintenance of solar plants. The company provides all the parts

needed for a Solar installation. The parts include solar panels, mounting structures, grid

interconnection equipment, and inverters (Sunpower 2014). This allows Sunpower to

maintain a high level of quality as well as high customer responsiveness (Locorotondo 2015).

Polysilicon Wafers Cells / modules DistributionEngineering,

procurement, and construction

Maintenance and recycling

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3.2 Market segmentation

The solar industry is divided into three segments. The three segments are residential,

commercial, and utility. The segments are divided by output capacity and specific needs.

The residential segment ranges from 1-20kWp while the commercial segment covers output

capacities of 20-1000kWp. The largest sector, utility, covers includes solar plants with

output capacities above 1000kWp (Locorotondo 2015).

In 2014, Sunpower has made efforts to develop complete residential solutions to

reduce complications involved with individually assembling a system. A new technology

acquired by Sunpower allows the company to ship panels with factory-integrated

microinverters (Sunpower 2014). This innovation improves installation times. The company

also supported its hardware innovation with the development of proprietary monitoring

applications that are aimed at providing the end customer with more transparency into

their energy production and consumption.

In the commercial segment Sunpower offers a variety of solutions to address a wide

range of site requirements. These include operating systems designed to support future grid

connectivity, sun tracking systems that rotate panels during the day, and solar concentrators

(Sunpower 2014). Just as in the residential segment, Sunpower has made efforts to make

these components easy to install in order to reduce costs.

In the utility segment Sunpower follows a, fully integrated, vertical approach

constructing and developing large scale solar plants. In recent years, the company has

shown commitment to developing large scale plants. Some of the company’ largest projects

include the Solar Star project and the California Valley Ranch project. The solar plants have

an output capacity of 579MW and 250MW respectively (Sunpower 2014).

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3.3 Technology

0.20%0.30%0.40%0.50%0.60%0.70%0.80%0.90%0%

5%

10%

15%

20%

25%

Sunpower (X-series) Yingli Green Energy (PANDA 45)Trina Solar (PA05) First Solar (Series 4)

Degradation rate

Efficie

ncy

Figure 8. Sunpower, Yingli, Trina, and First Solar panel technology comparison. Source:

company websites.

Figure 8 compares Sunpower’s panel technology to three of its main competitors. As

can be observed, Sunpower offers superior technology. Yingli, Trina, and First Solar offer

what appears to be an industry average. Sunpower’s X-series offers an efficiency of 21% and

a yearly degradation rate of 0.25%. Its closest competitor, Yingli’s PANDA 45, offers an

efficiency of 17.20% and a yearly degradation rate of 0.71%.

3.4 Production Facilities

2013 2014

Philippines $321,410.00 $335,643.00

U.S. $153,074.00 $183,631.00

Mexico $32,705.00 $40,251.00

France $25,293.00 $24,748.00

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Table 1. Sunpower’s property plant and equipment by location at the end of fiscal 2014. In

thousands of USD. Source: Sunpower annual report 2014.

Sunpower owns production facilities on three different continents (see Table 1).

These production facilities are used to assemble the company’s solar panels. The company’s

largest facility is located in the Philippines. This is likely an attempt by Sunpower to benefit

from lower labor costs in Southeast Asia. Interestingly however, from 2013 to 2014, the

company increased its investment in the U.S. by 19.9% compared to only 4.4% in the

Philippines. This could be an attempt to improve demand responsiveness in the growing U.S.

market. Combined, the four facilities have an annual production capacity of 1.7GW.

Additionally, Sunpower has partnerships with secondary producers in China and the U.S. to

assemble its solar panels (Sunpower 2014).

3.5 Financial Assessment

2012 2013 2014

Profitability Ratios

Gross Margin 10.19% 19.59% 20.65%

EBITDA 0.05% 9.67% 11.91%

Liquidity Ratios

Quick Ratio 0.93 0.7 1.54

Current Ratio 2.02 1.32 2.13

Debt Management

Interest coverage -3.43 1.46 3.58

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Long Term Debt to Equity 0.82 0.35 0.59

Table 2. Sunpower’s financial ratios from 2012 to 2014. Source: Morningstar.

Sunpower’s ability to invest in new projects will depend on its financial health. Table

2 displays financial ratios that were deemed most important for the company’s ability to

invest. As can be seen, the company was profitable from 2012 to 2014. The company

managed to increase its gross margin and EBITDA by roughly 10 percentage points from

2012 to 2014. The company also displays healthy liquidity ratios. Quick ratio and current

ratio have both improved from 2012 to 2014 and show that the company is able to meet its

short-term obligations. Interest coverage has seen the biggest improvement from 2012 to

2014. At the end of fiscal 2014, the company was able to cover its interest expense by more

than 3 times.

3.6 Concluding remarks

The analysis of Sunpower revealed a company with strong fundamentals. Vertical

integration insures that the company is able to offer reliable quality and makes it less

dependent on partners. Additionally, Sunpower offers a broad range of products and

services tailored to the specific needs of a broad range of customers. Having production

facilities on three continents reduces the company’s risk of production outages caused by

natural disasters or political instabilities. It also offers the access to a broader variety of

customers. Finally, the company’s strong financial performance gives it the opportunity to

make capital investments while remaining solvent.

