Indonesia to boost the development of the Renewable Energy Sector

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On September 13, 2022, the President of the Republic of Indonesia issued the Presidential Regulation No. 112 of 2022  concerning the Acceleration of Development of Renewable Energy for Electric Power Supply (PR 112/2022). With the issuance of PR 112/2022, Indonesia aims to increase investment in the renewable energy sector, to expedite the target attainment for renewable energies in the national energy mix, as well as to reduce the greenhouse gas emission. 
  
Through PR 112/2022, the Indonesian government introduces a series of policies to induce the utilization of renewable energy sources such as geothermal, wind, bioenergy, sunlight, water flow and fall, as well as the movement and temperature difference of the ocean layer by power plant. Said policies include the simplification of the electricity procurement process, a ban on coal-fired steam power plants, new electricity pricing, as well as provisions of government support. 
  

Simplification of Electricity Procurement Process

PR 112/2022 mandates the state’s electricity company (ie. PT PLN (Persero) or PLN) to prioritize the purchase of electricity from power plants that utilize renewable energy sources (hereinafter: renewable energy power plants). 

To support this mandate, PR 112/2022 allows PLN to implement a more straightforward procurement process such as direct appointment (can be completed within 90 calendar days) and direct selection (can be completed within 180 calendar days) when purchasing electricity from renewable energy power plants. The determina-tion of whether a procurement process will be carried out by way of direct appointment or direct selection will depend on the types of the renewable energy power plants.
  

Ban on Coal-Fired Steam Power Plant

To accelerate the transition of the electricity sec-tor, PR 112/2022 instructs the Minister of Energy and Mineral Resources to formulate a roadmap for the acceleration of the cessation of the coal-fired steam power plant operational period.  
  
Further, with respect to coal-fired steam power plants, PR 112/2022 also bans any development of new coal-fired steam power plants unless it has been stipulated in the electricity supply business plan prior to the enactment of PR 112/2022, or if it meets the following requirements (accumulatively):
  • integrated with industries that are built with orientation to increase the added value of natural resources or included in national strategic projects that contribute significantly to job creation and/or national economic growth;
  • committed to reduce greenhouse gas emissions by at least 35 % within a period of 10 years since the relevant coal-fired steam power plants that commence operation compared to the average emissions of coal-fired steam power plants in Indonesia in the year of 2021 through technology development, carbon off-sets, and/or a mix of renewable energy; and
  • operates at the latest until the year 2050.
  
In addition to the above, PLN is also instructed by PR 112/2022 to accelerate the cessation of its own coal-fired steam power plant and power purchase agreement to purchase electricity from coal-fired steam power plant by taking into account the balance of the electricity supply and demand.
  

New Electricity Pricing 

PR 112/2022 introduces two pricing models for electricity purchase prices, namely the maximum benchmark price (which is subject to annual re-evaluation) and the agreed price. 
  
With respect to the maximum benchmark price, the applicable pricing to determine the electricity purchase price will depend on the types, size and location of the renewable energy power plants, as well as on the term of the relevant power purchase agreement. Note that the maximum benchmark prices under PR 112/2022 are exclusive of the price for power network facilities, which must be negotiated with PLN.
  
Under the agreed price pricing, the electricity purchase price will be determined based on direct negotiation with PLN. Once concluded, the agreed electricity price shall then be approved by the Minister of Energy and Mineral Resources.
  

Provisions of Government Support

PR 112/2022 provides that the government may grant incentives to business entities carrying out development of renewable energy power plants. The incentive can be granted in the form of fiscal (i.e. income tax facilities, import tax facilities, land and building tax facilities, geothermal development support, financing and/or guarantee facility through state-owned enterprises) and non-fiscal facilities (i.e. ease of business licens-ing, fee reduction, etc.). 
  
Whilst the implementation of PR 112/2022 remains to be seen, the enactment of this regulation indicates the seriousness of the Indonesian government to develop the renewable energy sector in Indonesia, which eventually could open numerous investment opportunities. Rödl & Partner will continue to closely monitor the situation and to provide updates on the status on a regular basis.

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