Author: Energy & Natural Resources Practice Group

The Republic of Indonesia has long acknowledged the importance of renewable energy, stipulated as early as of 2007 under Law No. 30 of 2007 on Energy (“Energy Law”), wherein Article 2 of Energy Law provides that the management of Energy is carried out under the principles of sustainability which include the prioritization of renewable energy. However until now there has been little detail how this is to be achieved.

Further to the above, as Indonesia is currently the country with the highest rate of energy consumption amongst the member states of the Association of Southeast Asian Nations, Indonesia has pledged to reduce its carbon emissions by 2030 under the Paris Climate Agreement. In an effort to pursue such a goal, the Government of Indonesia (“GoI”) has issued Presidential Regulation No. 112 of 2022 on the Acceleration of the Development of Renewable Energy for the Supply of Electrical Power (“PR No. 112/2022”) – which regulation officially came into effect on 13 September 2022. It comprises a total 42 (forty-two) articles., This article will briefly elaborate on the mechanism for the purchase of renewable energy-based electricity.

A. General Background of the PR No. 112/2022

As a measure to accelerate the development of renewable energy for the supply of electricity, Article No. 2 of PR No. 112/2022 provides that PT. Perusahaan Listrik Negara Persero (“PT. PLN Persero”) shall draw up the Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik – “RUPTL”) on a 10-year rolling basis. The RUPTL must bear certain focuses such as:

1. development of renewable energy must accord a mixed target-based energy under the national electricity general plan (rencana umum ketenagalistrikan nasional);

2. provide balance between supply and demand; and

3. renewable energy development economics (keekonomian pembangunan energi terbarukan).

Further to the above, the same article also mandates that in the implementation of RUPTL, PT. PLN Persero shall:

1. prioritize purchase of electricity from power plants that promote renewable energy sources;

2. operate  power plants that take advantage of renewable energy sources on a must-run basis in accordance with the characteristics of the generating source and/or the readiness of the local electricity system in the event of a low load condition;
3. adopt domestic goods in accordance with the provisions of laws and regulations; and

4. develop power plants that promote renewable energy sources.

B. Purchase of Electricity from Power Plant Wholly-Owned by a Business Entity

1. Purchase Price

Article 9 of the PR No. 112/2022 provides that the purchase price of electricity is dependent on the type of the power plant, with the purchase price either based on ceiling price or agreed price, with or without taking location factor (F) into consideration – as follows:

Further to the above, Article 6 of PR No. 112/2022 acknowledges that the purchase price of Electrical Power based on the ceiling price shall be done according to the following general requirements:

1. negotiation with the ceiling price shall be based on the maximum benchmark price as stated in the Appendix I of PR No. 112/2021;

2. without escalation during the Power Purchase Agreement (“PPA”);

3. valid as the price approval from the Minister of Energy and Mineral Resources (“MOEM”). 

Article 6 paragraph (3) of the PR No. 112/2022 also recognize that for the purchase price of Electricity based on an agreed price, such price shall be based on negotiation and shall obtain approval from the MOEM. 

Another point worth noting is that Article 13 of the PR No. 112/2022 mandates all payments of the purchase price shall be done by IDR using the rate of Jakarta Interbank Spot Dollar Rate (JISDOR) at the agreed upon time under the PPA.

2. Procurement Method

In general, the procurement method as stipulated under Article 14 to Article 16 of the PR No. 112/2022 is done through the following means:

1. direct appointment, which process includes the pre-selection of business entities, the submission of documents to the execution of the PPA – within the maximum period of 90 calendar days; or
2. direct selection, which process is done by way of offering the lowest price based on the ceiling price – within the maximum period of 180 (one hundred and eighty) calendar days.

Note that Article 14 paragraph (5) of PR No. 112/2022 provides that should there be only 1 (one) Business Entity participant following the direct appointment and re-direct appointment, the purchase of electricity shall be done through direct appointment.

C. Purchase of Electrical Power from Power Plant, Wholly or Partly Built by the GoI, Including from Grants

1. Purchase Price

Similar to the purchase price as elaborated on Section A.1 above, Article 12 of PR No. 112/2022 provides that the purchase price shall be subjected to the type of the power plant – with the purchase price based either on ceiling price or agreed price, as described in the table below:

Additionally, Article 13 of the PR No. 112/2022 mandates that payment of such a purchase price shall be done by IDR using the rate of Jakarta Interbank Spot Dollar Rate (JISDOR) at the agreed upon time under the PPA.

2. Procurement Method

Further to the above, Article 20 of the PR No. 112/2022 acknowledges that the procurement method for electricity from a power plant which is wholly or partly built by GoI (including from grants) is done through the means of assignment from MOEM to PT. PLN Persero – whereby such assignment is also valid as the direct appointment for the purchase of electricity and the price approval from the MOEM.

D. Governmental Support in accelerating the actualization of Renewable Energy Power Plants

Efforts to develop Power Plants that utilize renewable energy sources will be accommodated through GoI support in the form of fiscal and non-fiscal incentives – where such forms may vary from fiscal incentives such as income tax facilities; import facilities in the form of exemption from import duties and/or import taxes; and/or land and building tax facilities to non-fiscal incentives. Further to this, support of the GoI also comes in the form of:

1. priority for the development of power plants that utilize renewable energy sources in the national spatial planning;
2. ease of licensing both in the field of agrarian/land and spatial planning, licensing in forest areas and cost reductions;
3. ease of business licensing and investment facilities;
4. ease of permits, incentives, and guarantees of land availability for the allotment of Renewable Energy power plant development; and
5. land and building tax reliefs.

E. Conclusion

As much as the issuance of PR No. 112/2022 is an indication of GOI’s dedication in endorsing the use of renewable energy, it may take some time to see whether these brand-new provisions will be able to be realized effectively, taking into account that there are some matters that still need further regulation, such as the manner in which the fiscal and non-fiscal incentives will be provided to renewable energy-based power plants and the technicalities of the early retirement of coal-fired power plants.

Furthermore, it will also be interesting to see such provisions came into practice, especially for PT PLN Persero that currently uses coal-fired power plants, which can be seen as more cost-friendly than the planned renewable energy power plants. While PT PLN Persero is promised compensation, how will this be managed?

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