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4 Feasibility

The following section will combine the analysis of Indonesia’s energy market and

Sunpower’s company analysis to determine the feasibility of an entry to the Indonesian

market. As made obvious in the analysis above, the Indonesian energy market is undergoing

rapid change. The government’s commitment to raise electrification rates to 90% by 2020

presents a huge opportunity for IPPs. Moreover, the government has pledged to reduce

energy subsidies, which will make it easier for renewable energy sources to compete.

Sunpower appears to have all the right mechanisms in place to benefit from the changing

energy landscape in Indonesia. There are numerous large scale projects in Indonesia that

would benefit from Sunpower’s advanced technology and expertise. Moreover, the

company has adequate production and financial capabilities to execute those projects.

Sunpower’s entry into the Indonesian market is therefore very feasible.

5 Financial projections

Entering a new market can have significant financial impact on a company’s top line.

This section will make a rough estimate of how much revenue Sunpower may be able to

derive from entering the Indonesian market.

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2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 $-

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

Solar panel revenue (conservative) Solar panel revenue (intermediate)Solar panel revenue (optimistic)

in th

ousa

nds o

f USD

Figure 9. Estimated revenue of entering the Indonesian market from 2016 to 2025. Source:

author’s calculations.

Revenue projection Cumulative revenue from 2016 to 2025 (in thousands)

Solar panel sales (conservative) $123,302.40

Solar panel sales (intermediate) $139,900.80

Solar panel sales (optimistic) $222,642.00

Table 3. Projected cumulative revenue from entering the Indonesian market from 2016 to

2025. Source: author’s calculations.

In order to present credible revenue projections, three scenarios were calculated.12

In this projection, Sunpower’s market share is 3% from 2016 to 2019, 7% from 2020 to 2022

and 10% from 2023 to 2025. The rates were chosen arbitrarily but are believed to reflect

reality. Revenue projections for the year 2025 range from $50 million to $22 million. Table 3

12 The calculations use installed capacity projections from Figure 6. The unit price used for the calculations was $2.28 per W shipped.

21

shows the cumulative revenue for all scenarios from 2016 to 2025. The projected 2025

revenue for Indonesia represents 0.72% to 1.6% of total 2014 revenue. Considering the

potential size of the Indonesian solar market these estimates are likely to be on the

conservative side.

6 Risks and Uncertainties

Expanding operation into a new country undoubtedly presents many challenges. This

section will discuss risks and uncertainties Sunpower may face when entering the

Indonesian market. Since these risks and uncertainties were found difficult to quantify they

will be discussed in no particular order.

Indonesia’s monopolistic energy market could present an issue for Sunpower. If PLN

loses extensive market share and sees its financial performance decline it might restrict

access to the grid. At the time of writing, this is the measure some Japanese utilities

have taken to stop the spread of solar (Soble 2015).

Indonesia’s location on the Pacific ring of fire, an area with a lot of tectonic activity,

makes the region prone to natural disasters such as volcanic eruptions, earthquakes,

floods, and tsunamis (“Natural Disasters in Indonesia” n.d.).

Terrorist groups could be a threat to business in Indonesia. Jemaah Islamiyah and Darul

Islam are two of the most active terrorist groups in Indonesia. Although terrorism

appears to be directed towards police in recent years, it could cause disruption to

business (“Indonesia’s Struggle” n.d.).

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The success of solar will be highly dependent on how fast and to what extend the

Indonesian government will reduce energy tariffs. If this reduction in subsidies does not

take place, solar will have a hard time competing against artificially low energy prices.

7 Conclusion

The report has shown that Indonesia is an attractive market for Sunpower. Although

there are several risks and uncertainties surrounding an entry to Indonesia, the potential

payoff for Sunpower is big. The Indonesian solar market is in its early days and entering the

market now could lead to a market leading position for Sunpower. The author recommends

that Sunpower enter the market as soon as 2016 to benefit from low competitive rivalry.

Also, the company should enter the market via a joint venture with a local company. This

will ensure that the products are considered locally produced and avoid the regulation that

stipulates that a certain percentage of the material needs to be locally sourced. Entering a

market with such a complex geography will also provide Sunpower with experience for

future expansions with similarly complex conditions.

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8 Appendices

Appendix 1. Map of the Republic of Indonesia. Source: Wikipedia.

Appendix 2. Detailed energy portfolio of Perusahaan Listrik Negara (PLN). Source: PLN.

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National Energy Policy. Presidential Regulation No.5/2006, 2006. Web. 23 July 2015.

Henstridge, Mark, Sourovi De, and Maja Jakobsen. Growth in Indonesia: Is It Sustainable?

n.d. 01 Mar. 2013. Web. 24 July 2015.

"Indonesia - Climate." Country Studies. n.d. Web. 25 July 2015.

"Indonesia Data." World Bank, n.d. Web. 24 July 2015.

"Indonesia Energy Subsidy Review." International Institute for Sustainable Development. 01

Mar. 2014. Web. 26 July 2015.

"Indonesia: Weather & When to Go." Selective Asia. n.d. Web. 25 July 2015.

"Indonesia’s Struggle Against Terrorism." Council on Foreign Relations. n.d. Web. 26 July

2015.

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