Renewable Energy: Indonesia Accelerates the Utilization of Renewable Energy for Electricity Power Supply

Indonesia has recently issued Presidential Regulation No. 112 of 2022 on Acceleration of Renewable Energy Development for Electricity Power Supply (“PR 112/2022”), expected to attract more investors to develop renewable energy power plants in Indonesia to accelerate the utilization of renewable sources of energy for electricity power supply. PR 112/2022 stipulates the low-emission power plant construction as well as further progression on the elimination of Coal Power Plants usage as the primary source of electrical power. The new regulation is also aimed to accelerate the formation of renewable energy power plants by granting incentives to power plant providers that use renewable energy.

In this article, we provide a high-level overview of PR 112/2022, particularly the: (i) Ban on New Coal Power Plants (ii) New Tariff Regime; (iii) Procurement of Electricity Power; (iv) Incentives; (v) Transition Period; and (vi) Concluding Remarks.

Ban on New Coal Power Plants

It is important to note that PR 112/2022 bans the establishment of new coal power plants (Pembangkit Listrik Tenaga Uap Batubara or “PLTU”). However, there are a few exemptions regarding the prohibition of new PLTU:

  1. the PLTU uses coal as the added value integrated into natural resources, or it is a National Strategic Project;
  2. the PLTU is committed to reducing greenhouse gas emissions by 35% within 10 years
  3. the PLTU’s maximum operation period is up to 2050

(Article 3 paragraph (4) b. of PR 112/2022)

To support the energy source transition, the Ministry of Energy and Mineral Resource (“MEMR”) is responsible for preparing a road map for accelerating the termination of PLTU, while the Ministry of Finance (“MoF”) would provide the fiscal support including the blended finance based on the state budget and/or other legitimate sources for accelerating the energy transition.

Pricing Regime
In the previous MEMR Regulation No. 50 of 2017 on the Utilization of Renewable Energy Sources for Electricity Supply as amended by MEMR Regulation No. 4 of 2020 (“MEMR Reg. 4/2020”), the electricity supply is provisioned by the State Electricity Company (Perusahaan Listrik Negara or “PLN”) by purchasing the Principal Cost of Energy Supply (Biaya Pokok Penyediaan Pembangkitan or “BPP”).

In PR 112/2022, the purchase of electricity power of renewable power plants by PT PLN (i.e., the state-owned electricity provider) is classified into:

  1. Purchase based on Ceiling Price: This pricing model is conducted by negotiating the upper limit of the price for various types of renewable power plants. It is important to note that prices of solar power plants and wind power plants are determined by more than 60% of the ceiling purchase price. Furthermore, the purchase price of the electricity power of geothermal power plants is determined according to the upper limit of the ceiling price and it applies as the base price.
  2. Purchase based on Agreement: The electricity purchase for marine energy power plants and biofuel power plants shall be determined through an agreement between the parties. Additionally, the parties shall obtain the approval of MEMR for the purchase price, prior to the negotiation.

Kindly be informed that the payment for the purchase of electricity supply must be made in Indonesian Rupiah (IDR) according to the base rate of Jakarta Interbank Spot Dollar Rate (“JISDOR”), after the completion of the agreement.

(Article 5 – 13 of PR 112/2022)

Procurement Process
The procurement of electricity power is classified into direct appointment (penunjukan langsung) and direct selection (pemilihan langsung). See the table below for your reference:

Direct Appointment Direct Selection
1. The overall process for direct appointment is completed within no later than 90 (ninety) calendar days.
2. The direct appointment applies to:
a. Hydropower plants;
b. Geothermal power plants;
c. Capacity expansion of renewable energy power plants; and
d. Excess power of geothermal, hydro, biomass, or biogas power plants.
1. The overall process for direct selection is completed within no later than 180 (one hundred eighty) calendar days.
2. The direct selection applies to:
a. Hydropower plants;
b. Solar power plants or wind power plants;
c. Biogas or biomass power plants;
d. Hydro peaking power plants;
e. Tidal power plants; and
f.  Biofuel power plants.

The overall process shall commence since the submission of documents, the signing of Electricity Sale-and-Purchase Agreement (Perjanjian Jual Beli Listrik or “PJBL”) until the evaluations of the submitted documents. Both classifications require further evaluations of the submitted documents and other administrative, technical, and financial evaluations.

(Article 14-20 of PR 112/2022)

To accelerate the development of renewable energy, the government of Indonesia provides fiscal and non-fiscal incentives to power plant developers that utilize renewable energy.

  1. Fiscal Incentives: The Ministry of Finance is responsible for granting income tax facility; exemption from import duty and/or tax, land and building tax, geothermal development supports and/or financing facility, or state-owned enterprises (Badan Usaha Milik Negara or “BUMN”) guarantees.
  2. Non-fiscal incentives: The central and/or regional governments will grant these non-fiscal incentives to qualified power plant developers, but PR 112/2022 does not stipulate further details on the matter.

(Article 22 of PR 112/2022)

Transitional Period

All power purchase agreements made prior to the enactment of PR 112/2022 (i.e., 13 September 2022) shall remain valid until the expiry of the purchase agreements. Furthermore, all power plant developers that have obtained the approval for electricity and geothermal tariffs prior to the issuance of PR 112/2022 need to continue complying with the previous regulations.

Concluding Remarks
PR 112/2022 is aimed at boosting the development of renewable energy power plants in Indonesia. With the prohibition on new coal power plants, new pricing regimes, and incentives for renewable power plant providers, the enactment of the regulation is expected to attract more investors who are interested in green investment and other investments which would encourage renewable energy usage. However, it is remained to be seen the impact of this regulation on the future development of renewable energy, and whether the enactment of PR 112/2022 will be effective to attract business players in this area.

The article above was prepared by Marshall S. Situmorang (Partner) and Audria Putri (Senior Associate).

Disclaimer: The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances.