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Renewable energy is a pressing issue in Indonesia, given its high reliance on mineral energy sources such as oil and coal to fulfill domestic energy consumption. Continuous dependency on oil and coal is harmful in the long run since it contributes to climate change and global warming. Therefore, recognizing the essence of energy to Indonesian households, ensuring a sustainable energy supply is crucial for the future of national energy development. This also stirs up the necessity for renewable energy transition following the global goal of substantially reducing net carbon emissions in the Paris Agreement.
Energy transition will require supportive policies to encourage renewable energy source, especially following the energy mix target of 23% renewable energy by 2025. Despite the ambitious goal, the government must act accordingly to execute the transition. Further, the Indonesian government’s attempt to accelerate renewable energy utilization for electrical generation is reflected through the enactment of Presidential Regulation No. 112 of 2022 on Acceleration of the Development of Renewable Energy for Electrical Generation (“PR 112/2022”). This article will highlight some of the main features of the regulation.
General Outlook
PR 112/2022 discussed a few key provisions, as follows:
Ban on Coal-Based Power Plant
Indonesia is dependent on coal for electrical generation. Across the country, numerous coal-based steam power plant (Pembangkit Listrik Tenaga Uap” or “PLTU”) is built to fulfill electricity demand. Following Indonesia’s commitment to minimize greenhouse gas emissions, the development of new PLTU in Indonesia will no longer be permitted.
PR 112/2022 excludes power plants that are a part of the Electricity Supply Plan or Rencana Usaha Penyediaan Tenaga Listrik prior to the enforcement of this PR. Further, the respective ministry is expected to design an accelerated roadmap for early termination of the existing PLTU operational period to support the clean energy transition.
Ceiling Price for Electricity Tariff
Previously, renewable energy-based electricity was formulated based on the Generation Principal Cost Scheme under PT PLN (“Biaya Pokok Penyediaan” or ”BPP PLN”). BPP PLN is based on non-renewable energy such as coal. Therefore, benchmarking the renewable energy prices on BPP PLN is detrimental, causing renewable energy to be unappealing.
Given the demands from Independent Power Producers or IPP to provide a Feed in Tariff (“FiT”) scheme, the government established a new ceiling tariff scheme. Additionally, the formula for the ceiling price changes depending on the types of renewable energy power plants and the location of the power plant. The newly introduced tariff is found to be more beneficial to IPPs, however, it does not apply to hydroelectric power plant (functioning as peaker), tidal power plant, and biofuel power plant.
Government Support
To further promote renewable energy usage, business entities are given both fiscal and non-fiscal incentives:
Through PR 112/2022, the government provides support and incentives that are exclusive for geothermal energy.
Which are provided through the central or regional government.
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Government Entities |
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Support |
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Ministry of Finance |
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Fiscal supports. |
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Ministry of Agrarian and Spatial Planning |
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Priority for the development of electrical power plants based on renewable energy in national spatial planning and ease of licensing to reduce the investment cost of renewable energy utilization. |
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Ministry of Environment and Forestry |
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Ease of forest area licensing and relief for renewable energy development costs. |
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Ministry of Public Works and Housing |
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Ease of licensing for renewable energy development costs. |
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Ministry of Home Affairs |
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Supportive policies towards renewable energy development at the regional level. |
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Ministry of State-Owned Enterprises |
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Determine targets for the utilization of renewable energy through PT PLN’s performance indicators. |
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Ministry of Industry |
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Priority for national products through: · Creating supply capacity which includes aspects of quality, cost, reasonable delivery, and encourage the industrial structure development. · Determining import quota for renewable energy components in accordance with national capacity · Verifying national components for renewable energy · Planning roadmap for the development of electricity supporting business |
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Ministry of Investment |
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Provide ease of business licensing and investment facilities to support renewable energy development in the central or regional levels. |
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Regional Government |
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Ease of licensing, incentives, as well as guarantee for land availability for renewable energy power plant. |
Transitional Provision
Power Purchase Agreement (“PPA”) signed prior to the enactment of this PR will remain enforceable until the end of the contractual terms. Whereas PPA made after PR 112/2022 will have to comply with the new policies.
Lastly, PR 112/2022 made significant changes to promote renewable energy utilization. Despite the government’s efforts, the remaining stakeholders in the industry should also take action to further implement and push renewable energy for electrical generation.
Should there be any queries related to this regulation or to find out if this affects your business or personal interest, please do not hesitate to contact us.
