The key renewable energy regulations in Indonesia are:
- Law No. 30 of 2007 regarding Energy (“Energy Law”); and
- Law No. 30 of 2009 regarding Electricity, as amended by Government Regulation in Lieu of Law No. 2 of 2022 regarding Job Creation (“Job Creation GRL”) (“Electricity Law”).
There are also regulations for specific renewable sources that recognize the utilization of such resources as electricity. These are:
- Law No. 17 of 2019 regarding Water Resources, as amended by the Job Creation GRL; and
- Law No. 21 of 2014 regarding Geothermal, as amended by the Job Creation GRL.
In addition, the Government of Indonesia has been drafting and discussing the New and Renewable Energy Bill (“NRE Bill”) for the last three years.
Main participants in the renewable energy sector in Indonesia
- Government Authorities: The development of renewable energy in Indonesia is overseen by several institutions as follows:
- Ministry of Energy and Mineral Resources (“MEMR”): The MEMR is the main government institution in charge of policy for renewable energy.
- Ministry of Environment and Forestry (“MOEF”): The MOEF is the ministry in charge of the environmental and forestry sectors. In relation to the development of renewable energy, the MOEF is responsible for making policy for and supervising, among other things, forest utilization area permits and other relevant approvals for development in forest and other protected areas.
- Ministry of Industry (“MOI”): The MOI is the ministry in charge of industrial affairs. This includes making policy for and supervising mandated local content requirements that apply for renewable energy projects.
- Ministry of Public Works and Housing (“MPWH”): In renewable energy projects, the MPWH mainly oversees construction work policy and supervision. In addition, certain renewable energy sources, such as hydropower and floating solar power plants, fall under the authority of the MPWH.
- Ministry of Finance (“MOF”): The MOF has the authority to administer the state budget, including subsidies and other relevant fiscal incentives that apply to renewable energy projects.
- State Utility: In Indonesia, PT Perusahaan Listrik Negara (Persero) (“PLN”), the state-owned electricity company, manages electricity projects. PLN runs the electricity business from power generation and power transmission to the distribution and sale of electricity. The Government usually assigns the development of power projects to PLN, which can develop the projects on its own, assign them to its subsidiaries, or develop the projects in cooperation with Independent Power Producers (“IPPs”).
- IPPs and Contractors:
- IPPs: In power projects, private investors and/or sponsors usually establish a project company to develop the projects and sell the power to PLN or other companies (usually industrial estate tenants). IPPs are, for the most part, 100% open for foreign investment. However, for some small-scale renewable power projects, IPPs are required to cooperate with small and medium enterprises.
- Contractors: Since IPPs do not hold the required licences to perform the Engineering, Procurement and Construction (“EPC”) or Operation and Maintenance (“O&M”) work for power plants, EPC and O&M work is usually given to licensed contractors.
- Financial Institutions: Financing for renewable energy projects in Indonesia is usually provided by, among others, commercial banks, development financing institutions (such as the World Bank, Asian Development Bank, and other green financing institutions), and local infrastructure financing entities (e.g., PT Sarana Multi Infrastruktur and PT Indonesia Infrastructure Finance). Some of these financing institutions have green financing platforms for environmentally friendly projects, including renewable energy projects. According to the Institute for Essential Services Reform’s Indonesia Energy Transition Outlook 2022 report (“IETO 2022”), there are now 13 banks that have joined Indonesian sustainable finance initiatives, four of which have disbursed a total of USD200 million in financing for renewable projects.
Government’s role in the ownership and development of renewable energy
The Indonesian Constitution dictates that natural resources, including renewable energy sources such as water and geothermal, are controlled by the Government and shall be utilized to optimize the welfare of the people.
Under Indonesian Constitutional Court Decision No. 001-021-022/PUU-I/2003 (“CC Decision 001/2003”), which ruled on the constitutionality of the previous Electricity Law, electricity is also recognized as a public utility and thus falls under state control. CC Decision 001/2003 also clarified that state control can be manifested in the following forms: (i) policy making; (ii) administration; (iii) regulatory authority; (iv) management; and (v) supervision. State control over renewable energy can be seen in several related regulations and policies regarding electricity and renewable energy itself, which include certain licensing requirements for the utilization of renewable sources.
Under Government Regulation No. 79 of 2014 regarding National Energy Policy, the Government aims to have at least 23% of electricity in Indonesia come from renewable energy sources by 2025, with that figure to increase to 31% by 2050. However, there is no implementing policy to achieve these energy mix targets and energy transition, other than the ratification of the Electricity Business Plan (“RUPTL”) of PLN by the MEMR. The RUPTL of PLN is ratified annually for a 10-year period and it usually stipulates the number, location and type of power plants that PLN plans to develop. Based on the RUPTL PLN 2021–2030, PLN plans to add 10.6 GW of renewable power plants by 2025.
In addition, the Government enacted Presidential Regulation No. 112 of 2022 regarding the Acceleration of Renewable Energy Development for Electricity Generation, which also sets out a mandatory phasing out of coal-fired power plants.
Excerpted from ICLG – Renewable Energy Laws and Regulations, published by Global Legal Group Ltd, London.
Find the full Indonesia chapter from ICLG – Renewable Energy Laws and Regulations here.
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