06 Oct 2022
Long-Awaited Presidential Regulation Signals Transition to Greener Energy in Indonesia

The President has finally issued a long-awaited regulation that maps out the road towards cleaner power generation in Indonesia, in line with the country’s international climate-change commitments.

The new regulation, Presidential Regulation No. 112 of 2022 on Accelerated Development of Renewable Energy for Electricity Supply (“PR 112”),i was issued and entered into force on 13 September 2022.

The key features of PR 112 may be summarized as follows:

A. Accelerated Energy Transition

1. Decommissioning Roadmap
   In coordination with the Ministry of Finance (“MOF”) and the Ministry of State Owned Enterprises (“MSOE”), the MEMR is required to prepare a roadmap to accelerate the decommissioning of CFPPs. The roadmap should, at minimum, address the following issues:

1. reduction of greenhouse gas emissions from CFPPs;

2. strategies for accelerating the decommissioning of CFPPs; and

3. ensuring policy alignment
   

2. Restrictions on New CFPPs
   The development of new CFPPs is prohibited, except for:

1. CFPPs that were identified in state power utility PLN’s Electricity Supply Business Plan (Rencana Usaha Penyediaan Tenaga Listrik / RUPTL) prior to the issuance of PR 122; or

2. CFPPs that satisfy the following requirements:

1. integration with industries that are being developed in order to increase the added value of natural resources, or which are designated as national strategic projects and which provide a major contribution to job creation and/or national economic growth;

2. Commitment given to reducing greenhouse gas emissions at the CFPP by at least 35% within 10 years from the coming on-stream of the CFPP, compared with average CFPP emissions in Indonesia in 2021. Such commitment may be realized through the application of new technology, carbon offsetting, and/or a renewable energy mix; and

3. To be operational until 2050 at the latest (in other words, they cannot operate beyond 2050).
   

3. Accelerated Decommissioning of CFPPs
   In an effort to increase the proportion of renewable energy in the electrical energy mix, PLN is required to accelerate:

   1. the decommissioning of its own CFPPs; and/or

   2. the termination of power purchase agreements (“CFPP PPA”) with independent power producers (IPP) for the supply of power by CFPPs, while taking into account power supply and demand conditions.

Should the accelerated decommissioning of CFPPs require the sourcing of replacement power, this may be done from renewable energy generators, having regard once again to power supply and demand conditions.

The accelerated decommissioning process should take into account the following criteria: (i) capacity; (ii) generator age; (iii) utilization; (iv) greenhouse gas emissions; (v) economic added value; (vi) availability of domestic and overseas financing; and (vii) availability of domestic and foreign technology.

4. Fiscal Support for Accelerated Energy Transition
   In order to accelerate the decommissioning of CFPPs and early termination of CFPP PPA contracts with IPPs, the Government may provide fiscal support through a funding and financing framework that includes blended finance sourced from the state budget and/or other sources aimed at accelerating energy transition in Indonesia.

B. Renewable Energy Purchase Price

1. Relevant provisions of PR 112
   Prior to PR 112, the ceiling price for power sourced from renewable energy generators was determined using PLN’s base electricity generating cost (biaya pokok pembangkit tenaga listrik / BPP), By contrast, PR 112 establishes two different purchase price mechanisms: the ceiling-price mechanism and the agreed price mechanism (taking into account, or not, a location factor (F), as the case may be). Agreed purchase prices are to be evaluated on an annual basis following the coming into force of PR 112 on 13 September 2022, having regard to the latest average contract price with PLN.
   
   PR 112 further provides that payments for electricity purchases by IPPs should be made in IDR at the Jakarta Interbank Spot Dollar Rate (JISDOR) at the time agreed upon in the power purchase agreement.
   
   The following table sets out the details of the power purchase price models under PR 112.
   

Note: An earlier draft of PR 112 included a feed-in-tariff pricing mechanism. However, this has been omitted from the definitive version of PR 112 as the government appears to believe that current market conditions no longer require subsidization of this kind.

The purchase price of electricity under PR 112 does not include the price for the use of transmission networks. This price is determined based on the agreement of the parties, up to a maximum of 30% of the power purchase price. An agreed price that does not exceed the 30% cap does not require a further price approval from the MEMR.

In the event that the price for the use of a transmission network amounts to more than 30% of the power purchase price, approval must be obtained from the MEMR.

C. Renewable Energy Procurement

PR 112 provides that the procurement of all forms of renewable energy should be conducted through direct selection, save in certain circumstances where the direct-appointment mechanism may be employed. The criteria and requirements for each type of procurement are as follows:

PR 112 sets out additional procurement requirements for the purchase of power by PLN where it is generated by the following types of power plant:

D. Other Provisions

1. Cooperation with the holder of IUPTLS
   As one of the purposes of PR 112 is to strengthen the power supply system, PLN may purchase excess power from holders of own-use power-supply business licenses (IUPTLS) that utilize renewable energy resources.
   
2. Government Support
   PR 122 mandates the Government to provide incentives in the form of (i) fiscal facilities (i.e. income tax facilities, exemptions from import duties and/or taxes, land and building tax facilities, support for geothermal development, support for financing facilities and/or the provision of guarantees by state-owned enterprises designated by the government); and (ii) non-fiscal facilities – these may be provided by the MEMR and by other sectoral ministries, and include the prioritization of renewable-energy power plants in the national spatial planning process, ease of licensing, and setting targets in the form of PLN performance indicators on the use of renewable energy so as to encourage PLN to source power from renewable energy power plants.
   
3. Compensation for PLN
   PR 112 provides that if a purchase of electricity from a renewable-energy power plant results in an increase in PLN’s base electricity generating cost (biaya pokok pembangkit tenaga listrik), PLN must be compensated for all additional costs incurred, within payment to be made having regard to the state's financial capacity and the provisions of laws and regulations.
   

ABNR commentary:

PR 112 solidifies the government’s expressed commitment to energy transition by incorporating a road map for the accelerated decommissioning of existing CFPPs and a prohibition on the development of new CFPPs (subject to a number of exceptions). Further, the procurement process for new renewable-energy power plants by PLN under PR 112 is simpler and more straightforward than that for other types of power plant under the prevailing regulations at ministerial level.

However, it remains to be seen if these changes will be effective in practice, given that PR 112 ties the development of new renewable-energy power plants to the financial capacity of the state, which indirectly relates to the financial capacity of PLN to purchase power from renewable energy power plants at a price that is relatively higher than the price of power from CFPPs.

By partners Mr. Emir Nurmansyah (enurmansyah@abnrlaw.com) and Ms. Serafina Muryanti (smuryanti@abnrlaw.com), and associate Ms. Adya Sepasthika (asepasthika@abnrlaw.com).

This ABNRNewsand its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.