News and developments
Long-awaited Reform of Indonesia’s Renewable Energy Sector
After several years of discussions, the Indonesian Government has finally issued Presidential Regulation No. 112 of 2022 on Accelerating Development of Renewable Power Supply (PR 112/2022).
SUMMARY OF KEY CHANGES
PR 112/2022 introduces three key reforms to Indonesia’s renewable energy sector:
These long-overdue reforms should generally be seen as a step in the right direction for Indonesia’s renewable energy industry. However, it remains to be seen whether:
NEW ELECTRICITY TARIFF REGIME
To date, the development of renewable energy projects in Indonesia has been somewhat hampered by the electricity tariff regime, which required renewable energy projects (depending on their size, location and type) to use pricing between 85 and 100 percent of the average local BPP. This BPP regime often required renewable energy projects to compete directly with the existing lower-cost fossil fuel power plants.
Maximum Benchmark Price Regime
PR 112/2022 introduces a new electricity tariff regime whereby most new renewable energy projects will have a pre-determined maximum benchmark price. The maximum benchmark price will apply to (among others) any solar, geothermal, hydro (other than peaker plants), wind, biomass or biogas power plant that is developed entirely by an Independent Power Producer (IPP).
The applicable maximum benchmark price is set out in Appendix I of PR 112/2022, and will vary depending on:
Tables containing the maximum benchmark prices and location factors (based on Appendices I and II of PR 112/2022) can be downloaded by clicking on the button below.
The maximum benchmark prices under PR 112/2022 do not include the power network facility price, which must be determined based on negotiations with PLN (the Indonesian state-owned electricity company) and must not exceed 30 percent of the relevant electricity tariff, except with approval from Indonesia’s Minister of Energy and Mineral Resources (the MEMR).
Unfortunately for developers, PR 112/2022 expressly states that, except for electricity generated from geothermal power plants, once the relevant electricity tariff has been agreed with PLN at an amount at or below the maximum benchmark price, the electricity tariff will apply without escalation for the duration of the PPA.
PR 112/2022 states that benchmark prices will be re-evaluated annually by the MEMR together with the Minister of Finance and Minister of State-owned Enterprises, taking into account the latest average PLN contract prices. While PR 112/2022 is not entirely clear on this issue, we expect that such re-evaluated prices will only apply to PPAs entered into by PLN after the change to the maximum benchmark prices, and would not apply to any PPAs executed previously.
It is important to note that the maximum benchmark prices set out in PR 112/2022 are not fixed prices but caps on the amounts payable by PLN. While we see the Indonesian Government’s move away from the previous BPP regime as a positive development, it remains to be seen whether PLN will be willing to enter into PPAs with electricity tariffs at (or near) the maximum benchmark prices.
Deal Price Regime
The maximum benchmark price regime will apply to all renewable energy power plants which are entirely developed by IPPs, except for:
which are instead subject to a “deal price” regime. Under the deal price regime, electricity prices will be negotiated directly with PLN, and will not be subject to a maximum electricity price. Once the deal price has been agreed, it must then be approved by the MEMR.
REVISED PPA PROCUREMENT FRAMEWORK
Like the previous regulatory framework, PR 112/2022 allows PLN to purchase electricity generated from renewable power plants by direct appointment or direct selection, depending on the type of power plant developed by an IPP.
Under the previous regulatory regime, direct appointments could only be used by PLN in one of the following circumstances:
The direct appointment and direct selection processes under PR 112/2022 are summarised in the accompanying table.
| Power Plant Type | Electricity Tariff | Procurement Timeline | |
| Direct Appointment | · Hydropower plant (from water reservoir/dam)
· Hydropower plant (from irrigation canals owned by the Government with multipurpose construction characteristics) · Geothermal power plant · Capacity expansion of geothermal, hydro, wind, biomass or biogas power plant · Excess power from geothermal, hydro, biomass or biogas power plant | Based on negotiation with PLN by taking into account the maximum benchmark price | 90 calendar days (from date of document submission by IPP until signing of PPA) |
| Direct Selection | · Hydro, wind, biomass or biogas power plants that are not subject to direct appointment
· Solar PV, biofuel and sea-wave power plants | Based on negotiation with PLN
Negotiations will take into account the maximum benchmark price, except where the deal price regime applies | 180 calendar days (from date of document submission by IPP until signing of PPA) |
PROHIBITION ON NEW COAL-FIRED POWER PLANTS
As has been widely reported, PR 112/2022 prohibits the development of new coal-fired power plants that were not already under construction and had not reached financial close (based on the Electricity Supply Business Plan (RUPTL) in effect prior to 13 September 2022, being the effective date of PR 112/2022). However, PR 112/2022 does allow an exemption for the development of new coal-fired power plants that:
In addition, the MEMR will be responsible for preparing a road map to accelerate termination of existing coal-fired power plant PPAs, taking into account the power supply and demand balance.
Please reach out to the authors or your usual contact at HBT if you would like to discuss how this new regulation might affect your business.
10 October 2022
By Dhani Maulana M Pattinggi, Matthew Goerke and Paskalia Deviani Ekaputri
HBT Website Link: https://www.hbtlaw.com/latest-thinking/long-awaited-reform-indonesia%E2%80%99s-renewable-energy-sector